Short-term capital gains on sales of short-term capital assets covered under Section 111A of the ITA are subject to tax at a 15% rate along with applicable surcharge and cess. However, gains that are not covered under it are taxed at a normal rate.
The gains arising from the sale or transfer of capital assets is applicable to be taxed under the header of Capital Gains. Depending on the type of capital that has been sold or transferred this tax is divided into short term capital gains and long term capital gains.
Definition of Capital
To understand this better let us take a look at what these terms mean. A capital asset includes any type of property held by the assessee. This property may or may not be related to the business carried out by the assessee. It also includes any type of securities held by an FII which has invested in these securities according to the rules and regulations laid forth by the SEBI act of 1992.
Short Term and Long Term Gains
Now that we understood capital, let us take a look at what short term and long-term assets are. Any capital asset that has been held by the taxpayer for no longer than 36 months before its date of transfer is deemed as a short-term capital asset. A period of only 12 months before the transfer is considered as short-term capital assets for capital assets such as shares, units of mutual funds, listed securities, and government securities.
Let us explain this with the example. Consider a case where Mr Gopal purchases shares in April 2013 but decided to sell them in December 2014. Since the shares have been held for a period longer than 12 months, the capital asset in this case is treated as long term capital asset. If he sold the shares in March 2014, he would have held it for a period lesser than 12 months and as such the asset would have been treated as short term capital asset.
Rate of Tax for Short Term capital Gains:
Short term capital gains are covered under section 111A and the applicable tax rate is 15% (plus surcharge and cess will be levied as applicable). Those Short Term Capital Gains that are not covered under the section 111A is taxed at a normal rate of tax which will be determined based on the taxable income of the individual taxpayer
Tax Exemption Limits
There are certain basic exemption limits when it comes to taxable income of a person which means that up to a certain level of income, that person is not required to pay any tax.
As of 2015, the limits were as follows:
- Resident individuals above the age of 80 are tax exempt to a limit of Rs 5,00,000 and incomes crossing this will be taxable.
- For those resident individuals who are in the age group of 60 years to 80 years, the tax exemption limit is Rs 3,00,000 and any resident individual below the age of 60 has an exemption limit of Rs 2,50,000.
- For non-resident individuals irrespective of the age and for Hindu Undivided Families (HUF) the exemption limit is Rs 2,50,000