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I bought and sold a few shares. The transaction costs are brokerage, Securities Transaction Tax and service tax.

Is it true that for short-term capital gains tax calculation, one should exclude STT values from total transaction cost?

If so, how can I segregate the STT from the brokerage amount (final brokerage amount given by my broker is inclusive of STT, brokerage, service tax)?

Please explain with an example as to how short term capital gain of 10% is charged.

I trade in derivatives. As per recent government clarification (published in the front page of a financial daily dated February 9, 2006), it has been stated that Derivatives are non-speculative trades and hence the trader need not have to pay 30% as capital gains tax. Then can I show off my short term capital losses in derivatives against short term capital gains similar to normal trade?

- Seshadre

Short term capital gain, at the rate of 10%,  is levied on the profit you make when you sell shares or units of an equity mutual fund within one year of buying. This, however, holds true only if the sale took place on or after October 1, 2004 and such a transaction is chargeable to STT at the time of transfer (sale).

You are right, STT should be excluded from the transaction value.

The broker/ contract note generally specifies the STT amount separately; if not, you can definitely demand for the same to be reflected in the contract note.

An example illustrating the tax working on short term gain is shown below:

	Situation 1 (Rs)	Situation 2 (Rs)
Salary Income	Rs 80,000	80,000
Short term capital gain (listed securities)	Rs 20,000	30,000
Total Income	Rs 1,00,000	1,10,000
Tax @ Normal Rates	Nil	Nil
Tax @ Special Rates @ 10%	Nil	1,000
Total Tax	Nil	1,000
Add: Education Cess @ 2%	Nil	20
Total Tax Payable	Nil	1,020

According to Circular No 3/2006, dated 27-2-2006, trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as speculative transaction.

In the light of this circular, you can adjust your short term gain against the short term loss from the derivatives transaction.

• Selling shares? Check the capital gains tax

I am a salaried person working in a private company in Mumbai.

My wife invests in shares (with her individual demat account) using my money.

If her total income (capital gains from share trading) is less than Rs 50,000 in a year, does she have to pay income tax and file a return?

- Sharad Rahangdale

Your wife is using your money to invest. Technically, the capital gains arising out of the investments made using your money is included in your income and cannot be shown as her individual income.

In case these investments have been made by your wife out of an allowance you give her (an allowance given by a husband for his wife's personal expenses and other household expenses) or out of household savings, the income from such investments would not be included in the income of the husband.

Assuming that the income from the investments are not included in your income and solely attributable to your wife, then any income not exceeding of Rs 135,000 is not taxable in her hands.

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