Tax Planning – Capital gain tax perspective

Many investors started dealing in the security market in the financial year 2020-21 due to lockdown. They must have dealt with short term, long term, intraday & F&O transactions through the year. There was a rapid increase in the customer base of broker and trading volume too. We are in the month of March, Hence, it is extremely important to know the tax implication on stock market transactions..

Existing provisions of Income Tax Act

Tax Rate provided under Income Tax Act

•  Short term capital gain (Section 111A) – If Investor is holding shares listed on a recognised stock exchange for less than 12 months then a tax rate of 15% is applicable.
• Long term capital gain (Section 112A) – If Investor is holding shares listed on a recognised stock exchange for more than 12 months then a tax rate of 10% (above one lakh only) is applicable. 

Set off provision under Income Tax Act

Two types of losses arise at the time of capital transaction i.e Short term capital loss and Long term capital loss. Relevant provisions relating to set off of losses which are described below:

• Short term loss can be set off against short term capital gain and long term capital gain
• Long term loss can be set off against long term capital gain only

Carry forward of Loss

Relevant provisions related to carry forward of short term loss and long term loss under Income Tax Act

• Short term loss and long term capital loss can be carried forward for next eight assessment years
• Short term loss can be set off against short term and long term capital gain in any subsequent year and long term capital loss can be set off against long term capital gain in any subsequent years

Due Date of filing Income tax return 

Note: Kindly Consider that short term loss and long term loss can only be carried forward if one has filed income tax return within the prescribed due date. Therefore, it is crucial to file the Income tax return within the due date.