Tax on short-term and long-term capital gains is computed as follows –
| Long-term capital gain (if securities transaction tax is not applicable) |
Taxable under section 112 |
Long-term capital gain (if securities transaction tax is applicable) |
Taxable under section 112A, if a few conditions specified therein are satisfied. If these conditions are not satisfied, such gain will be taxable under section 112. |
Short-term capital gain (if securities transaction tax is not applicable) |
Taxable like any other income |
Short-term capital gain (if securities transaction tax is applicable) |
Taxable under section 111A |
1. Tax on Long-Term Capital Gain –
Long-term capital gain is taxable at a flat rate of 20% [+ SC + HEC].
However, in some cases the Tax Rate is 10% [+ SC + HEC].
(A) Deductions Under Sections 80C To 80U Are Not Available –
Deductions under sections 80C to 80U are not available in respect of long-term capital gain.
(B) Exemption Limit In Some Cases [Proviso to Section 112(1)(a)] –
Long-term capital gain is taxable at the rate of 20% (in some cases 10%). The entire amount is taxable at these rates (no exemption limit). However, in the case of a resident individual/HUF, the benefit of exemption limit† is available, if taxable income (minus long-term capital gain) is less than exemption limit. In such a case, the following shall be deducted from the long-term capital gain –
| Exemption limit — (Net income or taxable income—Long-term capital gain) |
After deducting the aforesaid amount, the balance amount of long-term capital gain is chargeable to tax at the rate of 20% or 10% [+ SC + HEC].
10% TAX RATE IN SOME CASES –
Long-term capital gain in the hands of non-residents under section 115AB, 115AC, 115AD or 115E is taxable at the rate of 10 % [+ SC + HEC].
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Long-term capital gain in the hands of a non-resident/foreign company is taxable at the rate of 10 % [+ SC + HEC], if such gain arises on transfer of unlisted securities or unlisted shares in a company in which the public are not substantially interested. However, this rule is applicable only if the indexation benefit is not claimed and capital gain is calculated without giving effect to the first proviso to section 48 (under this proviso capital gain is calculated in foreign currency if a few conditions are satisfied).
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Moreover, in the case of any taxpayer if listed securities (i.e., shares, bonds, debentures, Government securities) or zero coupon bonds are transferred and the taxpayer does not avail the benefit of indexation, he can pay tax at the rate of 10 % [+ SC + HEC]. In other words, in the case of these securities, etc., the taxpayer has an option. He can pay tax at the rate of 20 % [+ SC + HEC], if indexation benefit is claimed or at the rate of 10 % [+ SC + HEC], if indexation benefit is not taken. In the case of debentures, indexation benefit is not otherwise available. Consequently, if debentures (long-term) are listed, one should opt for 10 % rate. In the case of transfer of bonus shares, cost of acquisition is generally zero. One should opt for 10 % rate if bonus shares are long-term capital assets and are listed.
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