When you buy shares and sell them for a profit within 12 months, you are required to pay a 15% short-term capital gains tax. For active traders, this tax can amount to a considerable sum. However, many individuals are unaware that there are several loopholes that can legally help them save a significant amount of short-term capital gains tax in India. In this article, you will learn how you can legally save STCG in India.
1) Basic exemption Limit:
The basic exemption limit refers to the level of income up to which an individual is not required to pay any tax, meaning there will be no tax liability if the taxpayer’s income falls below this limit.
So, if you’re aged less than 60 and above 18, and your income is less than 2.5 lakh, any remaining short-term capital gains (STCG) will be set off against your income up to 2 lakh.
Let’s illustrate this with examples:
- If your income is zero and you earn short-term capital gains (STCG) of 3 lakh in a year, your 2.5 lakh will be adjusted against the short-term capital gains (STCG).
- If your income is 2 lakh and you earn STCG of 3 lakh, you still have 50,000 left to adjust against the STCG. Therefore, you’ll have to pay tax on 3 lakh – 50,000 = 2.5 lakh.
If you’re still unsure about the basic exemption, you can watch the video below to learn more about how to save taxes. This video covers everything we’ve explained here.
so if you have your mother , sister or brother who are not earning any thing you can use their demat account or tell them to trade in your behalf this will help you to save a lot of taxes.
2) U/S 87A to save short term capital gain tax
If an individual’s total taxable income after deductions is less than Rs. 5 lakh, they are eligible for a rebate of Rs. 12,500 under Section 87A. However, this rebate is not available for long-term capital gains tax.
Eligibility for Section 87A:
- Individual (resident)
- Super senior citizens are not eligible (above 80)
- Total taxable income after deductions should be less than 5 lakh
- Not available for long-term capital gains tax on equity
Let’s illustrate this with an example:
If your income is 3 lakh, which is above the basic exemption limit, and your net short-term capital gains (STCG) is 1.5 lakh, resulting in a combined income below 5 lakh, your net tax will be 15% of 1.5 lakh = Rs. 22,500. However, you can claim a deduction under Section 87A.
So, your net tax will be Rs. 22,500 – Rs. 12,500 = Rs. 10,000. Therefore, the net tax amount you have to pay is Rs. 10,000.
