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Indexation Explained and more about Taxation for Investors

  1. Share Markets and Taxations
    1. Share Market and Taxations Introduction
    2. Income Tax for Beginners Basic Concepts
    3. What is capital gains Long-Term and Short-Term How to Classify Your Income Correctly
    4. Business income Speculative and Non speculative
    5. share trading as business income Advantages and Disadvantages
    6. Indexation Explained and more about Taxation for Investors
    7. What is Indexation?
    8. Short term capital gain and days of holding explained
    9. Advance Tax Short and long term capital losses
    10. tax on share trading in india
    11. Carry forward business loss
    12. BTST Buy Today Sell Tomorrow and Tax-Loss Harvesting
    13. Balance Sheet and P&L Statements: Managing Trading Income as a Business
    14. Tax audit Scrip Wise and Trade Wise
    15. Section 44AD Audit Requirements: Understanding Balance Sheets, P&L Statements, and Books of Accounts
    16. How To File Income Tax Returns
    17. Income tax return FAQ Attachments, Due Dates, and Revisions
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Marketopedia / Share Markets and Taxations / Indexation Explained and more about Taxation for Investors

Long term capital gain (LTCG)

When engaging in stock investments, intraday equity or stock trades involve buying and selling shares within the same day, while delivery-based transactions involve purchasing a stock and holding it until it is delivered to your DEMAT account before selling it.

Profits from equity delivery-based trades or mutual funds can be classified as capital gains, which can be further categorised into:

 

  • Long-term capital gain (LTCG): This refers to equity delivery-based investments where the holding period exceeds 1 year.
  • Short-term capital gain (STCG): This pertains to equity delivery-based investments where the holding period is less than 1 year.

The taxation on long-term capital gains for equity stocks and mutual funds is outlined below.

 

For stocks/equity – 0% for first Rs 1lk and @10% exceeding Rs 1lk

The tax rate outlined above applies to transactions conducted on authorised exchanges with Security Transaction Tax (STT) paid. Furthermore, Long Term Capital Gains (LTCG) are those assets held for more than one year.

In the case of off-market transactions, where shares are transferred from one person to another through a delivery instruction booklet and not through a recognized exchange with STT paid, the LTCG will be 20%, irrespective of whether it is non-listed or listed stock. Bear in mind that while not having to pay Security Transaction Tax (STT) can be advantageous, you may end up having to pay higher capital gains tax.

It is imperative that a present from family members through DIS have no implications of capital gains. Defined relatives for such a gifting are: 

(i) Individual’s partner 

(ii) Sibling of the individual 

(iii) Partner’s sibling 

(iv) Parent’s sibling of either individual or their partner 

(v) Direct ancestor or descendant of the individual or their mate 

(vi) Partner of any person specified in sections (ii)-(v).

For equity mutual funds (MF) – 0% for first Rs 1lk and @10% exceeding Rs 1lk 

Equity delivery trades and investments in equity-orientated mutual funds that are held for more than 1 year, enjoy tax exemption up to Rs 1lk per annum as they are classified under LTCG. For a mutual fund to qualify as equity-oriented, the investible funds should be invested into at least 65% of shares or equities of local companies.

For non-equity oriented/Debt MF – flat 20% on the gain with indexation benefit

Union budget 2014 brought in a considerable variation to non-equity mutual funds. Where equity-based funds required one year of investment, non-equity/debt funds must be held for a minimum of three years to be classified as long-term capital gains. If the fund is sold prior to the completion of three years, any profits will constitute as short term capital gains.

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