Adjust your Capital Gains against Basic exemption to reduce your Tax Liability

 

Adjust your Capital Gains against Basic exemption to reduce  your Tax Liability 

Two types of capital gains are there :

1. Short Term Capital Gains (STCG)

2. Long Term Capital Gains (LTCG)

 

1. Short Term Capital Gains :

             a.) Gains arising out of sale of Equity Oriented MF or Shares held for less than 12 months.

             b.) Gains arising out of sale of any other capital assets held for less than 24 months ( in some assets 36 months)

 

2. Long Term Capital Gains :

         a.) Gains arising out of sale of Equity Oriented MF or Shares held for more than 12 months

b.) Gains arising out of sale of any other capital assets held for more than 24 months ( in some assets 36 months)

 

Tax Treatment:

 

1. STCG Tax Treatment

 

a. Special STCG - covered U/S 111(A) : Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which are sold  through a recognised stock exchange .

Tax of such gains are charged @15% + 4% cess

 Please note that Debt Oriented Mutual Funds , Preference shares etc are not covered U/S 111A

 b. Normal STCG : All STCG not covered U/S 111A is normal STCG : Taxation as per slab rate

 For STCG covered U/S 111A If income is less than 250000 , one can club  STCG income to make it Rs. 250000 and pay 15% tax on balance STCG

however no rebate will be allowed U/S 80C to 80U in such cases.

  

For STCG not covered U/S 111A (normal STCG) clubbing is not allowed If income is less than 250000 , but one can claim rebate U/S 80 to 80U

 

Examples :

My Salary/Pension income is Rs 2 Lakh and STCG (covered U/S 111A) is Rs.50000 . what will be my Tax.

 

Total Income :           2,00,000

STCG income  :           50,000 (clubbed to make it 2.50L)

Total        :                 2,50,000

Less Basic Exemption : (Tax free Income) , Rs 250000

Tax will be nil

  

My Salary/Pension income is Nil  and STCG (covered U/S 111A) is Rs. 250000 . what will be my Tax.

 

Salary Income :               0.00

STCG income  :        2,50,000 (clubbed with salary income to make it Rs. 2.5L)

Total        :                  2,50,000

Less Basic Exemption : (Tax free Income) , Rs 250000

Tax will be nil

 

 

My Salary/Pension income is 240000  and STCG (covered U/S 111A) is Rs. 50000 . I have also invested 1.50 L in PPF .what will be my Tax.what will be my Tax.

 

Salary Income :  2,40,000

STCG income  :     50,000 (clubbed only Rs. 10000)

Total        :           2,90,000

Exemption in PPF will not be allowed as gain is covered U/S 111A

 Less Basic Exemption : (Tax free Income) , Rs 250000

 Balance income (salary Nil, STCG Rs. 40000, ( as Rs.10000 adjusted to make it Rs. 2.5L)

Tax will be (40000*15%)=Rs. 6000 plus 4% cess (since salary income is within tax free range , no tax on salary income)

 

My Salary/Pension income is Rs. 6 lakh  and STCG (covered U/S 111A) is 50000 . what will be my Tax.

 

Salary Income :  6,50,000

STCG income  :     50,000 (not clubbed as salary income is already >2.5L)

Total        :           7,00,000

 Balance income   Rs. 450000 (4 lakh salary & 50k STCG)

Salary Tax :Rs.7500 ,  STCG Tax (50000*15%)=Rs. 7500, Total Tax = Rs.15000 plus 4% cess

  

b. Normal STCG : All STCG not covered U/S 111A is normal STCG : Taxation as per slab rate

My Salary/Pension income is 240000  and STCG (not covered U/S 111A) is Rs. 50000 . I have also invested 1.50 L in PPF .what will be my Tax.

 

Salary Income :  2,40,000

STCG income  :     50,000 (can't be clubbed , but have to add in total income)

Total        :           2,90,000

 Less

PPF (80C)           1.50,000

Rebate in PPF allowed as gain as not covered U/S 111A

Taxable Income   1,40,000

 

Tax Nil

My Salary/Pension income is Rs. 6 lakh  and STCG (not covered U/S 111A) is 50000 . I invested Rs.1,50,000 in PPF , 25,000 in health Insurance  what will be my Tax.

 

Salary Income :  6,50,000

STCG income  :     50,000

Total        :           7,00,000

 

less U/s 80c        1,50,000

     U/S 80CCD       20,000

Total Rebate       1,70,000

Taxable Income : 5,30,000

Tax : Rs 18500 + 4% Cess

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…… Next  Treatment of  LTCG

Is it beneficial to sale shares on listing date to reap listing gains ??

 Is it beneficial to sale shares on listing date to reap listing gains ??

 

Not always …take this real life example

 

You applied for and were allotted (on July 15 2021) , 13 lots of shares of Clean Science Technology  Each lot contains 16 shares and price band of Rs. 900 per share.

 

So your total shares are 16 x 13 = 208 shares and

Total Investment is Rs. 900 x 208 = Rs. 187200

 

Now on Listing day  (July 19) share price was listed @ Rs. 1785 per share and you sold all shares on listing day . so your sale Value is Rs. 1785 x 208 shares = Rs. 371280

 

Your Gain = Rs. 371280-187200= Rs. 184080

 

Since you held the shares for less than 12 months , such gains will be treated as Short Term Gains (STCG) and will be Taxed @15% +4% cess ,  so total tax = Rs. 28716 and your net gain = Rs. 184080-28716=Rs. 155363

 

Gain per share = Rs. 155363/208 =Rs. 747

 

Now suppose you will sell  the shares on  16^th July 2022 (more than 12 months) and on that day share price will be  same Rs. 1785 per shares .

 

so your gain is  same  Rs. 184080

 

But  since   you have held the shares for more than 12 months gain will be treated as Long Term gain (LTCG) and in LTCG gain upto  1 lakh is not taxable and above it is taxable @10%+4%(cess) , so total tax will be Rs. 8744 only and net gain =175336

 

So gain per share =Rs. 175336/208=Rs. 843

 

Plus you may also get dividend . Even if dividend is assumed as Rs. 10 per share your dividend will be Rs. 10*208= Rs. 2080

 

So it is not always beneficial to sale the shares on listing day   .

Capital gain tax on sale of Zomato IPO shares

 

Capital gain tax on sale of Zomato IPO shares or any  IPO allotment:

 

Do you bid for IPO allotment and  after allottment do you sale shares on listing day ( or subsequent days) to reap listing gain ??

Such profit or gain reaped on listing day (or any day sold before 12 months) is termed as Short Term Capital Gain (STCG) and will be taxed @15% on full gain (irrespective of your Tax slab )

Let us take real life example , Bid price of Zomato was Rs. 76 per share and on listing day (or any day before 12 months)  you sold it for Rs. 125 per share. Your Profit is Rs. 49 Per share . suppose you incurred Re 1 as transaction charge in sale so your net profit is Rs. 48 Per share . Lot size of Zomato was 195 and you were allotted 1 lot only . If you sold full 1 lot your net profit is Rs. 48*195=Rs. 9360 . So your Tax liability will be Rs. 9360*.15%=Rs 1404 plus 4% cess. (irrespective of your Tax slab )    

Now Let us understand what is Capital Gain (on share, MF ) in detail :

 

There can be two types of gain’s: (i) long term or (ii) short term.

Since the shares are going to be listed on stock exchange hence, if the shareholder sell such shares on the recognised stock exchange, such shares will be considered as long term asset if they are held for more than one year and will be considered as short term if they are held for a period less than 1 year.

The taxability of such shares will be calculated based on section “111A for short term gain” and “112A for long term gain” wherein tax rate of short term gain is 15% of the gain and for long term gain the tax rate is 10% of the gain amount.

Looking at the current scenario we know that many people sell their shares on the listing day itself to earn the listing premium and hence the gain earned by such transaction will be considered as short term capital gain as the assessee held shares for less than one year period and hence he/ she shall be liable to pay tax at the rate of 15% on such gain under section 111A of the Income tax Act.

 

However if the shareholder holds the share for more than one year from the date of listing as the specialty chemical sector is likely to see boom in next year then he or she shall be liable to pay tax at the rate of 10% on the gain amount under section 112A of the Income tax Act.

Further, for long term capital gain no tax needs to be paid on the initial Rs. 1 lakh gain u/s 112A of the Income tax Act and no benefit of indexation will be available in case of long term gain since the shares are listed and sold on recognized stock exchange.

 

In case of long term capital gain one can claim exemption u/s 54F by investing the entire sale consideration in a new residential house and if the conditions mentioned under section 54F are fulfilled, other than section 54F there are no other way to save capital gain tax.

 

Also, the tax rates mentioned above are just base rates and surcharge and cess will also be added (currently 4%)accordingly on such tax rates.

 

Please Note that above rule is for Shares and MF  listed in Stock Exchanges only

For sale of Land, House , Jewellery . unlisted share long term Capital gain is only if you hold them for more than 24/36 months and benefit of Indexation will be available.

 

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