I am not still clear about the calculation of STCG tax by clubbing it with total income. Can you explain that with an example?
Answer
Answer
Mr. Khemani (Indian resident aged 40 years) is a salaried employee working in Dabur Ltd. at an annual salary of Rs. 8,40,000. In December, 2017 he purchased 10,000 equity shares of Firdaus Tech Ltd. at Rs. 100 per share and sold the same in April, 2018 at Rs. 125 per share (brokerage Re. 1 per share). The shares were sold through Bombay Stock Exchange and securities transaction tax was paid by Mr. Khemani. What will be the tax liability applicable to Mr. Khemani?
First we have to compute the taxable income of Mr. Khemani and then we will compute the tax liability. The computation of taxable income will be as under:
Particulars (FY 2018-19)
Amount
Salary income
Rs.8,40,000
Short-Term Capital Gains (less brokerage)
Rs.2,40,000
Gross Total Income
Rs.10,80,000
Less: Deduction under section 80C to 80U
Rs.70,0000
Total Income or Taxable Income
Rs.10,10,000
Income Tax at normal rates on Salary
Rs.66,500
Income Tax on STCG U/S 111A (15% of Rs.2.40 lakh)
Rs.36,000
Tax on total income
Rs.1,02,500
Add: Health & education cess
Rs.4,100
Total tax liability for the year
Rs.1,06,600
As can be seen in the above illustration, the tax liability is calculated separately for the STCG under Section 111A and the normal salary income since the STCG under Section 111A gets preferential treatment. That is because the tax rate on equity STCG is 15% concessional rate compared to your peak rate. However the impact of 4% cess will be the same. In case the income crosses the Rs.50 lakh mark then the applicable surcharge will also add to your tax burden on STCG.