Section 196: tax on short-term capital gains in certain cases

When the special rate applies

The special rate applies where the assessee's total income includes capital gains from the transfer of a short-term capital asset that is:

• an equity share in a company, a unit of an equity oriented fund, or a unit of a business trust; and
• sold in a transaction on which securities transaction tax is chargeable under Chapter VII of the Finance (No. 2) Act, 2004.

The rate

Where these conditions are met, the tax payable on the total income (subject to the shortfall benefit below) is the aggregate of:

• Income-tax on such short-term capital gains at the rate of 20%; and
• Income-tax on the balance of the total income, as if that balance were the assessee's total income.

Shortfall benefit for resident individuals and HUFs

Where the assessee is a resident individual or Hindu undivided family, and the total income (after excluding these short-term capital gains) is below the maximum amount not chargeable to income-tax, the short-term capital gains are reduced by the amount of that shortfall, and only the balance of the capital gains is taxed at 20%.

IFSC exception and other rules

The securities-transaction-tax condition does not apply to a transaction on a recognised stock exchange located in an International Financial Services Centre, where the consideration is paid or payable in foreign currency.

Where the assessee's gross total income includes short-term capital gains under this section, Chapter VIII deductions are allowed only from the gross total income as reduced by such capital gains.

The expression "equity oriented fund" for this section carries the meaning assigned to it in section 198.

Frequently asked questions