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IAI Actuarial Core Principles · Business Finance · Personal and corporate taxation

Under the Indian Income-tax Act, a resident individual sells listed equity shares of an Indian company on a recognised stock exchange (STT paid) after holding them for 8 months. How is the gain classified?

The gain is a short-term capital gain. Listed equity shares become long-term assets only if held for more than 12 months, and eight months falls short of that threshold, so the gain is taxed under the short-term capital gains rules.

  1. AShort-term capital gainCorrect
  2. BLong-term capital gain
  3. CBusiness income only
  4. DIncome from other sources
  5. Exempt income

Explanation

For listed equity shares the holding period threshold for long-term treatment is more than 12 months. At 8 months the period is below this threshold, so the gain is short-term. Classifying it as long-term would wrongly apply the 12-month test in reverse.

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