Long term & short term capital gain
This query is : Resolved
22 January 2014
Is NRI'S have the Benefit/Disadvantage of LTCG & STCG of listed Companies shares?????
22 January 2014
Hi
Pl refer: http://www.nritaxservices.com/tax_cptl.htm
Thx
Pl refer: http://www.nritaxservices.com/tax_cptl.htm
Thx
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22 January 2014
is there any advantage or disadvantage U/S 112 ?
03 August 2024
Section 112 of the Income Tax Act, 1961, deals with the taxation of long-term capital gains (LTCG) arising from the transfer of assets such as shares, securities, and property. This section provides for the computation and taxation of LTCG at a concessional rate. Let’s examine the advantages and disadvantages of this section.
### **Advantages of Section 112**
1. **Concessional Tax Rate**:
- **For Shares and Securities**: The LTCG on listed shares or securities (including units of mutual funds) is taxed at a lower rate of 10% without indexation benefits, or 20% with indexation benefits.
- **For Other Assets**: LTCG on other assets like immovable property is taxed at 20% with indexation benefits.
2. **Indexation Benefits**:
- If you choose to apply indexation, the cost of acquisition is adjusted for inflation using the Cost Inflation Index (CII), which helps in reducing the taxable capital gain. This benefit applies to assets other than listed shares and securities.
3. **Exemption Options**:
- You can claim exemptions under sections 54, 54EC, 54F, etc., to reduce or eliminate the LTCG. Section 54 allows exemptions for reinvestment in residential property, Section 54EC for investment in specified bonds, and Section 54F for investment in a new residential property if other conditions are met.
4. **No Impact of STT on LTCG Tax**:
- For LTCG on listed shares and securities, which are subject to Securities Transaction Tax (STT), the capital gains are not subject to further taxation if the STT is paid.
### **Disadvantages of Section 112**
1. **Limitations on Exemptions**:
- Exemptions under sections like 54 and 54F are subject to specific conditions and time limits. Failure to comply with these conditions can result in the LTCG becoming taxable.
2. **No Indexation for Listed Shares**:
- While you can benefit from indexation for other assets, listed shares and securities allow only a concessional rate of 10% without indexation. This may not always be advantageous if your purchase price is significantly lower than the current value.
3. **High Rate for Other Assets**:
- While the 20% tax rate with indexation is relatively lower than the normal income tax slab rates, it is still a substantial amount, especially if the gains are significant.
4. **Complicated Documentation for Exemptions**:
- Claiming exemptions under sections like 54 or 54EC requires thorough documentation and adherence to the specific requirements, which can be complex and burdensome.
### **Application and Strategy**
- **For Listed Shares/Securities**: If you have held listed shares for more than a year, you will benefit from a 10% tax rate without indexation, which is often lower than the normal income tax slab rates.
- **For Other Assets**: For properties and other assets, the 20% tax with indexation is advantageous compared to the normal slab rates, especially if inflation has significantly increased the cost of acquisition.
- **Exemptions**: Utilize the exemptions available under sections 54, 54F, or 54EC effectively to manage your tax liabilities.
**Recommendation**: Given the complexities involved in capital gains tax, especially with respect to exemptions and choosing the right tax rates, it is advisable to consult with a tax professional or financial advisor. They can provide personalized advice based on your specific situation and ensure compliance with tax regulations while optimizing your tax liability.
### **Advantages of Section 112**
1. **Concessional Tax Rate**:
- **For Shares and Securities**: The LTCG on listed shares or securities (including units of mutual funds) is taxed at a lower rate of 10% without indexation benefits, or 20% with indexation benefits.
- **For Other Assets**: LTCG on other assets like immovable property is taxed at 20% with indexation benefits.
2. **Indexation Benefits**:
- If you choose to apply indexation, the cost of acquisition is adjusted for inflation using the Cost Inflation Index (CII), which helps in reducing the taxable capital gain. This benefit applies to assets other than listed shares and securities.
3. **Exemption Options**:
- You can claim exemptions under sections 54, 54EC, 54F, etc., to reduce or eliminate the LTCG. Section 54 allows exemptions for reinvestment in residential property, Section 54EC for investment in specified bonds, and Section 54F for investment in a new residential property if other conditions are met.
4. **No Impact of STT on LTCG Tax**:
- For LTCG on listed shares and securities, which are subject to Securities Transaction Tax (STT), the capital gains are not subject to further taxation if the STT is paid.
### **Disadvantages of Section 112**
1. **Limitations on Exemptions**:
- Exemptions under sections like 54 and 54F are subject to specific conditions and time limits. Failure to comply with these conditions can result in the LTCG becoming taxable.
2. **No Indexation for Listed Shares**:
- While you can benefit from indexation for other assets, listed shares and securities allow only a concessional rate of 10% without indexation. This may not always be advantageous if your purchase price is significantly lower than the current value.
3. **High Rate for Other Assets**:
- While the 20% tax rate with indexation is relatively lower than the normal income tax slab rates, it is still a substantial amount, especially if the gains are significant.
4. **Complicated Documentation for Exemptions**:
- Claiming exemptions under sections like 54 or 54EC requires thorough documentation and adherence to the specific requirements, which can be complex and burdensome.
### **Application and Strategy**
- **For Listed Shares/Securities**: If you have held listed shares for more than a year, you will benefit from a 10% tax rate without indexation, which is often lower than the normal income tax slab rates.
- **For Other Assets**: For properties and other assets, the 20% tax with indexation is advantageous compared to the normal slab rates, especially if inflation has significantly increased the cost of acquisition.
- **Exemptions**: Utilize the exemptions available under sections 54, 54F, or 54EC effectively to manage your tax liabilities.
**Recommendation**: Given the complexities involved in capital gains tax, especially with respect to exemptions and choosing the right tax rates, it is advisable to consult with a tax professional or financial advisor. They can provide personalized advice based on your specific situation and ensure compliance with tax regulations while optimizing your tax liability.
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