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Query on Capital gain tax

Dhanalakshmi T Devaraj (Service) (30 Points)

18 January 2008

Hi,

I am an individual investor and I have a few doubts in regard to computation of Capital Gains. Does Brokerage, Service tax and STT incurred in connection with transfer (Buy/sell) of Equity shares traded in NSE/BSE through DELIVERY become part of cost of acquisition?

Whether STT can be treated as advance tax and adjusted against Short term capital gain?

If the shares are bought in one FY and sold in subsequent/other FY, Whether the expenses like Brokerage, Service tax and STT incurred while Buying be included in investment or be charged to capital a/c (or Expenditure A/c) in the FY in which shares are bought?

Lakshmi

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S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 19 January 2008

STT: Section 40 of the income-tax act has been amended to provide that payment made on account of securities transaction tax (STT) shall not be allowed as a deduction while computing the income from business or profession. Section 48 has been amended to provide that no deduction would be allowed in computing capital gains (whether LT or ST) in respect of any STT paid. A new section 88 e has been inserted in the income-tax act, 1961 to provide for a rebate from tax in respect of payments made on account of STT. That is where the total income of an assessee in a previous year includes any income, chargeable under the head "profit and gains of business or profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year. If the income is not from Business or profession, this deduction is not available. Sub-section (2) of the said new section 88 e mentions that for the purposes of sub-section (1), the amount of income-tax on the income arising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income-tax on tax income. The amount of deduction under this sub-section shall not exceed the amount of income-tax on such income computed in the manner provided in sub-section (2). No deduction under this sub-section shall be allowed unless the assessee furnishes alongwith the return of income evidence of payment of securities transaction tax in the prescribed form. Brokerage and service tax thereon, if they are directly incurred, then yes.