what was in section 111A
As per section 111A
if a person's total income includes Short term capital gain from transfer equity shares or unit of a equity oriented fund and
STT has paid on transfer
than rate of tax will 10% flat and on other income of the assessee tax will be calculated as if such balance amount is total income of the assessee
however in case of HUF and Individual if assessee balance income is less than the total exemption limit than such short-term capital gains shall be reduced by the amount by which the balnce total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of 10% per cent.
In this case deduction under chapter VI also available from balance income i.e income without short term capital gain as discussed above
What is current position after amendment
This section is yet beneficial to those who tax rate is more 15 % like companies ,AOP,BOI ,partnership companies and individual and huf who's income is more than 300000.But this the fact as most of the person who shows income from STCG has income less than 300000 as big fishes show income of sale purchase of shares as business Income.
What are the option available after Budget
First option:show income from shares as Business Income instead of short term capital gain, while we discuss under which head income from share to be taken ,as you all know there is a thin linn between income from share as a business and short term capital gain . If your trading volume is large as compare to your net worth, you can go for it.
benefit:
as your income will be covered under business you can charge /book various expenses which has been incurred to earn share income which can not be done in short term capital gain .In some cases it will be beneficial for person whos income will be more than 300000 rs also.
You can set off loss from business of shares from any other head except salary.
You can also claim benefit of deduction under chapter VI also.
STT paid will be allowed as Expenditure.
dis advantages;
you have to prepare proper books of accounts if the income from shares is more than 120000 rs in a year or gross trunover is more than 1000000 in any of the proceeding proceeding three years.
if trunover is morethan 4000000 than audit is required.
Second option
Sell the equity share out of market /off the market than section 111A will not apply
Benefit:
your short term capital gain will be treated as income and income tax will be calculated as it it required to calculated in on any other income. means STCG will be part of total income and normal slab rate will be applied.
You can also claim benefit of deduction under chapter VI also.
No STT is required to paid as transaction is to be done off market.
disadvantages:
generally off market transaction creates doubt in ITO mind ,but it is done on the same rate as were in stock exchange than it can be proved easily.
other expenses as compare to business income is not allowed under STGC.
off market buyer and seller are difficult to find but they are existed.
So in both the above conditions you will save considerable money ,at least five % of tax.
Example
lets take example of a Individual for Assessement year=2009-10
Income from salary= 200000
Income from shares as Short term capital gain (STT PAID 5000)=150000
saving U/s 80C =50000
case 1:tax liability if we take income as SHORT TERM CAPITAL GAIN
tax on STGC 150000@ 15 %=22500
other income
(200000-50000)=150000=nil tax
total tax payable=22500
Case 2:if we take as a Business Income (and lets suppose there are exp which can not be shown in STCG as 20000)
Income from salary=200000
Income from business=(150000-20000other exp-5000stt)=125000
Gross income=325000
less :saving=50000
net taxable income=275000
tax payable=12500
Case 3= if we do the transaction off market out of stock exchange
short term capital gain=150000
salary= 200000
GT=350000
less :saving=50000
taxable income=300000
tax due=15000
and saving of stt =5000 rs so effective tax =10000