I am a retired senior citizen. I have short term profits of approx ₹5 lakh so far on listed shares. My interest income is expected to be round ₹2 lakhs for the year. I have fully invested/spent ₹1.50 lakh in lanes covered under Sec 80C. After deduction ₹1.50 lakh under Section 80C, my taxable income should be round ₹5.50 lakhs. My tax advisor says that the benefit of Sec 80C is not available on the short-term gain from the sale of listed shares, and therefore I will have to pay tax at 20% on the entire short-term gain. Can you help me understand how my tax liability is calculated?
Your tax advisor has rightly noted that the benefit of Section 80C is available only on your normal income ₹2 lakhs. Section 80C benefits are not available against short-term capital gains on listed shares. Your normal income will therefore be ₹50,000.
Section 80C benefits: Income tax advisor explains adjustments for senior citizens
Since there is a shortage of ₹2.50 lakh against your basic exemption limit of ₹3 lakh applicable to senior citizens, the shortage of ₹2.50 lakh shall be adjusted to that extent against the taxable short-term capital gain and the balance sheet of short-term capital gain of ₹2.50 lakh will be taxed at a flat rate of 20% or 15% depending on whether the short-term capital gain is earned before or on or after July 23, 2024, assuming you are a resident under the income tax laws.
Please note that the benefit of Section 80C is only available under the old tax regime. There is no single strategy you can follow to save or reduce this tax. Yes, any short-term losses you incur during the remaining part of the year can be offset against such short-term capital gains.
Besides, any other short-term gain or loss you earn from any other source is treated as your normal income, and the benefit of Sec 80C is available against such short-term gains. Please note that the benefit of offsetting the shortfall in the basic exemption limit is not available to a non-resident, and he will have to pay the entire tax of 20%/15% on 5 lakh short-term capital gains on listed shares.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We recommend that investors consult certified experts before making any investment decisions.
