Ever wondered how tax will be calculated on the profits earned by you?
First Basics :-
If you sell shares within 1 year of buying then you have to pay short term capital gain tax.
If you sell shares after 1 year then it will be considered as long term capital gain which is completely tax free.
Dividends are tax free.
Intricate matter :-
You might be buying same share multiple times and selling it multiple times, how would you identify whether it falls in 1 year or less than 1 year bracket.?
According to Income Tax Act, which specifies that for shares sold in the demat form, the First In First Out (FIFO) system had to be applied.
What does this mean you dont have option to choose which shares you want to sell .
If you bought 100 XYZ share in Jan 2006 and again 100 XYZ shares on Jan 2007. If you sell 100 shares now then shares bought in Jan 2006 will be deemed to sold first.
If you have both demat and physical shares of a company and if you sell it now demat shares will be sold first even if the physical shares are older.
Please Note : This calculation is currently only for shares in demat form. You can still choose which mutual fund to sell first.
Enjoy investing. :-)
Sunday, December 16, 2007
Are you paying tax on equity gains??
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2 comments:
Hi,
Its a really nice and informative post.On the same lines , I would like to ask a question.
How will the tax be calculated in case of stock-split or bonus shares?
Thanks in advance
Anshul :-)
Anshul,
You have asked a very pertinent question.
sorry for late reply because I was on leave and enjoying my holidays :-)
When stock splits there is no change in taxation. Tax will be calculated using the original date of purchase.
When bonus shares are issued. They are considered new shares with buying price at Rs 0. when you sell it capital gains will be computed with effect from the date of the bonus issue, and not from the date of acquisition of the original shares.
Hope you find this useful.
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