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Taxation on Sale of Shares and Securities

The rise and fall of capital gains play a vital role on the taxation on the sale of shares and securities. How? Simple, if there is a rise in the capital gains and you don't sell your shares then you will incur a loss. Similarly, if there is a fall in your capital gains and you sell your shares then you will incur a loss. Now that you have got a gist of the matter, let us first know about Capital Gains and how they affect shares and securities.

What is Capital Gains Tax?


Capital gains are taxable. An investor - individual or company - has to pay capital gains tax only if the asset is being sold. If you hold an asset with appreciating value but do not sell it, you do not have to pay capital gains tax. Capital gains tax is applicable to any asset that rises in value over time whether they are stocks and shares or a real estate property such as house, land, or commercial space. However, it is not applicable to consumable goods such as food materials or drinks and movable property such as clothes, jewelry, or artworks.


Short-Term Capital Gains


As per the Income Tax laws of India, if an investor holds an immovable asset for less than 36 months before selling it (amended to 24 Months for Financial Year 2017-18), it would be considered as a short-term capital gain. But this is not applicable to stocks and bonds. Stocks, shares, and bonds are faster-moving compared to real estate. Because of this, if they are held for 12 months or less before the sale, they fall under short-term capital gains. However, this rule is applicable only to securities which are listed and traded on the stock exchange. If you are trading in unlisted or over-the-counter securities, then the 24-month rule applies.


Long-Term Capital Gains



Income Tax laws in India specify that immovable property held for more than 36 months - or 3 years - before the sale, fall under long-term capital gains, (amended to 24 months for the financial year 2017-18). For stocks, shares, and bonds, this period is more than 12 months instead of 24 months. Unlisted securities, on the other hand, will be considered as long-term capital gains only if sold after 24 months.


How to Calculate Capital Gains on Shares

Short-term capital gains can be computed by subtracting the following items from the total value of sale:

  1. Brokerage or expenditure incurred in connection with the sale of the asset

  2. Purchase price of the asset


Calculating the long-term capital gains is a little more complicated. The items you need to subtract from the total sales value are:


  1. Brokerage or expenditure incurred in connection with the sale of the asset

  2. Indexed purchase price of the asset


So, now you know all about the taxation on the sale of shares and securities. If you are seeking help regarding taxation on the sale of shares and securities in Bangalore, then contact us.