Capital gains tax
Now with the financial year 2011-2012 coming to close, some of us naturally want to know the tax implications on your transactions in capital gains tax this year. This article is intended to enable a clear understanding on the capital gains tax and how it is computed. So here we bring some glimpses of capital gain tax for you.
Now with the financial year 2011-2012 coming to close, some of us naturally want to know the tax implications on your transactions in capital gains tax this year. This article is intended to enable a clear understanding on the capital gains tax and how it is computed. So here we bring some glimpses of capital gain tax for you.
What is capital gains tax?
Capital gain tax is the tax on the gains and losses of transactions in securities.
There are broadly two types of capital gains tax in security transactions.
· Short term capital gains tax:
If the holding period of the stock is less than 12 months then the gains attract a tax rate of 15%
· Long term capital gains tax:
If the holding period of the stock is more than 12 months then the gain do not attract any tax.
If the holding period of the stock is more than 12 months then the gain do not attract any tax.
Take an example which will explain the capital gains taxes in details
Mr. A has purchased securities X and Y on April 18, 2011 for a total price of Rs. 2,00,000/- each. As on March 31, 2012, value of his investments is as follows
Securities | Purchase Value As on 18.04.2011 | Current stock value As on 31.03.2012 | ||||||
Stock X | 200000 | 230000 | ||||||
Stock Y | 200000 | 160000 | ||||||
Mr. A can do the following 1. Book profit of Rs.30000/ or hold in case of stock X
2. Book loss of Rs. 40000/ or hold in case of stock Y
In stock X, Mr. A has profit of Rs. 30000/ and in stock Y, Mr. A has a loss of Rs. 40000/. Now he has the following 4 options to choose from taxation perspective.
Scenario | Outcome | |
1 | He can hold both stocks for more than 12 months in anticipation of price appreciation | No Long term capital gains |
2 | He can book profit in Sock X and hold Stock Y which is in loss | Now the profit in stock X he pays short term Capital gain tax of 15% |
3. | He can sell stock X, book profit and Sell stock Y, book loss | Profit of Rs.30000 in stock X-Loss of Rs. 40000 in stock Y =Net loss of Rs.10000. This loss can be carried forward for 8 years. No short term capital gain tax on profits. |
4 | Hold stock X for more than 12 months and book losses in stock Y | No long term capital gains tax in stock X and short term capital loss of Rs.40000. This loss of Rs. 40000 can be carried forward for 8 years |
So take a look at your profile and understand the possibilities of leveraging any potential capital gain/loss scenario for your benefit in consultation with your tax Advisor.
Send your feedback to: nrnrajnair@gmail.com
