Capital Gains on Equity !

When does Tax liability arise ?
1. When you Sell shares, you attract capital gain tax based on period of your holding. A share if sold within 1 Year of buying will be taxed as Short Term Capital Gain. If you sell a share after holding it for more than 1 year, it will be treated as Long Term Capital Gain.

2. Short Term capital gain is taxable @15% while Long Term Capital Gain on Sale of Shares is Tax free !

3. You are liable to pay tax on Net Short term Capital Gains. This means that If you have earned Rs. 5000 on trading in Company “X” and booked a loss of Rs. 3000 on sales of shares of company “Y” (both should qualify as short term capital transaction), then your tax liability would be calculated on Rs. 2000 i.e., 15% of Rs. 2000. In other words, Short term capital gain can be offset by Short Term Capital Loss. However , you cannot offset a Short Term Capital Gain with Long Term Capital Loss. capital gain

4. You can claim cost of acquiring shares such as Brokerage charges, Demat charges while calculating capital gains.

Tax Planning Tips
1. Whenever you plan to sell a share, make sure to look at period of your holding. If you are earning profit on a transaction, you may decide to wait for few more days to convert a short term capital gain to a long term capital gain and enjoy tax free earnings.

2. At the end of financial year, say in the month of March, take a look at all your holdings and see positions where you can book short term capital loss to offset short term capital gain that you have earned during the year. This way you would reduce your capital gain tax liability for the year. You can again take a position the stock on 1st April. This way you have saved paying tax on your capital gains for the year and still holding shares you have sold to book losses and hence offset the gain. This involves incurring transaction cost on buying and selling the shares and hence keep this in your mind while calculating your net gains.