Immense changes are taking place in the Indian Economy due to the massive structural, trade and industrial policy reforms which have created interest amongst the large population of investors, both domestic and foreign in the capital markets. A good proportion of these investors are those whose main source of income is from salaries. Many of them are not aware of the tax implication on sale of equity shares or equity oriented fund.

As per Section 111A of the Income Tax Act, 1961(the Act) short term capital gain arising from transfer of any equity shares of a company or units of equity oriented fund shall be taxed at flat rate of 15% with effect from assessment year 2009-2010(earlier the rate was 10%), provided the transaction of sale is subject to securities transaction tax. However, in case of resident individual or Hindu Undivided Family if the total income is less than the maximum amount not chargeable to tax, then such short term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income tax and the tax on the balance of such short term capital gain shall be computed at the applicable rate mentioned above.

It may also be noted that deductions under chapter VIA of the Act shall be allowed from the gross total income as reduced by the above short term capital gain. Further, rebate under section 88 of the Act shall not be allowed on tax on short term capital gain.

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