How to calculate tax liability on the sale of stocks and mutual funds?

Tax calculations are always seen as hectic and mundane tasks, but if you are trading in the capital market, you need to keep a few things in mind. The profit you earn from them is termed as capital gain, and these gains are taxed. This article will show how to calculate the tax liability of individuals on capital gains of mutual funds and stocks.

How to calculate tax liability on the sale of stocks and mutual funds

What is capital gain?

Time to file IT- returns, but still, you are beating around the bush. Income from business or salary or house rent is sorted, but what about the capital gains? Capital gains aren't a complex procedure to understand, but they are termed other sources of income. In simple terms, the capital gain is the profit made from the sale of any capital asset. The capital gain calculation depends upon the period in which the assets were held.

Also read: how to tax mutual funds

Short term capital gain

  • Short-term capital gain is when assets are held for less than 36 months. Some assets qualify as STCG with 24 months and 12 months tenures.
  • Listed equity shares or equity mutual funds on a stock market are calculated in 12-month tenure. If they are sold within 12 months of purchase, then the assessee has earned short term capital gain (STCG).
  • STCG, earned on debt-oriented mutual funds, is taxed at a tax slab rate applicable to the individual. The gain will be added to the total income and will be taxed accordingly.
  • Short-term capital gains are taxable at 15%. If your tax slab rate is 10% or 20% or 30%, STCG will be taxed at 15% irrespective of the tax slab.

Also read: long term capital gain tax planning

Long-term capital gain

  • Long-term capital gain is when assets are held for more than 36 months of tenure. But for listed shares, shares held for more than 12 months are taxable under long-term capital gain.
  • Before budget 2018, long-term capital gain from shares or equity mutual funds were considered for tax exemption. But after April 2018, the long-term capital income of more than 1 lakh is taxable at 10%.
  • Long-term capital gain, earned from debt mutual funds, is liable to tax at 20% with indexation benefit.
  • To adjust the purchase price of an investment, indexation is used to adjust the inflation on it. 

Users can download the consolidated statement of their capital investment performances from the app they have been using to make investments from like CAMS, KARVY, GROWW, Paytm, upstox, etc. this statement will show the consolidated gain or loss. Then the user  can use the websites to calculate tax on them.

ITR Form

Income tax returns for any financial year are filed through ITR Forms. For capital gains during the year, ITR Form 2 is to be filled during filing IT returns. ITR Form 1 is filled to file tax from business, salary and rental income. Whereas ITR Form 2 is for declaring income from capital gains, all house properties and other sources.

Capital investments are the best way to invest your money and are best for tax savings. For tax purpose solutions you need to carefully scrutinise the funds in proper fund houses. But before investing, just make sure you go through adequate calculations and file an accurate tax return.

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