2024-04-01 14:02:43
Income Tax on Share Sale: Taxation partner of tax consultancy firm Ravi Ranjan & Company CA Kamlesh Kumar Let us tell you that there is another advantage of investing in equity mutual funds. If you make capital gain up to Rs 1 lakh in a year, there is no tax. But here one thing has to be kept in mind, that is when the funds are being redeemed or when the shares are being sold. Know about this in detail…
What is the provision in Income Tax Act
There is a special provision for mutual funds in the Income Tax Act. This law says that such mutual fund schemes which invest 65 percent or more of their assets in equity shares of companies listed in India are called Equity Oriented Mutual Funds. Withdrawal of money from equity mutual fund is taxed just like investing in equity shares.
Short term and long term capital gains
Investment in equity mutual funds for more than 12 months is considered long term. In such a situation, long term capital gains tax will be levied on withdrawal of money after investing more than 12 months. If someone redeems the equity fund within a period of one year, then he will not get the benefit of long term investment. But even then capital gains tax will be charged at the rate of 15 percent only.
Profit of one lakh is tax free
If you withdraw any capital gain in equity mutual fund, you can withdraw some amount tax free. There is a provision in the Income Tax Act that you will not have to pay any tax on the profits of one year. Whatever profit is above this will be taxed at 10 percent.
Redeemed on 29th March, what about getting the money in the new year?
Now, let us consider a scenario where an assessee redeems an equity mutual fund on March 28, 2024. Since banks and markets were closed on March 29 due to Good Friday and then Saturday and Sunday. Therefore the seller got the money in the new financial year. Now the question arises whether his capital gain will be counted in the financial year 2023-24 or in the financial year 2024-25? When will this person be taxed?
Tax will be levied in the year in which the transaction takes place.
The Income Tax law of India states that in such cases, it is important to note that the capital gain is taxable in the period when the transaction is made. Irrespective of when his payment is actually received. Based on the above example, capital gains will be taxable only in the financial year 2023-24. Even if they have not received payment in the year 2024-25.