Section I: Income Tax and Your Investments

• Ques: Investment in Shares
• Ans: Key points:
  • Equity shares if kept for more than 12 months before sale, then the profit is tax free being long term capital gain.
  • Shares should have been listed on stock exchange and Security Transaction Tax must have been paid.
  • If shares sold before 12 months than profit is taxable as short term capital gains.
  • Dividend from equity shares is completely tax free in the hand of recipients.
  • Capital gain on bonus shares is computed from the date of bonus share declared and the acquisition cost is taken as nil. For example you bought 100 XYZ share on 15-10-05 @ 500/ and company declared 1:1 bonus share on 15-10-08 than your total no of shares become 1000 on 15-10-08. If you sell all these 1000 shares @ 750 than on 500 bonus shares there will be short term capital gain 500*750=375000 taxable @15% and long term capital gain on original shares 100*250=25000 tax free.