The tax implications on securities may arise in two modes, i.e., through investment in shares and investment in debentures.
Tax Implications – Investment in Shares
- Dividend Income
- Dividends are taxable in the hands of shareholders at the income tax rate applicable in case of recipient taxpayer. Also, TDS @ 10% is applicable if dividend exceeds Rs 10000.
- Also, the dividend is taxable on receipt basis, advance tax calculation is also required to be done on actual receipt basis. Proposed dividend to be ignored
- Profit from Sale / Transfer of Shares
- If considered as capital gains (Capital Gains is calculated as total sale consideration as reduced by cost of acquisition and expenses incurred in connection with such transfer.
- If Gains on transfer of shares is considered as business income – net income is included in regular income. In computation of business income, Securities Transaction Tax (‘STT’) is allowed as an expense. Management fees / carried interest may constitute an allowable expense.
- Gains/Losses earned using the intraday is taxed under the speculative business under the head PGBP. However, the gains arising from the IPO (Initial Public Offer) is to be treated as short term capital gains even if it is sold on the listing day itself.
| Capital Gains | Long-term Capital Gains | Short-term Capital Gains |
|---|---|---|
| Period of Holding ——Rate | Period of Holding ——Rate | |
| 1) Listed Shares (where STT is paid) | More than 12 months ——Exempt but up to Rs. 1,00,000* only. After Rs.1,00,000, capital gains are taxed @10%** without indexation u/s 112A | 12 months or less———15% (Section 111A) |
| 2) Listed Shares (where STT is not paid) | More than 12 months——- 20%***(with indexation benefit) @ | 12 months or less——–Included in regular income (slab rate) |
| 3) Unlisted Shares | More than 24 months ——20%**** with indexation | 24 months or less——–Included in regular income (slab rate) |
Tax Implications – Investment in Debentures
- Interest Income
- Interest received by investors is included in regular income. Premium received, if any, on redemption of debentures can be considered as interest income. TDS @ 10% applicable if Interest is more than Rs 10000.
- Profit from Sale / Transfer of Debentures
- If considered as capital gains (Capital Gains is calculated as total sale consideration as reduced by cost of acquisition and expenses incurred in connection with such transfer)
| Capital Gains | Long-term Capital Gains | Short-term Capital Gains |
|---|---|---|
| Period of Holding——-Rate | Period of Holding——-Rate | |
| Listed Debentures | More than 12 months——-10% without indexation (Section 112) | 12 months or less——-Included in regular income |
| Unlisted Debentures | More than 36 months——–20% without indexation | 36 months or less——-Included in regular income |
- If Gains on transfer of debentures is considered as business income– net income is included in regular income. Management fees / carried interest may constitute an allowable expense.
^ Indexation benefit is not available to debentures as per Income Tax Act.
* 125000.00 on or after 23.07.2024
** 12.5% on or after 23.07.2024
*** 20% on or after 23.07.2024
**** 12.5% on or after 23.07.2024 without Indexation
The LTCG on sale of listed securities for non-resident (other than company) or a foreign company may also be calculated @20% without indexation benefit before 23.07.2024 and @12.5% on or after 23.07.2024.
The LTCG on sale of unlisted securities for non-resident (other than company) or a foreign company may also be calculated @10% without indexation benefit before 23.07.2024 and @12.5% on or after 23.07.2024.
You can further read about Tax Implications – Mutual Funds by clicking here.