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Short term capital gains on liquid/mutual fund

Shweta (Student CS Professional) (126 Points)

18 October 2016

Ok I am giving 2 scenarios and would like some clarification regarding the same.

Scenario 1: My income comes under not taxable category after 80c deductions. Now I have invested in liquid funds. Having earned some short term capital gains which even after adding to total income is not taxable. Now I only need to pay advance tax 15% on the short term gain earned from the liquid fund. Which will be refundable when I file returns?

Scenario 2: My net taxable income comes under 10% tax bracket after 80c deductions. I have invested in liquid funds. Having earned some short term capital gains which after adding to total income is taxable. So now I pay 10% tax on this income + pay advance tax 15% on the short term capital gain= 25% total tax on the income from liquid fund, am I correct?

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2 Replies

Amit Kumar Baid (TDS/EPF/Service Tax Consultant) (36 Points)
Replied 18 October 2016

I would like to draw your attention towards section 111A of Income Tax Act, 1961. Section 111A covers Short Term Capital Gains arising from (i) sale of equity shares listed in a recognised stock exchange, which is chargeable to STT, (ii) sale of units of equity oriented mutual fund sold through a recognised stock exchange which is chargeable to STT, (iii) sale of units of a business trust and (iv) sale of equity shares, units of equity oriented mutual fund or units of a business trust through are cognised stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if transaction of sale is not chargeable to securities transaction tax (STT). Short Term Capital Gains covered under Section 111A is charged to tax @ 15% (plus surcharge and cess as applicable).

Since you are holding Liquid Fund the same is not covered under Section 111A you are covered under Normal Short Term Capital Gain which is is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer. Hence in both cases you will be charged at Normal Slab rate of tax which is '0' in Scenario 1 and 10% in Scenerio 2

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CA VIRAL SANGHVI (Finance head) (681 Points)
Replied 19 October 2016

I am agree with Mr.Amitkumar

The other thing I want to write is advance tax is applicable if your expected tax liablity woulld become more than Rs.10,000.So if your tax liability is less than Rs.10,000 than no advance tax would be payable.