Section 111A is a provision in Indian tax law that deals with taxation of Short Term Capital Gains. This section outlines how the gains you make from selling certain assets in a short period are taxed. Let’s break it down into easy terms.
What is Short-Term Capital Gain?
Capital gains are the profits you make from selling an asset like stocks, bonds, or real estate. So, if you sell an asset within a short period after buying it, the profit you make is termed as “short-term capital gains.” This short period for stocks and equity mutual funds, is one year or less.
Tax Rate Under Section 111A
Short-term capital gains from selling equity shares, units of equity-oriented mutual funds, or other specified securities are taxed at a concessional rate of 15%. This rate is lower than the regular income tax rates, which can be beneficial if you have short-term gains.
Example:
Suppose, you bought 100 shares of Company XYZ at ₹50 each. After six months, you sold these shares at ₹70 each.
- Calculate STCG:
- Purchase Price: 100 shares × ₹50 = ₹5,000
- Sale Price: 100 shares × ₹70 = ₹7,000
- STCG: ₹7,000 – ₹5,000 = ₹2,000
- Tax Calculation:
- Rate: 15%
- Tax on Gain: ₹2,000 × 15% = ₹300
Hence, your short-term capital gain is ₹2,000, and the tax you need to pay on this gain is ₹300.
Key Points to Remember:
- Applicability: This is applicable to gains from the sale of listed shares, equity-oriented mutual funds, and derivatives, only if these transactions are done through a recognized stock exchange.
- Holding Period: For an asset to qualify as short-term, it must be held for less than one year.
- Tax Filing: Ensure that these gains are correctly reported in your income tax return, to benefit from lower tax rates.
Conclusion:
In Conclusion, This Section of the Income Tax Act simplifies the taxation of short-term capital gains from equity investments by providing a reduced tax rate. This provision is designed to encourage investment in the stock market and mutual funds by offering tax relief on profits earned from such investments. Understanding this section can help you better manage your tax liabilities and make thus more informed investment decisions.
– Ketaki Dandekar (Team Arthology)