Taxation Of Income From Shares For FY 23-24

Introduction

As we all know nowadays stock trading & investments are increasing rapidly & it is important to know about the taxability of these transactions. As Under Income Tax Act 1961 every income comprises its own head for the taxation purpose like, Income from Rent taxable under Income from House Property & business income taxable under Profit & gains from Business & profession like wise the Gain or loss from the transaction of shares are taxable under CAPITAL GAINS. 

Gains from Shares

Two types of gains can be arisen from such transactions & each of them has different treatment under the said head 

1. Short Term Capital Gain 
2. Long Term Capital Gain

Such bifurcation has been made on the basis of Holding period i.e. the duration for which the investment is held, starting from the date of acquisition till the date of sale or transfer. 

Let’s understand how it will be taxed :

Taxation of Short-term capital gains from Equity Shares

Tax on Short term Capital gains in respect of equity shares are taxable under section 111A of income tax act @ 15%.

In the case of resident individuals or HUF, if the Basic Exemption is not fully exhausted by any other income, then such short-term capital gain will be reduced by the un-exhausted limit & only balance will be taxed. However, Deduction under chapter VI can not be availed against such Short-term capital gains. 

Computation of taxable income will be as under:

Let’s Understand with an example 

Mr. X has acquired 1000 shares for Rs.900 per share on which STT has paid & stock has listed on recognized stock exchange on 01/05/2023 

He sold the said shares on 31/10/2023 for Rs. 1300 per share on which brokerage has been paid @1% 

Solution:

Computation of Capital Gain for the FY:23.24

Taxation of Long-term capital gains from Equity Shares

Long term capital gains arising from sell of equity shares are taxable under section 112A of income tax act @10% on the amount exceeding Rs. 1,00,000

In the case of resident individuals or HUF, if the Basic Exemption is not fully exhausted by any other income, then such short-term capital gain will be reduced by the unexhausted limit & only balance will be taxed. However, Deduction under chapter VI cannot be availed against such Short-term capital gains. 

However, Rebate under section 87A is not available in respect of tax payable @10% on LTCG under section 112A

Before the introduction of Budget 2018, the long-term capital gain made on the sale of equity shares or equity-oriented units of mutual funds was exempt from tax, i.e. no tax was payable on gains from the sale of long-term equity investments but from the 1st Feb 2018 CBDT took away this exemption & by inserting new provisions under said section long term capital gains are made taxable  

So, question arise how can we calculate cost of acquisition before 31st January 2018?

The cost of Acquisition for the long term capital asset acquired on or before 31/03/2018 will be the actual cost However, if the actual cost is less than the fair market value of such asset as on 31/03/2018 then the Fair Market value will be deemed to be the cost of acquisition 

Further if Net consideration on transfer is less than the Fair market value, then such net consideration or the actual cost whichever is higher will be deemed to be the cost of acquisition.

Step 1:  Fair market value as on 31/03/2018 or Net Consideration (Whichever is Less)

Step 2: Step 1 or Actual Cost of Acquisition (Whichever is higher)

Outcome of step 2 will be your cost of acquisition for the computation 

Computation of taxable income will be as under:

Let’s take an example to understand the same :

Illustration:

Mr. X has acquired 1000 shares on 1st January 2017 at Rs. 100 

FMV on 31/03/2018 is Rs. 200

Sold on 1st April 2023 for Rs. 250

Solution:

Computation of Capital Gain for the FY 23.24

**Cost of acquisition 
Step 1: FMV on 31/03/18 i.e. Rs.200 or Net consideration i.e Rs. 250 (Whichever is less)
Step 2: Step 1 i.e. Rs.200 or Actual cost i.e. 100 (Whichever is Higher)
Cost of acquisition will be Rs.200

Taxation of Unlisted Shares 

However, in the case of the sale of unlisted shares for which no formal market exists for trading, the department has given its view. Income arising from the transfer of unlisted shares would be taxed under the head ‘Capital Gain’, irrespective of the holding period, to avoid disputes/litigation and maintain a uniform approach (as per CBDT circular Folio No.225/12/2016/ITA.1I dated the 2nd of May, 2016).