Market investments: India

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2015: taxes

The Times of India Mar 01 2015


Tax-free dividend

As an investor you enjoy tax-free dividend, be it from shares or units of mutual funds.

Tax free long-term capital gains

Long-term capital gains on sale of listed shares and equity-oriented mutual funds are also exempt. To qualify for long-term capital gains exemption, these securities need to be held for a period of at least 12 months by the investor.

Only a minimal securities transaction tax (from 0.001% to 0.1% of sale price) is payable by the seller (this tax cost is payable both by buyer and seller in case of a share deal on a stock exchange). In some cases, you even get a tax benefit at the time of making the investment.

Caution point

Debt-oriented mutual funds, need to be held for a period of at least 36 months to qualify as a long-term capital asset (as opposed to listed shares and equity-oriented mutual funds which require a holding period of just 12 months). However, even on sale after this period, the longterm capital gains that arise are subject to a tax of 20% with indexation (The table below shows the tax impact on your `listed' investments).

Set of provisions for capital losses

Stock markets can be quite volatile and it is possible that you may end up with a loss on sale of your securities. The set off provisions for capital losses are rather restrictive. Loss from transfer of a short-term capital asset (Eg: the listed shares or equity-units held for less than 12 months) can be set off against gain from transfer of any other capital asset in the same year. Loss from transfer of a long-term capital asset (other than listed shares and equity-oriented MFs) can be set off against gains from transfer of any other long-term capital asset in the same year. Thus, long-term capital loss cannot be set off against short-term capital gains. Any unutilized capital loss after absorption in the same year can be further carried forward to next 8 years and be utilized under the same conditions as above.

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