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Sunday, July 15, 2012

how to calculate capital gains on shares?



As 31st July was nearing Mr. Sharma got little anxious. Mr. Sharma was a government employee who was very active in the capital markets.His worry was how to calculate the income from capital markets  to show the same in income tax return.
Many investors are grappled with the same problem.
Let’s see how we can tackle this daunting-looking task in strictly non-professional language-
STT (Securities Transaction Tax) was implemented since 1st October 2004 and any transactions done on a recognized exchange on or after this date ensures that STT is paid.


So, when STT is paid and shares are sold within 1 year of their purchase, STCG (Short Term Capital Gain) is applicable at the rate of 15 % (devoid of education cess) irrespective of the tax slab of the investor.

When shares are sold after 1 year of their purchase (completion of 365 days) the gain is long term and hence it is called LTCG (Long Term capital Gain).
When STT is paid on the purchase of shares LTCG becomes tax-exempt i.e.no tax is payable on it.

In simple words if one has bought shares from recognized exchanges on or after 1st October 2004, no tax is payable on the capital gain if shares are sold after one year of the purchase.

What if shares are transacted without paying STT?

This happens when shares are bought before 1st October 2004 or transacted off-market (shares directly bought and sold without carrying the transaction through a recognized stock exchange).

In that case LTCG is 10 % with indexation or 20 % without indexation (whatever is lower).

How to calculate the capital gain?

Download the following excel file and fill the requisite fields as shown in the example line and it shall show the total STCG and LTCG.

This file deals with capital gains when STT has been paid.

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