STT is not required to be paid on the following types of transactions even if these take place on or after October 1, 2004—
1) Sale or purchase of any asset other than equities and units of equity based schemes.
2) Sale or purchase of equity shares which have not taken place on recognized stock exchange in India;
3) Redemption or buy backs its shares, preferential or other wise by the companies. On such assets capital gains and losses shall continue to be taxed as per the old provisions. this means —
4) LTCG on non equity based schemes will be charged to tax @ 10% without indexation or @20% with indexation which ever is lower.
5) STCG is considered as normal income of the assessee added to the income and taxed at the slab rate applicable to him. Consequently the rate depends upon his other income.
If LTCG is tax free LTCL is also tax free. In other words any LTCL incurred form October 1, 2004 arising out of sale of equity shares or units of equity oriented MFs cannot be set off against any LTCG even the one arising out of say, housing property. This is the inherent provisions of Sec 10 (38) itself. ‘
In this regard note that set off if possible has to be applied i.e. the tax payer does not have the option of paying tax on the gains and carry forward the outstanding losses.
However it is possible to save tax on long term capital gains by using Sec 54EC, 54F, 54 etc. and carry forward the losses.
Take the case of an individual who has earned taxable LTCG and has invested the gains immediately here after in NHAI bonds to come down to nil tax on capital gains. Later during the same FY, he ahs incurred a long terms capital loss.
Will the loss have to set off against the gains in spite of the tax payer having invested in the bonds u/s 54EC? Again will the loss not be allowed to be carried forward?
The answers to these questions lay in the fact that Sec 54/54EC/ 54F, etc are exemptions and not deductions. In other words if an income is eligible for exemption it is not to be included in the computation of income. On the other hand deductions (Secs 80C, 80G, 80U etc) are too claimed after having aggregated the income from different sources.
After having claimed the exemption u/s 54 / 54EC/ 54F etc an income ceases to be taxable and will not be included in the computation of total income. As such the full amount of capital loss can be carried forward.
For greater clarity even if the assessee earns LTCG later in the same FY, he can invest in bonds within 6 months, claim exemption u/s 54EC and carry forwards the lose.
Lastly, a switch form dividend to growth or growth to dividend option (unlike Ulips) does attract capital gains tax liability. Therefore, of the switch that you are contemplating is within the options in an equity MF take care to see that you have invested over one year ago. In that case, LTCG would be exempted else the same would be taxable. However, a switch form dividend to dividend reinvestment option will not invite any tax liability. Since due to current tax laws, there is no difference between dividend reinvestment and growth, it is suggested that if the switch is being made before a holding period of one year, it should be done in the dividend reinvestment option. This would give similar benefits as the growth option but without the attendant tax liability.