Income tax on shares and securities in India

Income tax on shares

Income tax on shares: Generally, Transaction involving the transfer of Capital Assets will attract Capital Gains if any profit or loss is realized by an assessee. Such Income or Loss is chargeable under the head of Capital Gains for investors in the previous year in which transactions took place.

Shares and Securities are treated as Capital Assets if trading of such assets is not a mainline business.

Shares : Shares are issued by the company to raise the Capital Employed. Both listed and unlisted companies issue shares. It is of two types, Equity Share and Preference Share.

Securities : The company issues various types of other types of instruments to raise Capital Employed in the company. Securities cover Debentures, Deposits, Bonds, etc.

Read Also: Capital Gain Income Tax in India – Short Term, Long Term

Period of Holding (POH) : Period of Holding is important as it determines whether the Capital Gain is Long Term (LTCG) or Short Term (STCG).

Listed SharesPOH less than 12 monthsPOH more than 12 months
Unlisted SharesPOH less than 24 monthsPOH more than 24 months
Listed securities other than sharesPOH less than 12 monthsPOH more than 12 months
Unlisted Securities other than sharesPOH less than 36 monthsPOH more than 36 months

For the topic of Capital Gains regarding Shares and Securities, the Income Tax Act,1961 states different provisions for different Class of Shares and Securities.

Read Also: 8 High return Tax Saving Investment schemes

Class I : Listed Shares

Class II :

  • Unlisted Shares
  • Listed Securities other than shares
  • Unlisted Securities other than shares

Tax Provisions-

Class Iu/s 111A. @15%u/s 112A @10% on amount exceeding one lakh rupees  
Class IINormal Sections of Short Term. Normal Tax rates.u/s 112 @20%

In this article, we will cover Class I as Class II is treated the same as other capital assets. You can read the Class II taxation provisions at Income Tax Rules on Capital Gains

Previously, before 2018, any type of long-term capital gain from the listed equity share used to be TAX-FREE. But in the year 2018, Late Finance Minister Arun Jaitley introduced Section 112A to tax such transactions vide budget 2018.

Read Also: 15 Reasons you may get Income Tax Notice

Income tax on shares under Section 111A

Short Term Gains arising from trading of listed equity share are taxable @15%. An assessee must pay Security Transaction Tax (STT) on the sale of such share. It is Special Income, no deductions allowed, but Deficiency and Rebate u/s87A is allowed.

Calculation of Income tax

The only tax rate is different butthe method to calculates Short term capital gain doesn’t change.

Full Value of Consideration (FVC)  XXXX
Less: Expenses incurred(XXXX)
Net Value of Consideration  XXXX
Less: Cost of Acquisition(XXXX)
Less: Cost of Improvement(XXXX)
Gross Short-term Capital Gains  XXXX
Less: Exemption u/s 54B/54D(XXXX)
Taxable Short -Term Capital Gains  XXXX

Read Also: Income Tax Rate For AY- 2020-2021/ FY- 2019-2020

Taxation on shares under Section 112A

Long Term Gains arising from trading of listed equity share are exempt up to Rs. 1,00,000 and the amount exceeding Rs. 1,00,000 is taxable @10%.

Example- Taxable amount u/s 112A is Rs. 4,50,000 so only Rs. 3,50,000 is taxed @10%

An assessee must pay Security Transaction Tax on the sale of such share. It is Special Income, no deductions allowed, Deficiencyis allowed, but Rebate u/s87A is not Allowed.

Calculation of Tax

ParticularAmount (Rs.)
Full Value ConsiderationXXXX
Less: Selling Expenses(XXXX)
Less: Cost of Acquisition of listed Shares (INDEXATION IS NOT ALLOWED) (Special Rule if acquired before 1st Feb 2018) *(XXXX)

*Special Rules for listed equity share if acquired before 1st Feb 2018

Cost of acquisition will be higher of the two amounts-

  • Actual Cost of Acquisition
  • LOWER of
    • Full Value Consideration
    • Fair Market Value on 31st Jan 2018.

Lets understand this with example

CasesActual Cost of AcquisitionFull Value Consideration (A)FMV on 31st Jan 2018Cost of acquisition (B)Taxable Amount (A)-(B)

For any questions, you may reach us at Discussion Forum


The author of the above article is Aditya Kishore.

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