Short Term Capital Gain Tax on Shares : Section 111A

The income from capital gains is taxable at special rates under Income Tax. Income Tax on Equity Share Trading can be treated as Long Term Capital Gains or Short Term Capital Gains based on the period of holding. Section 111A of Income Tax Act covers provisions for tax on short-term capital gain on the sale of listed equity shares, equity mutual funds, and units of business trust on which STT (Securities Transaction Tax) is paid. Gain or loss from the sale of listed equity shares and other equity instruments held for less than 12 months is a Short Term Capital Gain. Such gain is taxable at 15% (plus surcharge and cess) under Section 111A.

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

The profit or loss on the sale of a capital asset held for less than the specified holding period is a Short Term Capital Gain i.e. STCG or Short Term Capital Loss i.e. STCL. Section 2(42A) of the Income Tax Act defines a Short Term Capital Asset. Based on this definition, the period of holding in the case of listed equity shares and equity mutual funds is 12 months. Thus, if the listed equity share of a domestic company is sold within 12 months of purchase, the profit or loss is Short Term Capital Gain i.e. STCG, or Short Term Capital Loss i.e. STCL.

Section 111A of the Income Tax Act is the provision for taxation of STCG at a rate of 15% on the sale of:

Section 111A covers the following transaction even if STT is not paid on it:

  • STCG on the sale of equity shares, equity mutual funds, or units of business trust listed on a recognised stock exchange in an International Financial Services Centre (IFSC) and if the consideration is paid or payable in foreign currency.

STCG on sale of unlisted shares and securities, debt mutual funds, bonds, debentures, immovable property, motor vehicle, jewellery, etc is taxable at slab rates and not as per special rate u/s 111A.

Income Tax on Short Term Capital Gain under Section 111A

As per Section 111A of Income Tax Act, short term capital gain tax on equity shares and mutual funds is taxable at a special rate of 15%. Cess and Surcharge are additionally applicable.

Example

Mr. A, a resident in India, bought 10,000 equity shares of A Ltd in December 2021 at INR 100 per share. He sold the shares in April 2022 at INR 135 per share through BSE. He paid brokerage of INR 1 per share and STT of INR 1500. Mr. A also has a salary income of INR 8,40,000. What will be the tax liability of Mr. Ashok?

Mr. A sold the equity shares within 12 months and thus its a Short Term Capital Gain. Since it was a listed equity share with STT paid, STCG is taxable at 15% under Section 111A. Let’s calculate the short term capital gain tax on shares.

  Particulars Amount
  Full value of consideration or Sales consideration (10,000 * 135) 13,50,000
Less Transfer Expenses (10,000 * 1) (10,000)
  Net Sale Consideration 13,40,000
Less Cost of Acquisition (10,000 * 100) 10,00,000
  Short Term Capital Gains 3,40,000
  STCG Tax Liability (3,40,000 * 15%) 51,000

Salary Income is taxable at slab rates and tax liability = INR 80,500. Thus total tax liability = 80,500 + 51,000 = INR 1,31,500. Health and Education Cess of 4% is applicable on this tax liability.

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

Taxpayers holding the status of Resident as per the rules to determine the residential status can take benefit of adjusting the special rate income against the basic exemption limit to reduce taxes. Thus, if your total taxable income is less than the basic exemption limit, you can adjust your 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.

In the above example, if Mr. A had income from capital gains and no salary income, the calculation of tax liability would be in the following manner:

Since Mr. A is a resident and the basic exemption limit is not utilised, he can take benefit of adjusting the special rate income against the basic exemption limit. Thus, taxable STCG = 3,40,000 – 2,50,000 = INR 90,000. Tax Liability = 90,000 * 15% = INR 13,500.

STCG on Shares – Reporting under Schedule CG of ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. Taxpayer must report income from capital gains in A2 under Schedule CG of the ITR. The taxpayer must report the following details:

  • Full value of consideration i.e. sales value
  • Deductions under Section 48
    • Cost of acquisition i.e. purchase value
    • Expenditure wholly and exclusively in connection with transfer i.e. transfer expenses
  • Short Term Capital Gain i.e. STCG on shares is automatically computed

Set Off & Carry Forward STCL under Section 111A of Income Tax Act

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. The taxpayer can carry forward the remaining loss for 8 years and set off against future STCG and LTCG only.

If the taxpayer has income from the sale of some listed equity shares and securities, and profit from other listed equity shares and securities, only net gains are taxable at 15%. Further, the taxpayer can set off the net STCL under Section 111A of income tax act against STCG and LTCG on the sale of shares, securities, property, jewellery, car or any other capital asset. The taxpayer can carry forward the remaining loss for 8 years.

FAQs

I sold equity shares on BSE at a profit of after holding them for 10 months. What is the applicable income tax rate?

If you have sold equity shares after holding them for upto 12 months, it is a Short Term Capital Gain. STCG on shares that are listed on a recognised stock exchange and on which the investor pays STT are taxable at 15% under Section 111A. Your Taxable STCG = Sell Value – Buy Value. Income Tax on STCG = 15% of Taxable STCG.

How can I save STCG on shares?

The Income Tax Act does not provide any specific exemption for STCG on sale of listed equity shares & equity mutual funds. However, here are some ways of saving STCG tax on shares:
1. STCL i.e. Short Term Capital Loss on sale of any capital asset can be adjusted against STCG from sale of equity shares and equity mutual funds
2. If you’re a resident in India and other taxable incomes are less than INR 2.5 lacs, you can adjust the STCG against basic exemption limit and pay tax at 15% on the remaining amount only.

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.

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.

  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

  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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