Short term capital gains tax or long term capital gains tax is levied on the amount of profit made on selling shares of companies listed in the stock market or units of equity schemes of mutual funds. Which of the two will be taxed depends on how long after the investment you sell the shares.
Tax Rules: Investors’ interest in equity schemes of mutual funds is increasing. This scheme invests money in shares of companies listed in the stock markets. Many people avoid investing directly in shares. They consider it safe to invest in equity schemes of mutual funds. If you invest money in equity schemes of mutual funds or directly in shares, then you must know the tax rules before booking profits.
Returns from assets reduce due to taxes
Experts say that due to tax the real return from an asset decreases. This also applies to units and shares of mutual funds. Therefore, investors should understand the profit tax rules properly before selling units or shares of mutual funds. Many times investors sell shares and mutual funds without knowing the tax rules, which reduces their real returns.
Tax is decided based on the time of holding the security
Short Term Capital Gains (STCG) tax or Long Term Capital Gains (LTCG) tax is levied on the amount of profit made on selling shares of companies listed in the stock market or units of equity schemes of mutual funds. If an investor sells the shares of a company within 12 months of purchasing them, then short term capital gains tax is levied on the profit. If he sells them after 12 months, the profit is charged as long term capital gain. This rule also applies to equity schemes of mutual funds.
20 percent tax on selling before 12 months
The short term capital gains tax rate is 20 percent. This can be easily understood with an example. Suppose you sell the shares of a company before 12 months, thereby making a profit of Rs 1000. On this you will have to pay short term capital gains tax at the rate of 20 percent. In this way, you will have to pay tax of Rs 200 on a profit of Rs 1000. With this your real profit will reduce to Rs 800.
12.5 percent tax on selling after 12 months
The long term capital gains tax rate is 12.5 percent. Suppose you make a profit of Rs 1000 by selling shares of a company. You have sold these shares after 2 years of purchasing them. You will have to pay 12.5 percent tax on profit of Rs 1000. This means that you will have to pay tax of Rs 125 on a profit of Rs 1000. With this your real return will reduce to Rs 875. The same rule applies to selling units of equity schemes of mutual funds.
Long term capital gains tax-free up to Rs 1.25 lakh
One important thing to understand is that long term capital gains of Rs 1.25 lakh in a financial year are exempt from tax. This means that if you make a profit of up to Rs 1.25 lakh on selling shares or units of an equity scheme of an equity mutual fund in a financial year, you will not have to pay any long term capital gains tax.
The post Tax Rules: Know the tax rules before selling shares or mutual funds, otherwise the profit will be less. first appeared on informalnewz.
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