Availing Tax Rebate for Long-term Capital Gains on Listed Shares in India

Long-term capital gains (LTCG) on listed shares have been a topic of interest among investors in India. Understanding the eligibility for tax rebates and the intricacies involved is crucial for maximizing your financial benefits. In this article, we will delve into the details of claiming a tax rebate under Section 87A for LTCG on listed shares.

Overview of Section 87A and LTCG Tax Rates

Eligibility for a tax rebate under Section 87A of the Income Tax Act is limited to individuals with a total taxable income of less than 5 lakhs (about US$6,300). However, if you have realized long-term capital gains from the sale or transfer of listed shares, you might be required to pay a 10% LTCG tax. It's important to understand the specific conditions and procedures involved in claiming this rebate.

Eligible Investments and Taxation

Equity shares of companies listed on the Indian Stock Exchange are considered long-term capital assets if they are held for more than a year. Any profits arising from the sale or transfer of such shares are referred to as long-term capital gains (LTCG). LTCG is subject to a flat 10% tax rate, but it is exempt up to one lakh (about US$12,600) annually, provided that securities transaction tax (STT) has been paid on the purchase and sale of the shares.

Conditions for Claiming the Tax Rebate

To be eligible for the tax rebate under Section 87A, you must ensure that your total taxable income does not exceed 5 lakhs. Additionally, the capital gains realized from the sale or transfer of listed shares must be below one lakh to claim the rebate. Unlike other forms of capital gains, STT is mandatory, and failure to pay it can affect your eligibility for the rebate.

For shares purchased before January 31, 2018, the market value of these shares on that date is deemed the cost of acquisition. Any profits accrued up to that date are tax-free. However, after January 31, 2018, the provisions for claiming the rebate become more stringent and require careful adherence to tax laws and regulations.

Procedures for Claiming the Tax Rebate

Claiming the tax rebate under Section 87A involves filling out Form 16A and attaching Schedule 112A, which details your long-term capital gains. The Capital Gain System will automatically calculate your LTCG, and you will need to pay a 10% tax on the amount above the one-lakh exemption. It is crucial to retain all relevant documents and receipts to ensure a smooth claim process.

For detailed instructions and guidance on the claiming process, visit the official Income Tax Department’s website. This site offers comprehensive guides and FAQs to assist taxpayers in navigating the complexities of tax laws and regulations.

Conclusion

While the tax rebate under Section 87A can provide significant financial relief, it is essential to understand the conditions and procedures involved. By familiarizing yourself with these details, you can make informed decisions and maximize your financial benefits. For more information and answers, subscribe to our newsletter and stay updated on the latest tax support.

Additional Resources

For detailed information, visit the Income Tax Department’s guide on different schemes and provisions under the Income Tax Act.