S. 111A(1) and
the proviso thereto, read as under :
Tax on short-term
capital gains in certain cases.
111A. (1) Where
the total income of an assessee includes any income chargeable under the head
‘Capital gains’, arising from the transfer of a short-term capital asset, being
an equity share in a company or a unit of an equity-oriented fund and —
transaction of sale of such equity share or unit is entered into on or after
the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into
transaction is chargeable to securities transaction tax under that Chapter,
the tax payable by the assessee on the total income shall be the aggregate of
amount of income-tax calculated on such short-term capital gains at the rate
of fifteen per cent; and
amount of income-tax payable on the balance amount of the total income as if
such balance amount were the total income of the assessee :
in the case of an individual or a Hindu undivided family, being a resident,
where the total income as reduced by such short-term capital gains is below
the maximum amount which is not chargeable to incometax, then such
short-term capital gains shall be reduced by the amount by which the 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 15%.
capital gains arising from transfer of equity shares is taxable u/s.111A @ 15%.
The proviso to S. 111A(1) gives some relief to a resident individual or HUF in
case such income of the assessee forms part of the income within the basic
As per literal
reading of the proviso to S. 111A(1), in such a case, that portion of such
short-term capital gains which exceeds basic exemption limit, would be taxable @
15%. In other words, such an assessee is entitled to claim basic exemption in
respect of such short-term capital gains, but the excess of such income above
the basic exemption limit is taxable @ 15%.
The Finance Act,
2009 provides for a 10% tax slab on income between
for individuals (other than specified individuals) and HUFs for A.Y. 2010-11.
Further, the Finance Act, 2010 provides for a 10% tax slab on income between
for individuals (other than specified individuals) and HUFs for A.Y. 2011-12.
A literal reading
of the proviso to S. 111A(1) would make such short-term capital gains arising to
a resident individual/HUF falling within the income bracket of
as the case may be) liable to tax @ 15%, whereas normal income (i.e., incomes
other than such short-term capital gains) falling within such income brackets
would be taxable @ 10%.
It would be
recalled that S. 111A was inserted by the Finance (No. 2) Act, 2004, w.e.f.
1-4-2005, on restructuring of the provisions relating to taxation of capital
gains on transfer of equity shares. This could never have been the intention of
the law-makers to tax such short-term capital gains at a rate higher than the
tax rate on other income falling within the above-mentioned slab.
is a clear and patent anomaly which has crept in after increase in the rate of
tax u/s.111A(1) from 10% to 15% by the Finance Act, 2008, coupled with
significant restructuring of the tax slabs by the Finance Act, 2009 and 2010.
This anomaly is likely to give rise to litigation. This anomaly is adversely
impacting small taxpayers the most. To provide clarity to the assessees and the
Assessing Officers, this anomaly requires to be corrected by way of an amendment
to the law.
Pending such an
amendment, we would request CBDT to kindly issue a suitable Circular/Instruction
granting relief to the taxpayers in such cases.