Should I pay tax on my short-term capital gains of Rs. 95,000?

Ans: Good morning Prakash,

Based on the information you've provided, your friend has Short Term Capital Gains (STCG) from shares amounting to Rs 95,000 and dividend income of Rs 12,000.

As per the tax rules in India for the financial year 2023, STCG from shares are taxed at a rate of 15%. However, if the total taxable income, including STCG, is less than the basic exemption limit (which is Rs 2.5 lakhs for individuals below 60 years), then no tax is payable.

In your friend's case, the total income (STCG + Dividend) is Rs 1,07,000 which is below the basic exemption limit. Therefore, he doesn't need to pay any tax on this income.

Regarding the dividend income, as of the financial year 2023, dividend income up to Rs 10 lakhs is exempt from tax. So, your friend doesn't need to pay any tax on the dividend income of Rs 12,000.

However, even if there is no tax payable, it is advisable to file an income tax return if the total income exceeds the basic exemption limit. In your friend's case, since the total income is below the exemption limit, he is not mandatorily required to file a return. But he may choose to do so for record-keeping purposes.

Please note that this is a general advice and the tax liability may vary based on individual circumstances. It's always a good idea to consult with a tax advisor for personalized advice.

I hope this helps!

Ans: When you sell shares and make a profit, the tax implications depend on the holding period and the type of capital gain—long-term or short-term. Here's how the tax will be calculated based on your Rs 40,000 profit:

1. Determine the Holding Period:
Short-Term Capital Gains (STCG): If the shares were held for less than 12 months before selling, the profit is considered short-term.
Long-Term Capital Gains (LTCG): If the shares were held for more than 12 months, the profit is considered long-term.
2. Tax on Short-Term Capital Gains (STCG):
Tax Rate: STCG on the sale of shares is taxed at 20% plus applicable surcharge and cess.

Your Situation: If your Rs 40,000 profit is short-term, it will be taxed at 20%.

Example Calculation:

Tax on STCG = 20% of Rs 40,000 = Rs 8,000
Add surcharge and cess as applicable to arrive at the final tax payable.
3. Tax on Long-Term Capital Gains (LTCG):
Exemption Limit: The first Rs 1.25 lakh of LTCG in a financial year is tax-free.

New Rule (12.5% on gains above Rs 1.25 lakh): If your total LTCG exceeds Rs 1.25 lakh, the amount above Rs 1.25 lakh will be taxed at 12.5%.

Your Situation:

If your Rs 40,000 profit is long-term and your total LTCG for the year is within Rs 1.25 lakh, no tax will be due on this profit.
If your total LTCG exceeds Rs 1.25 lakh, then the amount above Rs 1.25 lakh will be taxed at 12.5%.
4. Filing Tax Returns:
Include the Gains: You need to declare these capital gains when filing your income tax return.
Pay the Tax: Ensure that you pay any applicable tax before filing your return to avoid penalties.
Final Insights:
Whether your Rs 40,000 profit is short-term or long-term, understanding the holding period and applying the correct tax rate is essential. If your gains fall under LTCG and your total gains for the year exceed Rs 1.25 lakh, be prepared to pay the 12.5% tax on the excess amount.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in