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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Equity Products

Mr. Raman Iyer, a resident individual, sold listed equity shares on a recognised stock exchange after holding them for 18 months. The shares were bought for Rs 3,00,000 and sold for Rs 4,90,000, and securities transaction tax was paid on both transactions. Assume the long-term capital gains exemption limit on listed equity is Rs 1,25,000 per year, the LTCG rate is 12.5% (plus cess, ignore here), and he has no other capital gains. What is his LTCG tax before cess?

The long-term gain is Rs 1,90,000. After the Rs 1,25,000 exemption, Rs 65,000 is taxable at 12.5%, giving tax of Rs 8,125 before cess. Taxing the full gain would wrongly ignore the annual exemption available on listed equity LTCG.

  1. ARs 8,125Correct
  2. BRs 23,750
  3. CRs 14,375
  4. DRs 0

Explanation

Gain = 4,90,000 - 3,00,000 = Rs 1,90,000. Less exemption of Rs 1,25,000 gives taxable gain Rs 65,000. Tax at 12.5% = Rs 8,125. Rs 23,750 taxes the full gain, ignoring the exemption.

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