The basic reason for making a distinction between short-term capital gain and long-term capital gain is that short-term capital gain, (other than short-term capital gain in case of listed equity shares and units of equity oriented mutual fund or unit of a business trust mentioned above under section 111A), is to be taxed at the normal rates of tax like any other income, whereas,—
— long-term capital gain other than referred to in section 112A,
— long-term capital gain referred to in section 112A and
— short-term capital gain mentioned under section 111A above
are to be taxed at concessional rate.
Further, although, short-term capital gain and long-term capital gain are part of the Total income, but for purpose of computation of tax on long-term capital gain, such long-term capital gain, like short-term capital gain under section 111A mentioned above, is kept separate from the gross total income due to the following reasons:
(i) deductions permissible under Chapter VIA (i.e., sections 80C to 80U) are not allowed from long-term capital gain.
(ii) rate of tax on long-term capital gain will be a concessional rate.
Hence, the following steps should be followed for calculation of tax on total income if the
total income includes—
(a) long-term capital gains other than referred to in section 112A
(b) long-term capital gains referred to in section 112A:
- Compute the gross total income without including the above long-term capital gains.
- Allow deductions permissible u/ss 80C to 80U from such gross total income.
- Calculate the income-tax at the normal rate of tax on income arrived at in step 2.
- Compute the tax at the flat prescribed rates on—
— long-term capital gains other than referred to in section 112A (it is taxable at the special rate of 20% except in few cases).
— long-term capital gains referred to in section 112A (it is taxable @ 10% of the amount exceeding Rs. 1,00,000).
- The aggregate of the tax computed in step 3 and step 4 shall be the tax on net income.
- Add surcharge, if applicable plus H&EC on tax so computed at the rate applicable.
Situation where Total Income includes both Short-Term Capital Gain of the nature referred to in section 111A and Long-Term Capital Gain on any Asset.
Step 1: Compute the gross total income without including short-term capital gain of the nature referred to in section 111A and long-term capital gain on any asset.
Step 2: Allow deduction permissible under sections 80C to 80U from such gross total income.
Step 3: Calculate the income-tax at the normal rate of tax on income arrived at in step 2.
Step 4: Compute the tax @ 15% on such short-term capital gain and at the prescribed rate on (i) long-term capital gain other than referred to in section 112A and (ii) long-term capital gain referred to in section 112A.
Step 5: The aggregate of the tax computed in step 3 and step 4 shall be the tax on net income.
Step 6: Add surcharge if applicable + H&EC on tax so computed at the rate applicable.
Further, when the total income of the resident individual or resident HUF, as reduced by short- term capital gain covered under section 111A and any long-term capital gain is below the maximum amount which is not eligible to tax, i.e., it is less than Rs.2,50,000 (Rs. 3,00,000 / 5,00,000 in case of an individual of age of 60 years or more or 80 years or more, as the case may be, provided he does not opt to be taxed under section 115BAC), then such short-term capital gain or the long-term capital gain or both, as the case may be, shall be reduced by the amount by which such total income (exclusive of the above said two capital gains) falls short of the exemption limit, i.e., Rs.2,50,000 (3,00,000 or 5,00,000, as the case may be) and the tax on the balance short-term capital or the long-term capital gain shall be computed @ 15% or 20% or 10%, as the case may be.
Section 111A is applicable only when the assessee holds the equity share/units of equity oriented fund or a business trust as capital asset and not as stock-in-trade. In other words, he should be an investor. If he holds shares as stock-in-trade, the profit arising for the transfer of such assets shall be ‘treated as business income. Hence, onus shall be on the assessee to establish that these shares were held as investment and not as stock-in-trade.
Rate of Tax on Long-Term Capital Gain under Section 112 (other than referred to in section 112A) in certain Cases
|(a)||In case of a non-resident (not being a company) or a foreign company:|
|(i) from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which public are substantially interested||10% computed without giving effect to the first and second proviso to section 48|
|(ii) from the transfer of a capital asset other than mentioned in (i) above||20%|
(1) First proviso relates to computation of capital gain in case of transfer of shares/debentures by non-residents.
(2) Second proviso relates to indexation of cost.
|(b)||Tax on long-term capital gains from listed securities (other than a unit) and Zero-Coupon Bonds||It shall be minimum of the following 2 amounts:
1. Tax @ 20% on long-term capital gains computed after indexation of cost of such listed securities (including shares), or bonds—
2. Tax @ 10% on long-term capital gains computed without indexation
|(c)||In case of long-term capital gain covered by sections 115AB, 115AC and 115E||10%|