Short term Capital gain Under Section 111A

Topic Covers:

1. What is short-term capital gain?
2. STCA ( Short-term capital asset )
3. Conditions for applicability of Section 111A
4. Calculation of tax on STCG u/s 111A
5. Set Off & Carry Forward losses
6. FAQs

What is short-term capital gain?

Any profit or gain that arises from the sale of short-term capital assets is known as short-term capital gain. And this gain is taxable under the head “income from capital gain”. Such capital gains are taxable in the year in which the transfer of the capital asset takes place.

Based on the period of holding of assets there are two types of Capital Gains:

1. Short-term capital gains (STCG)

2. Long-term capital gains (LTCG).

In this article we discuss about the Short-term capital asset as per section 111A and its tax calculation

STCA ( Short-term capital asset )

As per section 2(42A) of the Income Tax Act “An asset held for a period of not more than 36 months is a short-term capital asset.”

However, some assets are considered as short-term capital assets if it is held for not more than 24 months. These assets are unlisted shares (those shares which are not listed in a recognized stock exchange in India) and immovable properties such as land, buildings and house property.

For instance, if you sell immovable property after holding it for a period of 24 months, so income arising from this sale will be treated as a long-term capital gain.

Further, there are assets considered as short-term capital assets if it is held for 12 months or less.

• Equity or preference shares in a company listed on a recognized stock exchange in India.
• Securities (like debentures, bonds, govt. securities etc.) listed on a recognized stock exchange in India.
• Units of UTI, whether quoted or not
• Units of equity-oriented mutual fund, whether quoted or not
• Zero coupon bonds, whether quoted or not

Conditions for applicability of Section 111A of the Income tax Act

Section 111A is applicable if certain conditions are fulfilled.

1. In the case of STCG earned from the following securities

• Equity shares
• Units of equity-oriented mutual funds
• Units of business trust

2. If the mentioned capital assets are transferred through a recognized stock exchange, on or after 1-10-2004 and

3. STT is paid at the time of buying or selling securities on a recognized stock exchange.

However, the third condition of payment of STT is not applicable in the following cases:

• The transaction is undertaken on a recognized stock exchange located in an International Financial Service Centre, and
• The consideration is paid or payable in foreign currency.

In other words, any profit arising on the sale of equity/units of business trust/units of equity-oriented mutual funds, within one year from the date of acquisition, through a recognized stock exchange on which Security Transaction Tax has been paid shall be treated as short-term capital gain under section 111A of the income tax act.

Tax rate:

The applicable tax rate is 15% (plus surcharge if applicable and cess) for short-term capital gains under section 111A.

Illustrations:

Mr. Alok sold equity shares of Infosys Ltd. Through the National Stock Exchange (NSE) for a profit of ₹ 5,000. These shares are held for a period of 11 months.
The profit earned on the sale of shares will be treated as STCG and shall be taxable at @15% under section 111A.

If Mr. Alok held the above-mentioned shares for 15 months. Therefore such gain will still be considered as long-term capital gains and shall not be taxable under section 111A.

Calculation of tax on STCG u/s 111A

Let’s take an example to understand the tax calculation:

Mr. Abhiram, a resident of India, bought 10,000 equity shares of ITC Limited in December 2023 at ₹ 100 per share. He sold the shares in May 2024 at ₹ 145 per share through BSE. He paid brokerage of ₹ 1 per share and STT of ₹ 1500.

In this case, he sold the equity shares within 12 months hence it will be considered as a Short Term Capital Gain. And the company 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 on shares will be as follows:

Set Off & Carry Forward losses

The Short Term Capital loss is a loss on the sale of listed equity shares and mutual funds held for up to 12 months. According to the provisions of the income tax act, Short Term Capital Loss can be set off against Short Term Capital Gains as well as from the Long Term Capital Gains in the current year. A taxpayer can set off Short Term Capital Loss against STCG and LTCG from another capital asset. Further, the remaining loss can be carried forwarded for 8 years and set off against future STCG and LTCG.

FAQs

Q. Can the basic exemption limit be adjusted against STCG mentioned in section 111A?
Ans. The Resident taxpayers can take the benefit of adjusting the special rate income against the basic exemption limit to reduce taxes. It means if the total taxable income is less than the basic exemption limit, it can be adjusted to special rate income such as Short Term Capital Gain under section 111A, Long Term Capital Gain under section 112A, etc. against the shortfall in basic exemption limit and pay tax on the remaining income only.

For example, If Mr. Abhinav a resident Indian has income from capital gains ₹ 3,40,000 and income from interest ₹ 1,00,000 and no other income but the basic exemption limit is not utilized. In this case, the calculation of tax liability would be in the following manner:

Since Mr. Abhinav 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, Income from other source is ͅ₹ 1,00,000 unexhausted basic exemption is (2,50,000- 1,00,000 = 1,50,000) this short fall of 1,50,000 can be adjusted from the STCG

Taxable STCG = 3,40,000 – 1,50,000 = ₹ 1,90,000.
Tax Liability = 1,90,000 * 15% = ₹ 28,500.

Q. Can the 80C to 80U deduction be adjusted against the STCG referred to in section 111A?
Ans. No, the deductions under section 80C to 80U cannot be allowed out of STCG referred to in section 111A. However, such deductions are allowed against STCG other than that covered u/s 111A.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website/APP.