Introductory remarks as per Finance Bill, 2004
Levy of Transaction tax and exemption/concession on capital gain arising from securities entered in a recognized stock exchange
Under the existing provisions of the Income-tax Act, profits or gains arising to an investor from the transfer of securities are charged to tax either as long term capital gains or short term capital gains depending on the period of holding of the said securities. Short-term capital gains arising from transfer of securities are taxed at the applicable rates. Long-term capital gains are taxed @ 20%, after adjusting for inflation by indexing the cost of acquisition. For listed securities, the taxpayer has an option to pay tax on long-term capital gains @ 10% but without indexation. For Foreign Institutional Investors (Flls), the long-term capital gains and short-term capital gains are taxed at the rate of 10% (without indexation) and 30% respectively. In case of a trader in securities, however, the gains are taxed as any other normal business income.
With a view to simplify the tax regime on securities transactions, it is proposed to levy a tax at the rate of 0.15 per cent. on the value of all the transactions of purchase of securities that take place in a recognised stock exchange in India. This tax shall be collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The provisions relating to the proposed tax are contained in Chapter VII of the Finance (No.2) Bill, 2004, and shall take effect from the date this Chapter comes into force.
Further, it is proposed to insert clause (38) in section 10 of the Income-tax Act, so as to provide exemption from long-term capital gains arising out of securities sold on the stock exchange. It is also proposed to insert a new section111A and amend section 115AD of the Income-tax Act, so as to provide that short-term capital gains arising from sale of such securities to an investor including Flls shall be charged at the rate of ten per cent.
These amendments will take effect from 1st April, 2005 and will, accordingly, apply to assessment year 2005-2006 and subsequent years.
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