Tax Impact on Securities

8/22/2019 Tax Impact on Securities

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TAX IMPACT ON

SECURITIESBy: Kehkesha Verma


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TYPES OF SECURITIES

Equity Shares

Derivatives: Futures & Options


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EQUITY

Profit/ Loss Taxable under:

Capital Gains : If Capital Asset (If Investment)

Business Income : If Stock in Trade (Regularly

Traded)

Dividend Income: Income from OtherSources


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RECOGNITION: CAPITAL ASSET/ STOCK

IN TRADE

Treatment in assessees books of accounts

Quantum of sale and purchase

Holding period Purpose of Investment


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CAPITAL GAINS

Short Term

Capital Gain(STCG)

Long Term

Capital Gain(LTCG)


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STCG/ LTCG

Shares (Listed/ Unlisted)

12 months or Less

STCG

More than 12 months

LTCG


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STCG

Profit taxed at normal slab rates as applicable

to assessee

Loss allowed to be set off/ carried forward as

per loss on other Short Term Capital Assets


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SECURITIES TRANSACTION TAX (STT)

Levied on all sale/ purchase securities

transactions entered through Recognized

Stock Exchange

Covers Shares, Derivatives, Equity Oriented

Fund

E.g., for future transactions STT rate 0.01%

and for transactions settled in delivery STT

rate 0.1%


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STCG u/s 111A

Applicable to all assessees including non-residents

Applicable

On transfer of Equity Share or Unit of Equity OrientedFund

Transaction chargeable to STT

Taxable @ 15%

Benefit of Slab Rate to Resident Individual orHUF

Chapter VI- A deduction not allowed


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LTCG (PROVISO TO SEC 112)

Applicable on Transfer of Listed Shares

Tax Rate : Lower of20% (after indexation)

10% (before indexation)

If shares unlisted, then tax @ 20% (afterindexation)

Benefit of Slab Rate to Resident Individual orHUF

Chapter VI- A deduction not allowed


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LTCG u/s 10(38)

Applicable to all assessees including non-residents

Applicable

On transfer of Equity Share or Unit of EquityOriented Fund

Transaction chargeable to STT

Tax Free

Mode of acquisition not important

LTCL cannot be set- off or carried forward


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TRANSFER BY DEPOSITORIES

Cost of Acquisition and Period of Holding

determination: FIFO

Securities first entered, considered sold first


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POINTS TO REMEMBER

Indexation of cost for LTCG allowed on both Listedand Unlisted Shares

Cost of Acquisition, more of Purchase Cost or Fair

Value as on 01.04.1981 (allowed for all shares,including bonus)

STT not allowed as deduction

Profit/ Loss

= Sale Price- Purchase Price- Brokerage paid

Brokerage paid on sale and purchase allowed asdeduction


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BUSINESS INCOME

Recognized where regular trading in

securities

Profit/ Loss treated as normal business

income

Profit/ Loss

= Sale+ Closing Stock- Opening Stock-

Purchases- Expenses

STT is allowed as deduction


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DIVIDEND INCOME

Dividend is tax free in hands of receiver

Company declaring dividend pays Corporate

Dividend Tax

Dividend received from foreign taxable to

receiver at normal tax rates


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DERIVATIVES

Before 2005-06, transaction in derivatives

treated as Speculative Transaction for

purpose of taxation

Speculative Transaction: Where transaction is

settled without actual delivery

Speculation business loss can be set off only

against another speculation business profit

Contd.


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Now, transactions in derivatives through

Recognized Stock Exchange not speculative

Taxation:

If Business Income: As normal business income at

normal slab rates applicable

If Capital Gains: Always short term, as need to besquared off in 3 months. Taxed at normal rates.

Benefit of Sec 111A not allowed


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Tax Impact on Securities

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