Category: Salary

Tax on Short-Term and Long-Term Capital Gains

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Tax on Short term capital Gains (STCG) – Section 111A

Short Term Capital AssetRate of Tax
Any STCG  arising from transfer of equity shares or units of equity oriented fund on which Securities Transaction Tax(STT) has been paid 15%
Any STCG  arising from a transaction undertaken in foreign currency on a Recognized stock exchange located in an IFSC even though on which Securities Transaction Tax(STT) has been not paid 15%

Note: STCG arising on transfer of other Short Term Capital Assets would be charged at Normal Rates of Tax.

Tax on Long term Capital Gains (LTCG) – Section 112

Long Term Capital Asset Rate of tax
Unlisted securities, or shares of a closely held company Non-corporate non-resident/ foreign company – 10% without the benefit of indexation and currency fluctuation
Other Assessees – 20%, with indexation benefit
Listed securities other than a unit) or a zero- coupon bond – 10%, without the benefit of indexation or
– 20%, availing the benefit of indexation whichever is  more beneficial to the assessee
Other Assets – 20%

Tax on Long term Capital Gains on certain assets – Section 112A

Long Term Capital AssetRate of Tax
Any LTCG exceeding Rs.100000 arising on transfer equity shares or units of equity oriented fund on which STT has been paid at the time of acquisition of such shares   10%
Any LTCG exceeding Rs.100000 arising from a transaction undertaken in foreign currency on a recognized stock exchange located in an IFSC even though on which STT has been not paid   10%

Note :

  • In case of a resident individual or a Hindu Undivided Family (HUF), the long-term capital gain taxable u/s 112 or 112A or short-term capital gain taxable u/s 111A shall be reduced by the unexhausted basic exemption limit and the balance shall be subject to tax.
  • No deduction under Chapter VI-A can be claimed in respect of such long-term capital gain chargeable to tax u/s 112 or u/s 112A or short-term capital gain chargeable to tax u/s 111A.
  • Rebate u/s 87A is not available in respect of tax payable @10% on Long-term Capital Gains u/s 112A.

Types of Capital Assets

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1. Short term capital asset:

An asset which is held for a period of 36 months or less is a short-term capital asset. The criteria of 36 months have been reduced to 24 months in the case of Unlisted Shares, immovable property being land, building, and house property, from FY 2017-18.

However, following assets held for not more than 12 months shall be treated as short-term capital assets:

  • Equity or preference shares in a company which are listed in any recognized stock exchange in India;
  • Other listed securities;
  • Units of UTI;
  • Units of equity oriented funds; or
  • Zero Coupon Bonds.

2. Long term capital asset:

Capital Asset that is held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset.

Summary of the period of holding:

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1. Deemed Ownership [Section 27]

As per Section 27 there are some persons who are not the legal owners of a property but still deemed to be the owners. Following Persons are Deemed Owners of House Property:

  • An individual who transfers House Property to his/her Spouse : If an individual transfers any House Property to his or her spouse otherwise than for adequate consideration and it is not related to an agreement to live apart, the transferor in that case is deemed to be the owner of the House Property transferred.
  • An Individual who transfers House Property to his/her Minor Child : If an individual transfers any House Property to his/her minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the House Property transferred. However where transfer is to a minor married daughter then transferor shall not be treated as the deemed owner of the House Property.
  • Holder of an Impartible Estate : The term Impartible Estate means the Property which is not legally divisible. The holder of Impartible estate will be treated as the owner.
  • Member of a Co-Operative Society : A member of a co-operative society, AOP, to whom a building or part thereof is allotted or leased under a House Property scheme of such society/AOP shall be deemed to be the owner of that building or part thereof although the co-operative society/AOP is legal owner of that building.
  • Person in Possession of Property : A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of the Property Act shall be deemed owner of that Building or Part thereof. This would cover cases where:
    • Possession of property has been handed over to the buyer.
    • Sales consideration has been paid or promised to be paid to the seller by the buyer.
    • Sale deed has not been executed in favour of the buyer.
    • The buyer would be deemed to be the owner of the property although it is not registered in his own name.
  • Person having right in a Property for a period not less than 12 years : A person who acquires any right in or with respect to any building by way of lease for a period not less than 12 years shall be deemed to be the owner of that building or part thereof.

2. Special provision for arrears of rent and unrealised rent received subsequently [Section 25A]

The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year.

A Deduction of @ 30% of arrears of rent or unrealised rent, realised subsequently by the assessee.

3. Composite Rent

When other assets (like furniture) or charges for different services provided in the building (e.g. charges for security, lift, air-conditioning etc.), the total amount so received is called ‘composite rent‘.
The owner of the building gets the above mentioned income along with the rent of the building, rent or hire of.

Tax Treatment of Composite Rent:

When composite rent consists of rent for building and rent hire for other assets (like furniture, television etc.) and the two rents are inseparable i.e. the other party will not accept the letting of one without the other, then such income is taxable as business income or ‘Income from other sources’, as the case may be.

When composite rent consists of rent for building and rent hire for other assets (like furniture, television etc.) and the two rents are separable i.e. letting out of one is acceptable to the other party without letting out of the other, then the portion of rent attributable to the building should be assessed as ‘income from house property’ and the other portion attributable to services/amenities should be assessed as ‘income from other sources’ or ‘Profits and gains of business or profession’, as the case may be. 

Meaning and Chargeability

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A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. All types of properties are taxed under the head ‘Income from house property’ in the ITR.

1. Self-Occupied House Property

A self-occupied house property is used for one’s own residential purposes. This house may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as self-occupied for the purpose of Income Tax.

If more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

2. Let Out House Property

A house property which is rented for the whole or a part of the year is considered a let out house property for income tax purposes

Conditions for chargeability of income under house property [Section 22]

  1. Property should consist of any building or land appurtenant thereto.
    • Building Includes – Residential Buildings, factory Buildings, offices, shops, go-downs and other commercial premises.
    • Land appurtenant Means land connected with the building e.g. garden, garage etc.
  2. Assessee must be the owner of the property
    • Owner is the person entitled to receive income from house property.
    • Ownership includes deemed Ownership.
    • He must be the owner of the house property during the previous year.
  3. Use of property
    • The Property may be used for any purpose but should not be used for Business/ Profession carried by the owner.
    • The income earned by an assessee engaged in the business of letting out of property on rent would be taxable as business income.
  4. Property held as stock in trade
    • Annual Value of house property which is held as Stock-in-trade of business will be charged under the head “Income from house property”

Meaning and Definitions

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What is meant by Capital Gains ?

Capital Gains means, any profits arising from the transfer of Capital Asset affected in the previous year will be chargeable to income tax under the head ‘Capital Gains’. A capital gain may be short-term or long-term.

Defining Capital Assets:

As per section 2(14), a Capital Asset means –     

  1. Property of any kind held by an assessee, whether or not connected with his business or profession;
  2. Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the SEBI regulations.

However, it does not include the following:

  1. Any stock, consumables or raw material, held for the purpose of business or profession
  2. Personal goods such as clothes and furniture held for personal use
  3. Agricultural land in rural India
  4. 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government
  5. Special bearer bonds (1991)
  6. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015.

Note:

  1. However, jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art are not treated as personal effects and, hence, are included in the definition of capital assets.
  2. ‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
  3. Rural Agriculture Land means not being land situate –
    • agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than 10,000 or
    • agricultural land situated in any area within such distance, measured aerially, in relation to the range of population as shown hereunder –
  Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item Population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.
(i) ≤ 2 kilometers > 10,000 ≤ 1,00,000
(ii) ≤ 6 kilometers > 1,00,000 ≤ 10,00,000
(iii) ≤ 8 kilometers > 10,00,000