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"Income Tax Rates On Long-Term And Short-Term Capital Gains"

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].

  • 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).

  • 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.

Related Topics....Under the head 'Capital Gain'

Capital Assets, Capital Gain & Transfer of Capital Assets for Taxation of 'Capital Gain'
Types of Capital Assets for Computing ‘Capital Gain’
Computation Of ‘Period Of Holding of an Asset' for Computing Gapital Gain [Explanation 1(i) to Section 2(42A)]
Transfer Of A Capital Asset [Section 2(47)] for Computing Capital Gain
Transactions Not regarded as ‘Transfer’ for Computing Capital Gain [Section 46 and 47]
Method of Computing Capital Gain [Section 48]
Deemed Cost of Acquisition of Asset for Computing Capital Gain
[Section 55(2)] : Cost of Acquisiton of Assets for Computation of Capital Gain
Capital Gains Accounts Scheme, 1988.
Types of Capital Gain
Tax on Long-Term Capital Gain in certain Cases (Section 112A)
Exemption of Capital Gains under Section 10 and 115JG

Exemption of Capital Gains under Sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GB anf 54H

(Section 54) : Exemption of Capital Gains from the Transfer of Residential House Property
(Section 54B) : Exemption of Capital Gain on Transfer of Land used for Agricultural Purposes
(Section 54D) : Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking
(Section-54EC) : Exemption of Capital Gain on Transfer of any Long Term Capital Asset on the basis of Investment in certain Bonds
(Section 54EE) : Capital Gain not to be charged on Investment in Units of a Specified Fund
[Section 54F] : Exemption of Capital Gain on Transfer Of Long-Term Capital Assets other than a House Property
[Section 54G] : Capital Gain on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas :
[Section 54GA] : Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ)
(Section 54GB) : Exemption of Long term Capital Gain Tax on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company :
(Section 54H) : Extension of time limit for acquiring new Asset or Depositing or Investing amount of Capital Gain, in case of Compulsory Acquisition :

Capital Gain in various Special Cases - How to Find Out or Calculate

  1. Capital Gain from Zero Coupon Bonds

  2. Capital Gain in case of amount Received from an Insurer on account of Damage or Destruction of any Capital Asset [Section 45(1A)]:

  3. Capital Gain in the case of Transfer of Depreciable Assets [Section 50] -

  4. Capital Gain on Conversion of Capital Asset into Stock-in-Trade [Section 45(2)]-

  5. Capital Gain on Transfer of Capital Asset by a Partner/Memeber to a Firm/AOP/BOI as Capital contribution [Section 45(3)]-

  6. Capital Gain on Distribution of Capital Assets by a Firm, AOP/BOI to Partners at the time of Dissolution [Section 45(4)]-

  7. Capital Gain on Compulsory Acquisition of a Capital Asset [Section 45(5)]-

  8. Computation of Capital Gains in case of Joint Development Agreement [Section 45(5A)] [W.e.f. A.Y. 2018-19]

  9. Capital Gain on Conversion of Debentures / Bonds into Shares [Section 47(x), 49(2A) and rule 8AA] :

  10. Capital Gain on Transfer of Shares / Debentures in the hands of Non-Residents (Proviso 1 to Section 48 and Rule 115A) :

  11. Capital Gain on Transfer of Self-Generated Capital Assets :

  12. Capital Gain on Transfer of Bonus Shares -

  13. Capital Gain on Transfer of Right Entitlement -

  14. Capital Gain on Transfer of Securities in Demat Form -

  15. Capital Gains on Distribution of Assets by Companies in Liquidation [Section 46]:

  16. Computation of Capital Gains in the case of Transfer of Land and Building or in Real Estate Transactions [Section 50C] -

  17. Capital Gains on Purchase by Company of its Own Shares or Other Specified Securities [Section 46A]:

  18. Capital Gain on Sale of Land and Building to be computed separately in case of Building Constructed by the Assessee:

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