Section 111a of Income tax act

Section 111A of Income Tax Act 1961 – Short Term Capital Gains Tax in respect of Equity Shares/ Units of an Equity Oriented Fund

Where any short-term capital gains arise on transfer of the following assets, such gains would taxable at concessional rate of 15% , provided the following conditions are satisfied: –

1. Capital gain should arise on transfer of the following assets : –
   • Equity shares or
   • Units of equity-oriented funds; or
   • Units of a business trust.
2. Transaction should be chargeable to securities transaction tax . However, where the transactions have been undertaken on a recognized stock exchange which is located in International Financial Service Center (IFSC) , and where the consideration is paid or payable in foreign currency , this condition is not applicable.
3. Transaction should take place on or after 1.10.2004 .

Meaning of “Equity Oriented Fund”

As per Explanation to section 10(38), “Equity oriented fund” means a fund : –

1. where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 65% of the total proceeds of such fund; and
2. which has been set up under a scheme of a Mutual Fund specified under clause (23D) of Section 10 .

Adjustment of Unexhausted Basic Exemption Limit for Short Term Gains – Section 111A of Income Tax Act 1961

In case of a resident Individual or resident HUF (not applicable for non-residents), income upto Rs. 2,50,000 is exempt from tax (basic exemption limit). In such cases, if an individual has income under the Head capital gains and certain other incomes,  and the basic exemption limit is not fully exhausted by any other income, then, the short-term capital gain will be reduced by the unexhausted basic exemption limit and only the balance would be taxed at 15%. Further, no deductions under Chapter VI-A cannot be availed in respect of such short-term capital gains

Calculation:-

Adjustment of basic exemption limit = Short term capital gains – (Exemption limit – Net Income)

Balance amount of short-term capital gains (after making the aforesaid adjustment of basic exemption limit) will be taxable at 15%

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