Capital Gains & Equity Rules
- LTCG on Listed Equities & Equity Mutual Funds: Taxed at 12.5% on aggregate capital gains exceeding the annual ₹1.25 Lakh exemption limit under Section 112A (without indexation).
- STCG on Listed Equities u/s 111A: Taxed at a flat rate of 20% where Securities Transaction Tax (STT) is paid on transfer.
- Share Buyback Deemed Dividend u/s 2(22)(f): Buyback proceeds are treated as deemed dividends taxable in the hands of shareholders at normal slab rates; cost of acquisition qualifies as capital loss u/s 46A.
- Unlisted Shares & Real Estate: 24-month holding period for LTCG at 12.5%; indexation is removed for assets acquired after July 23, 2024, with grandfathered indexation choice for pre-July 23, 2024 residential real estate.
Accuracy Notes Before You Act
- Section 54 & 54F Exemption Cap: Maximum capital gain exemption for investment in residential property under Section 54/54F is capped at ₹10 Crore.
- Section 54EC Capital Gain Bonds: Maximum investment ceiling in eligible REC, PFC, NHAI, or IRFC bonds is ₹50 Lakh per financial year (lock-in period 5 years).
- Section 50AA for Specified Mutual Funds: Gains from debt mutual funds investing less than 35% in domestic equities are classified as short-term capital gains taxable at normal slab rates.
- Section 50CA & Rule 11UA Fair Market Value: Transfer of unlisted shares below fair market value (FMV) triggers deemed capital gains for the seller and deemed income u/s 56(2)(x) for the buyer.
Documents and Facts to Keep Ready
- Broker Annual Global P&L statements with ISIN-wise buy/sell dates, STT paid, and trade contract notes.
- Bank statements verifying credit of sale proceeds and debit of purchase payments.
- Property sale deeds, purchase deeds, stamp duty valuation certificates, and construction/improvement bills.
- Form 16 / AIS statement reflecting dividend TDS under Section 194 on buyback proceeds.
Common Mistakes to Avoid
- Treating share buyback proceeds as capital gains rather than deemed dividend income, leading to mismatch notices.
- Failing to set off capital loss generated u/s 46A on buybacks against other taxable capital gains.
- Applying indexation to listed equity LTCG or unlisted share transactions completed after July 23, 2024.
- Missing the 6-month deadline from the date of property transfer for investing in Section 54EC bonds.
Frequently Asked Questions
1. What is the current Long-Term Capital Gains (LTCG) tax rate on listed equity shares in India?
Under Section 112A of the Income-tax Act, LTCG on listed equity shares and equity mutual funds held for more than 12 months is taxed at a flat rate of 12.5% on capital gains exceeding ₹1.25 Lakh per financial year.
2. What is the Short-Term Capital Gains (STCG) tax rate under Section 111A?
Short-Term Capital Gains on listed equity shares and equity mutual funds sold on a recognized stock exchange with STT paid are taxed at a flat rate of 20% under Section 111A.
3. How are share buyback proceeds taxed in India post-Finance Act amendments?
Under Section 2(22)(f), the entire proceeds received from a company in a share buyback are treated as deemed dividend taxable in the hands of the shareholder at their applicable income tax slab rates. The company deducts 10% TDS u/s 194.
4. What happens to the original cost of shares surrendered in a buyback?
Under Section 46A, the original purchase price (cost of acquisition) of the surrendered shares is treated as a capital loss (LTCG or STCG based on holding period) that the shareholder can set off against other capital gains in the same year or carry forward for 8 years.
5. What is the holding period to qualify for long-term capital gains on unlisted shares?
For unlisted shares, private limited shares, and startup equity, the holding period to qualify for Long-Term Capital Gains is more than 24 months, taxed at 12.5% without indexation.
6. Is indexation benefit available for real estate sales in India?
For properties acquired on or after July 23, 2024, indexation is abolished and LTCG is taxed at 12.5%. For properties acquired before July 23, 2024, resident individuals can choose between 12.5% without indexation or 20% with indexation, whichever results in lower tax.
7. What are the investment limits and lock-in period for Section 54EC bonds?
Under Section 54EC, an investor can invest up to ₹50 Lakh of long-term capital gains from real estate into specified bonds (REC, PFC, NHAI, IRFC) within 6 months from the date of transfer. The lock-in period is 5 years.
8. How does Section 54 exemption work for residential house property?
Under Section 54, LTCG from the sale of a residential house is exempt if invested in purchasing one new residential house within 1 year before or 2 years after the transfer (or constructing within 3 years). The maximum exemption limit is capped at ₹10 Crore.
9. What is Section 54F exemption for selling assets other than a residential house?
Under Section 54F, capital gains from selling any long-term capital asset (stocks, gold, commercial property, land) are exempt if the entire net sale consideration is invested in a residential house property (subject to owning not more than one house and capped at ₹10 Crore).
10. How are debt mutual funds taxed under Section 50AA?
Specified mutual funds investing less than 35% in domestic equity shares are classified as debt mutual funds. Under Section 50AA, all gains are treated as short-term capital gains and taxed at the investor's applicable income tax slab rates, regardless of holding period.
11. What is the Section 50CA tax trap on transferring unlisted shares?
Under Section 50CA, if unlisted shares are sold below their Fair Market Value (FMV) computed under Rule 11UA, the FMV is deemed to be the full value of consideration for the seller, creating tax liability on notional gains.
12. Can capital losses from shares and mutual funds be carried forward?
Yes. Short-term capital loss can be set off against both STCG and LTCG. Long-term capital loss can only be set off against LTCG. Unadjusted losses can be carried forward for up to 8 consecutive assessment years, provided the ITR is filed on or before the July 31st due date.
13. What is the Capital Gains Account Scheme (CGAS)?
If the capital gains cannot be invested in a new property before the ITR filing due date (July 31st), the funds must be deposited into a Capital Gains Account Scheme (CGAS) account in an authorized public sector bank to claim Section 54/54F exemption.
14. How is Sovereign Gold Bond (SGB) redemption taxed?
Redemption of Sovereign Gold Bonds (SGB) at maturity with the Reserve Bank of India (RBI) is 100% tax-free for individual investors under Section 47(viic). However, secondary market transfers on exchanges are subject to capital gains tax.
15. How can a verified CA on WorkIndex help optimize capital gains tax?
A verified Chartered Accountant on WorkIndex computes accurate capital gains schedules, identifies eligible 54/54EC exemptions, reconciles grandfathering clauses, and ensures error-free filing of Schedule CG in ITR-2/ITR-3.