Capital gains from Shares is the gain or profit arising from the sale or transfer of shares effected during the accounting year under consideration. There has been a spectacular growth of the Indian Stock Market, more particularly during the last decade. More and more people are investing in the stock market and are interested in knowing the tax implication on such capital gain in order to save taxes.

As per Section 10(38) of the Income Tax Act, 1961 (the Act) long term capital gains arising from the transfer of any equity shares of a company or a unit of any equity oriented fund shall be exempt from tax with effect from 01-10-2004 provided the transaction of sale is subject to securities transaction tax. The exemption will apply to all the assessees.

However with effect from assessment year 2007-2008 long term capital gains arising on transfer of equity shares or a unit of an equity oriented fund will be included for computing book profit in case of companies for the purpose of Minimum Alternate Tax (MAT) under section 115JB.

For this purpose “equity oriented fund” means a fund:

• Where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 50 per cent of the total proceeds of such fund; and
• Which has been set up under a scheme of mutual fund specified under section 10(23D)

For the purpose of calculating the percentage of equity shareholding of the fund, annual average of the monthly averages of the opening and closing figures shall be taken.

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