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How to make tax gains on stock market losses

October 23, 2008

Zero tax on long term capital gains from equity

Capital gain is the increased value of any capital asset (in this case, shares) in relation to its purchase value.

However, this gain is said to be realised only when the investment is sold, and not otherwise.

On the sale of equity or preference shares, securities listed in stock exchange, units of Unit Trust of India or units of mutual funds, or zero coupon bonds, the nature of capital gain (difference between the sale consideration received and the purchase price plus costs incurred to realise the proceeds) depends on how long you held the security concerned.

If you held it for 12 months or less, the sale results in short term capital gains.

On the other hand, if the security was held for more than 12 months, its sale results in long term capital gain.

Any short term capital gain arising from the sale of equity shares or units in a recognised stock exchange, and on which securities transaction tax is charged, attracts a flat short term capital gain tax @15%.

However, if the sale is effected through an unrecognised stock exchange, the short-term capital gain is added to the investor's total income and attracts tax at the appropriate income tax slab rate applicable to the investor.

Equity investment held for more than 12 months is tax free ...

Image: A man walks past a brokerage house with an advertisement for a mutual fund. | Photograph: Indranil Mukherjee/AFP/Getty Images

Also read: What the world's big guns say about the meltdown

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