I am a senior citizen and my husband, who is also a senior citizen, has invested in stock markets. He has Rs 5 lakh in short-term capital gains from listed shares and earned interest of about Rs 2 lakh. After deducting Rs 1.50 lakh under Section 80C under the Old Tax Regime, his taxable income is estimated to be around Rs 5.50 lakh. How capital gains tax will be calculated for the sale of listed shares?
The Section 80C benefit applies only to normal income, which amounts to Rs 2 lakh for senior citizens. Short-term capital gains on listed shares do not qualify for Section 80C benefits. As a result, the normal income is reduced to Rs 50,000. Since there is a shortfall of Rs 2.50 lakh against the basic exemption limit of Rs 3 lakh for senior citizens, this shortfall will be offset against taxable short-term capital gains. The remaining short-term capital gains of Rs 2.50 lakh will be subject to a flat tax rate of either 20% or 15%, depending on whether the gains were earned before or on/after July 23, 2024, assuming you are a resident under the income tax laws.
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The tax benefit provided by Section 80C is exclusively applicable in the Old Tax Regime. No specific strategies can be employed to lessen or avoid this tax. However, any short-term losses incurred during the remaining part of the year can be offset against short-term capital gains.
Any other short-term gains or losses from alternate sources are considered regular income, and the benefit of section 80C can be utilized against such short-term capital gains. It is important to note that non-residents do not have the benefit of offsetting the shortfall in the basic exemption limit. Therefore, they are required to pay the full tax rate of 20% or 15% on 5 lakh of short-term capital gains from listed shares.
Budget 2024 and Capital gains taxes on shares
Capital gains refer to profits generated from capital assets such as investment properties, shares, homes, cars, bonds, stocks, and collectibles. These gains encompass nearly all of your possessions and are recorded at the time of depreciation in the Income Tax Return (ITR).
When selling equity shares listed on a stock exchange within 12 months of acquiring them, individuals may experience either a short-term capital gain (STCG on shares) or a short-term capital loss. Section 111A of the Income Tax Act, 1961 imposes a 15% tax rate on short-term capital gains from listed equity shares, excluding surcharge + cess. A slab rate will be applicable for other short-term assets.
Compared to long-term capital gains on shares, short-term gains receive preferential tax treatment. Long-term capital gains arise from the sale of shares or assets held for more than 12 months at the time of sale. This gain is calculated as the difference between the sale price and purchase prices of assets held.
The formula for long-term capital gain is determined by subtracting the purchase price from the sale price of assets held for over a year. Essentially, this figure reflects the overall profit gained by the investor through the asset sale.