Capital Gain on Equity Shares & Mutual Funds

Capital Gain on Equity Shares & Mutual Funds

1. What is section 111A in capital gain & what are the benefits of it?
2. What are the equity oriented mutual funds for the purpose of falling in section 111A of capital gain?
3. For which assets holding period of more than 12 months is considered as long term for capital gain calculation?
4. What is the difference in taxation of equity & debt mutual funds?
5. Which capital gain is exempt u/s 10(33) of Income Tax Act?
6. Which capital gain is exempt u/s 10(38)?

1. What is section 111A in capital gain & what are the benefits of it?

As per Section 111A,

• A concessional rate of 15% would be applied on short term capital gain on some specified assets as given below.
• Long term capital gain is exempt upto 1 lac and 10% on long term capital gain above 1 lac on some specified assets as given below.

The provisions of section 111A on capital gain applies to following assets specified assets:-

• Equity shares or units of equity oriented mutual funds or units of business trust provided the transfer of such shares or securities are done through a recognised stock exchange and such transactions are subject to STT (securities transaction tax).

Or

• Securities for which consideration is paid or payable in foreign currency, and such transaction is through a recognised stock exchange in any international financial service centre. In this case section 111A would apply without paying STT (Securities Transaction Tax).

         Also to note that the period of holding is 12 months or less are considered as short term capital asset in case of specified assets on which 

        section 111A applies.

       And vice versa as per section 111A covered assets are considered long term capital assets if they are hold for more than 12 months period.

2. What are the equity oriented mutual funds for the purpose of falling in section 111A of capital gain?

Equity oriented mutual funds to get the benefit of lower STCG / LTCG rates under Section 111A of income tax should be as per following conditions: -

1. 1. It should be a mutual fund as specified u/s 10(23D)
   2. Its 65% of its investible funds, out of total proceeds are invested in equity shares of an Indian Company.

3. For which assets holding period of more than 12 months is considered as long term for capital gain calculation?

Following assets are considered as long term capital assets if they are hold for more than 12 months:-

• • Equity shares or preference shares of an Indian Company listed on recognised stock exchange.
  • Debentures, bonds, govt or other securities listed on a stock exchange in India.
  • Zero coupon bonds, whether quoted or not
  • Units of equity oriented mutual funds whether quoted or not
  • Units of unit trust of India, whether quoted or not.

4. What is the difference in taxation of equity & debt mutual funds?

Following are the differences of taxation between equity mutual funds & debt mutual funds:

1. 1. Equity mutual funds are treated as long term capital asset if these are hold for more than 12 months but debt mutual funds are treated as long term capital asset if these are hold for more than 36 months.

1. 2. In case of short term capital gain on equity funds, the tax rate is concessional at 15%, because it falls in section 111A, While in case of short term capital gain on debt mutual funds, the tax rate would be the slab rate applicable to the assessee.

1. 3. In case of long term capital gain in equity funds, the income tax is exempt if gain is upto 1 lac. And tax rate is 10% if gain is more than 1 lacs.

1. 4. In case of short term capital gain on equity funds. No deduction u/s 80C to 80U would be available, but in case of short term gain with debt funds we can avail all the deductions u/s 80C to 80U.

1. 5. In case of short term gain with equity funds, basic exemption limit is available but after setting off the other taxable income & balance is chargeable @15%. But in case of debt funds, basic exemption limit is available at par with other incomes.

 5. Which capital gain is exempt u/s 10(33) of Income Tax Act?

Under section 10(33) of Income tax Act, Long term or short term capital gain arising on transfer of units of UTI ( Unit trust of India) under unit scheme 1964 is exempt from tax.

6. Which capital gain is exempt u/s 10(38)?

Under section 10(38) of the Income Tax Act, Any long term capital gain arising from the transfer of equity shares or equity oriented mutual funds or units of business trust, which are subject to STT (Securities transaction tax) is fully exempt from tax.

But w.e.f AY 2019-20 this exemption has been withdrawn and only long term capital gain on above is exempt upto 1 lac, thereafter it is taxable @ 10% without indexation.