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What Is Capital Gain Tax (CGT)?

Capital gain means profit arising from the sale or exchange of a capital asset's made in a previous year. Capital Gain Tax only needs to be paid, if you make a certain amount of profit from the sale of a possession of any capital assets like Real Estate, Land, Vechiles, Shares. Mutual Funds, Gold, Patents,etc. We'll discuss here Capital Gains arising from the sale of Shares in the Stock Market and how it is treated in Tax computation.

Heads of Income when it comes to Securities:
1. Capital Gains
2. Business Income

Tax Treatment:

If You do delivery based trading in the stock market, you need to disclose your profit&loss under the Income from Capital Gains. Capital Gains can be short term or long term:
STCG is defined as If Equity Shares are held for or sold within less than 12 months from the date of purchase. STCG of 15% is applicable irrespective of the personal tax slab.
LTCG is defined as If Equity Shares are held for or sold after 12 months from the date of purchase. Such gain is subject to tax exemption. You no need to pay tax on LTCG.

If You are frequently trading in the Stock Market (non-delivery trade) then profit&loss need to be disclosed under Business Income. It can be classified as Speculative Business Income and Non-Speculative Business Income.
Speculative Business Income: Profit from Intraday Trading comes under this head. Tax treatment is similar to your business income tax.
Non-Speculative Business Income: If you are trading in F&O (Equity, Commodity, Currency) segment, then you have to declare profit only under this head. Tax treatment in such case is similar to your business income tax.

If You do a few Intraday trading in a year and major income is, from salary, then it should not be considered as a business income.

Carry Forward and Offset Rules:

It's not necessary, you will make profit in each and every investment or trade. What you can do when you incur losses?
There are certain rules to carry forward and offset your losses. You can't offset any losses from any head. The rules are as follows:
1. In case of Short Term Capital Loss, your losses can be offset with LTCG and any STCG. If there is no profit you can carry forward for 8 years.
2. In case of Long Term Capital Loss, You can't offset it because its tax exempted can only carry forward for 8 years.
3. Intraday Loss can offset with only Intraday gains not F&O gains and you can carry forward for 4 years. Here time limit is shorter than others.
4. You can offset your F&O Trading Loss with Intraday gains and can be carried forward for 8 years.

Disclaimer:It's our personal views and should not treated as a tax advice. You need to consult your Tax Advisor before making any decision.

Saturday, June 17, 2017

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