Capital Gains Taxes in Equity transactions.
- Short term capital gains tax: If the holding period
of the stock is less than 12 months - then the gains attract a tax rate of 15%.
·
Long
term capital gains tax: If the holding period of the stock is more than 12
months - then the gains do not attract
any tax (this might change after 2012 March).
Look at this example to
understand it better:
Miss. Vijetha has purchased
shares of company A and B on April 11, 2010 for a total price of `1,00,000
each. As on February 20, 2011, value of her investments is as follows:
In stock A, Miss. Vijetha has
profit of `30,000
and in stock B, Miss. Vijetha has a loss of `50,000.
Now she has the following 4 options to choose from taxation perspective:
Scenario
|
Outcome
|
|
Scenario 1
|
She can hold both stocks for
more than 12 months (either expecting good profit or to get exempt from
capital gains tax)
|
No long term capital gains
tax
|
Scenario 2
|
She can book profit in stock
A and hold stock B which is in loss
|
On the profit position in
stock A she pays short term capital gains tax of 15%
|
Scenario 3
|
She can sell stock A - book
profits
and Sell stock B - book losses |
Profit of `30,000 in stock A - Loss of `50,000 in stock B = Net Loss of `20,00. This loss can be carried forward for next
8 financial years. Short term capital gain tax is NIL since she is
in loss.
|
Scenario 4
|
Hold stock A for more than
12 months and
Book losses in stock B |
No long term capital gains
tax in stock A and short term capital loss of ` 50,000. This loss of `50,000 can be carried forward for next
8 financial years.
|
Take a look at all the stocks
you have purchased & sold in a financial year and calculate the capital
gains/loss incurred.
