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“Okay, the new DTC proposes to make some sweeping changes with
regard to LTCG and STCG.”
“Yes, let me cite a practical example. From your records, I find that
you bought 1,000 shares of Blue Star in September 2003 for a total
consideration of Rs 20,000 and sold them for Rs 340,000 in
November 2009. Here, your capital gain is Rs 320,000 (340,000-
20,000). As the shares were held for a period of more than one year,
the entire Rs 320,000 is treated as LTCG and under the existing
Income Tax Act, you need not pay any tax on this LTCG.”
“As per the draft code called Direct Taxes Code 2009, the
definition of LTCG and STCG remains the same for shares
and mutual funds. The only difference between the existing
and proposed system is in tax treatment of them. Under DTC,
there is no difference between STCG and LTCG. Both will be
clubbed under your taxable income and you’ve to pay tax
according to your individual tax slab.”
“In the above example cited, you do not incur any tax liability
on LTCG under the existing laws. Under the proposed system,
you’d have to add the entire Rs 320,000 LTCG made in selling
Blue Star shares to your taxable income and pay tax
according to your tax slab.”
Note: In this example; brokerage, STT, education cess, service tax are ignored for simplicity.
For my article discussing the impact of DTC concerning your investments in PPF, EPF,
NSC, insurance and other related issues, just click (this is one of my TOPMOST popular
document published by me on SCRIBD):
http://www.scribd.com/doc/19542987
P.Chidambaram’s, the then finance minister, spin on the rationale behind the abolition of
LTCG while presenting the Budget 2004-05 to Parliament:
“Capital gains tax is another vexed issue. When applied to capital market transactions,
the issue becomes more complex. Questions have been raised about the definitions of
long-term and short-term, and the differential tax treatment meted to the two kinds of
gains. There are no easy answers, but I have decided to make a beginning by revamping
taxes on securities transactions. Our founding fathers had wisely included entry 90 in the
Union List in the Seventh Schedule of the Constitution of India.
This was done with a view to simplifying the tax structure on securities transactions, as
per the Explanatory Memorandum to the Union Budget 2004-05. Accordingly, tax on
LTCG was removed and tax on STCG was reduced to 10 per cent. And in the place of
‘nil tax’ on LTCG on securities transactions, a new tax called Securities Transaction Tax
(STT) was introduced by P.Chidambaram. And he is considered one of the architects of
the new Direct Taxes Code Bill 2009! What a somersault!
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http://www.scribd.com/vrk100