Section 111A: Tax on Short-Term Capital Gain

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Sakshi Shah

Capital Gains
Equity Trading
Section 111A
STCG
STT
Last updated on February 21st, 2024

Income generated from capital gains is subject to specific taxation rates as per the Income Tax Act. Section 111A specifically deals with the short-term capital gain taxes that arise from selling listed equity shares, equity mutual funds, and units of business trust, provided Securities Transaction Tax (STT) has been paid. Short-term capital gains refer to profits or losses resulting from the sale of listed equity shares and similar equity instruments held for less than 12 months. These gains are taxed at a rate of 15% (plus applicable surcharge and cess) according to Section 111A.

What is Short-Term Capital Gain Tax under Section 111A?

Section 111A is applicable in the case of STCG derived from the following securities if certain conditions are fulfilled:

Conditions to be met to get the benefit of Section 111A:

Additionally, section 111A covers the following transaction even if STT is not paid on it:

If the above conditions are fulfilled, then the STCG will be taxable at the special rate of 15% as per section 111A.

However, STCG realized on the sale of unlisted shares and securities, debt mutual funds, bonds, debentures, immovable property, motor vehicles, jewelry, etc are taxable at slab rates and not as per special rate u/s 111A.

Calculation of tax on STCG u/s 111A

Let us understand the tax calculation by taking an example:

Mr. Akash, a resident of India, bought 10,000 equity shares of Reliance Industries Limited in December 2022 at INR 100 per share. He sold the shares in April 2023 at INR 135 per share through BSE. He paid brokerage of INR 1 per share and STT of INR 1500. Further, he also earns a salary income of INR 8,40,000.

Here, he sold the equity shares within 12 months hence it will be considered as a Short Term Capital Gain. Since it was a listed equity share with STT paid, STCG is taxable at 15% under Section 111A. Hence, in this case, the calculation of short-term capital gain tax will be as follows:

ParticularsAmount (INR)
Sales consideration (10,000 * 135)13,50,000
Less: Transfer expense (10,000 * 1)(10,000)
Net sale consideration13,40,000
Less: Cost of Acquisition (10,000 * 100)(10,00,000)
Short Term Capital Gains3,40,000
Short term capital gain tax u/s 111A (3,40,000 * 15%)51,000
Tax on Salary income (at slab rates)80,500
Total Tax liability1,31,500
As per the Income Tax Act, deductions under sections 80C to 80U cannot be claimed on short-term capital gains as specified in section 111A. However, deductions can be claimed on other short-term capital gains that are not covered under section 111A.
Tip
As per the Income Tax Act, deductions under sections 80C to 80U cannot be claimed on short-term capital gains as specified in section 111A. However, deductions can be claimed on other short-term capital gains that are not covered under section 111A.

Adjustment of STCG u/s 111A against Basic Exemption Limit

The Resident taxpayers can avail the benefit of adjusting the special rate income against the basic exemption limit to reduce taxes. Thus, if the total taxable income is less than the basic exemption limit, it can be adjusted to special rate income such as STCG u/s 111A, LTCG u/s 112A, etc. against the shortfall in basic exemption limit and pay tax on the remaining income only.

For example, if Mr. Akash a resident Indian has only income from capital gains and no other income. In this case, the calculation of tax liability would be in the following manner:

Since Mr. Akash is a resident and the basic exemption limit is not utilized, he can take the benefit of adjusting the special rate income against the basic exemption limit.

Hence, taxable STCG = 3,40,000 – 2,50,000 = INR 90,000.
Tax Liability = 90,000 * 15% = INR 13,500.

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Reporting in ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. Taxpayers must report income from capital gains in sr.no. A2 of Schedule CG of the ITR. The taxpayer needs to report the following details:

Once the details are entered, the Short Term Capital Gain i.e. STCG on shares is automatically computed.

Set Off & Carry Forward losses

The loss on sale of listed equity shares and mutual funds held for up to 12 months is a Short Term Capital loss. A taxpayer can set off STCL from one capital asset against STCG and LTCG from another capital asset. As per the income tax rules for set off and carry forward of losses, STCL i.e. Short Term Capital Loss can be set off against both Short Term Capital Gains and Long Term Capital Gains in the current year. Further, they can carry forward the remaining loss for 8 years and set off against future STCG and LTCG.

FAQs

Is the benefit of a basic exemption limit available for NRI in the case of STCG u/s 111A?

No, the non-resident Indian (NRI) will not be eligible to get the benefit of the basic exemption limit for STCG under section 111A.

Can I claim Chapter VI-A deductions from Section 80C to 80U from STCG u/s 111A?

The Income Tax Act does not allow claiming deduction from Section 80C to 80U against STCG taxable under Section 111A. However, the taxpayer can claim Chapter VI-A deductions on STCG other than those taxable under Section 111A.

Is short-term gain taxable if STT is already paid?

Yes, the taxes at the rate of 15% as per section 111A of the Income Tax Act will apply to the STCG from sales of shares through recognized stock exchange i.e. STT paid.

What is the difference between sections 111A and 112A?

Section 111A specifically deals with the short-term capital gains from the sales of listed equity shares and equity-oriented mutual funds. Whereas, section 112A deals with the long-term capital gains on listed securities including equity shares and equity-oriented mutual funds.

Got Questions? Ask Away!

  1. Hi @FalconZex

    1. Yes you are right the tax payable shall be 10,000 INR
    2. Rebate is applicable on total tax liability Section 87A does not exclude any income specifically.
    3. In such a case no rebate shall be available. The tax rate shall be as under:
    • On business income of 2 lakhs INR: 5%

    • On STCG of 2 lakhs INR: 15%

    You can also refer to our Income Tax Calculator

  2. I have income Short Term and Long term Capital gains and “Income from other sources” (Bank interest and Dividend). Also, I have investments in 80C, 80D, 80CCD.
    Are the investments in 80C, 80D, 80CCD considered for tax deduction?
    For example if income from other source is 1 lac and 80C investment is 1lac, will this 1 lac be exempt?
    STCG is 3.5lac, so 15% will be applicable on 1 lac. as 2.5 lacs is exempt.
    so i pay tax only 15% of 1 lac which is Rs.15000.
    please assist

  3. Hey @Yasmin_Menon

    Your are absolutely correct.

    Deductions, if any, will be reduced from your Income taxable at slab rates.
    The un-exhausted part of the basic exemption limit of 2.5 lakhs will be reduced from you Capital Gains.

    So, in the above case you’ll have to pay 15% tax on 1 lakh.

    However, if your taxable income after deductions is upto 5 lakhs, you’re eligible for rebate (12.5k) under section 87A.

    Hope this helps. :slight_smile:

  4. Just to reconfirm,
    income from other source (FD Interest and dividend) is 1 lac and 80C investment is 1lac, will this 1 lac be exempt and will not be calculated under taxable income?

  5. Yes, this 1 lac will not be taxable after deductions.

  6. Hey @Yasmin_Menon

    Deductions under Chapter VI-A can be claimed against taxable incomes. Based on your data, here is a calculation:

    Gross Total Income = 1 lac (IFOS) + 3.5 lac (STCG) = 4.5 lac
    Deduction 80C = 1 lac
    Total Income = 3.5 lac
    Special Rate Income = 3.5 lac
    Adjusted against basic exemption limit = 2.5 lac
    Taxable Special Rate Income (STCG) = 1 lac
    Tax on STCG = 15% of 1 lac = 15,000
    Rebate u/s 87A = 12,500
    Net Tax Liability = 2,500
    Cess = 4% of 2,500 = 100
    Total Tax Liability = 2,600

  7. Hey @click2vikash

    Here’s how you’ll be taxed under the Old Regime:

    Total Income = 11 lacs
    Income Taxable at Slab rates = 10 lacs
    Income Taxable at Specified rates = 1 lakh

    Tax on Slab Rate Income = 1,12,500
    Tax on STCG = 15,000

    Total Income Tax = 1,27,500
    HEC = 5100
    Total Tax Liability = 1,32,600

    Hope this helps :slight_smile:

  8. I bought shares worth INR 70,000 in 2017 which are now worth around INR 1,80,000. It is long term capital gains, how much tax do I have to pay?

  9. To differentiate capital gains into long term and short term the period is 36 months and 12 months - which one to consider?

  10. Hey @Tanmay_mehta,

    In Budget 2018, the grandfathering rule was announced u/s 112A which implies that - long term capital gains above INR 1 Lakh will be taxed at 10% after 1st Feb 2018.
    Therefore to calculate LTCG:

    • Take the equity value as on 31st Jan 2018 to be X
    • so LTCG = Sales price - value as on 31st Jan 2018
    • LTCG = 1,80,000 - X

    Any tax on LTCG will be 10% above INR 1 Lakh

    • LTCG below INR 1 Lakh is fully exempt
    • LTCG above INR 1 Lakh will be taxable at 10% for the amount above INR 1 Lakh only.

    Hope this helps!

    Refer to our learn article on LTCG on sale of Equity Shares and Equity Mutual funds

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