Short-term capital gains tax applies if you sell the shares before 12 months of holding

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I am new to stock markets. Please help me understand and calculate STCG. I purchased shares of ABC Co. Ltd at Rs100 and sold at Rs125 and paid brokerage of Re1 on buying and selling and paid STT of Rs0.50 on buying and selling. What will be my STCG?

—E. Radhakrishnan

Gains arising from the sale of shares listed on a recognized stock exchange are taxable as short-term capital gains if such shares have been held for less than 12 months before being sold. Tax is payable at 15% (plus applicable surcharge and cess) on STCG arising from listed shares (Securities Transaction Tax paid) under section 111A of the Income-tax Act, 1961.

To calculate the STCG, the net sale consideration (i.e. the sale value of the share less any expenditure incurred on sale such as brokerage or commission) is reduced by the total cost of acquisition of the shares (i.e., cost paid by you to buy the share plus any expense incurred on it, such as brokerage and commission).

If you bought shares at Rs100 and paid Re1 as brokerage, the cost of acquisition would be Rs101. If the share was sold for Rs125 and Re1 was incurred as brokerage cost, the net sale consideration would be Rs124. The resultant STCG of Rs123 (Rs124 less Rs101) will be taxed at 15% (plus applicable surcharge and cess).

If I want to withdraw from provident fund (PF) before 5 years of completing service, how much tax will be deducted?

—Vardesh Khosla

We presume that you are an Indian citizen. Under the Indian PF law (i.e., the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952), you can seek withdrawal of your PF balances from the PF office after at least 2 months of leaving the current job. The total amount lying in your PF account (your contribution together with your employer’s contribution and the interest credited thereon) can be withdrawn.

PF withdrawal will trigger a tax liability in your hands, unless you have rendered continuous services for a cumulative period of at least 5 years with your current or previous employer. Any period of service you have rendered with previous employer(s) will be considered only if the PF balance maintained with the previous employer has been transferred to the PF account of your current employer.

The total of employer’s contribution and interest earned thereon will be taxed as salary. Additionally, the amount of tax benefit claimed under section 80C of the income tax Act on account of your own contribution to the recognized PF, shall be taxed. Also, the interest on your own contribution shall be taxed as “Income from other sources”.

The tax rate would depend upon your applicable income slab in each of the financial years during which the PF contributions were made. Further, the surcharge (as applicable) and education cess, will apply, for each of the financial years, and will also be payable in addition to the basic income tax. So, since the withdrawal of PF will be taxed at special rates (those applicable in each financial year in which the initial contributions were made), you would have to pay tax irrespective of the fact that your taxable income considering other income is below basic income exemption limit applicable for the financial year of receipt of PF accumulations.

Assuming your current employer does not maintain an in-house PF Trust, taxes would be deducted at source at the rate of 10% (plus applicable cess and surcharge) as PAN is provided of the amount withdrawn, if the amount withdrawn exceeds Rs50,000 (revised threshold limit amended from Rs30,000). Depending upon your actual liability on such withdrawal and your other income you may need to pay differential taxes (with interest as applicable) as advance tax or self-assessment tax or claim a refund. In any case, you are required to file a return and disclose the income appropriately.

Is commodity loss (vada vyapar) set off from profit on shares?

—Sachin Khemka

Commodity loss is generally treated as speculation loss and can be set off only against other speculative income. There are insufficient facts on whether the income you have earned from share trading is speculative income to provide any additional comments.