Share Market Taxation: Tax Implications On Gains And Losses

Share market taxation refers to the taxes imposed on the buying and selling of shares.

The participants in the share market are:

• Retail Investor: An individual who invest in the share for personal financial goals.

• Institutional Investors: Entities such as mutual funds, insurance companies who invest large sum of money on behalf of their clients.

• Stockbrokers: Authorized intermediaries who execute trade on behalf of their clients.

• Regulatory Bodies: Organizations like the Securities and Exchange Commission that regulate the stock market to ensure fair and transparent practices.

When investors sell shares, the resulting profit or loss is treated as capital gain. Depending on the holding period, it may classify as either Short Term Capital Gain or Long Term Capital Gain.

Types of Gains

Short term capital gain or Loss

Short term capital gain or Loss occurs when an assessee sold shares within 12 months from the date of acquisition.

Long-term capital gain or Loss

Long-term capital gain or Loss occurs when an assessee hold shares for a period of more than 12 months from the date of acquisition.

Analysis of STCG and LTCG

Asset Type	Period of Holding STCG	Period of Holding LTCG
Listed equity shares	Less than 12 months	More than 12 months
Unlisted shares	Less than 24 months	More than 24 months
Immovable property (Land & Building)	Less than 24 months	More than 24 months
Equity Mutual funds	Less than 12 months	More than 12 months
Debt mutual funds	Less than 36 months	More than 36 months

Tax Rate on Shares

Grandfathering Provision

The grandfathering provision refers to a special rule which was introduced in the Indian Income Tax in relation to the taxation of capital gains on the sale of shares or equity-oriented fund units (EOMF) that are subject to Securities Transaction Tax (STT).

Prior to 1st April 2018, in case of LTCG, when shares or EOMF were held for more than 12 months, were exempted from tax. STCG on such securities are taxed at a rate on 15%.

The Finance Act, 2018, proposed changes to this provision. It suggested the withdrawal of the exemption on LTCG and introduction of a concessional tax rate 10% on LTCG from the sale of equity shares and EOMP effective April 1, 2018.

To address the taxation of gains accrued before the new provision came into effect, a grandfathering provision was introduced. According to this provision, for the transfers of shares or EOMF made until 31st January 2018, the cost of acquisition would be determined as the higher of the following:

The actual cost of the acquisition of the assets, or

The lower of the following:

• The fair market value of the shares as of 31st Jan 2018, or
• The actual sales consideration received upon transfer.

In simple term, grandfathering provision aims to provide relief to taxpayer who held shares or EOMF before the new tax regime was implemented in April 2018.

Loss Set Off Concept

• Short term capital Loss (STCL) can be set off against Short term capital gain (STCG) and long term capital gain (LTCG).

• Long term capital Loss (LTCL) can only be set off against long term capital gain (LTCG).

• Intraday Loss against Intraday profit.

• Future and Option can be set off against any income except salary.

Click here to know about Return for Non-Business Taxpayers with Multiple Incomes

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