What is the tax treatment of short-term capital gains/loss and long-term capital gains/loss on sale of shares through a recognised stock exchange where securities transaction tax has been paid?

Can short-term and long-term capital loss be adjusted against short-term/long-term capital gains?

- S.Subramanyan

Sale of shares on a recognised stock exchange (held for less than one year and securities transaction tax (STT) paid) attracts short-term capital gains at the special rate of 15.45 per cent (including education cess).

In case the period of holding of such shares is more than one year, such shares shall be considered as long-term capital asset. When long-term shares are sold through a recognised stock exchange and STT has been paid, the long-term capital gain shall be exempt from tax. As per the provisions of the Income-tax Act, 1961, set-off of loss incurred in one source is allowed from income earned from another source/head, subject to the specified conditions. Short-term capital loss incurred during a financial year can be adjusted against any capital gain (short-term or long-term) arising during the same year.

Further, short-term capital loss not set off in the current financial year is allowed to be carried forward to the next eight financial years to be set off against any capital gains of those years.

As stated earlier, the long-term gain from shares on which STT is paid is exempt from tax. This would imply that gain/loss from such transaction does not enter into the tax computation and hence such loss can neither be set off nor carried forward. Therefore, any long-term loss on shares sold through a recognised stock exchange is to be ignored for income-tax purposes.

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