Union Budget 2015: Partying with the bulls and bears

TAX-FREE DIVIDEND

As an investor you enjoy tax-free dividend, be it from shares or units of mutual funds.

TAX-FREE LONG-TERM CAPITAL GAINS

Long-term capital gains on sale of listed shares and equity-oriented mutual funds are also exempt. To qualify for long-term capital gains exemption, these securities need to be held for a period of at least 12 months by the investor. Only a minimal securities transaction tax (from 0.001% to 0.1% of sale price) is payable by the seller (this tax cost is payable both by buyer and seller in case of a share deal on a stock exchange). In some cases, you even get a tax benefit at the time of making the investment.

CAUTION POINT: Debt-oriented mutual funds, need to be held for a period of at least 36 months to qualify as a long-term capital asset (as opposed to listed shares and equity-oriented mutual funds which require a holding period of just 12 months).

However, even on sale after this period, the longterm capital gains that arise are subject to a tax of 20% with indexation (The table below shows the tax impact on your 'listed' investments).

SET OFF PROVISIONS FOR CAPITAL LOSSES

Stock markets can be quite volatile and it is possible that you may end up with a loss on sale of your securities. The set off provisions for capital losses are rather restrictive. Loss from transfer of a short-term capital asset (Eg: the listed shares or equity-units held for less than 12 months) can be set off against gain from transfer of any other capital asset in the same year. Loss from transfer of a long-term capital asset (other than listed shares and equity-oriented MFs) can be set off against gains from transfer of any other long-term capital asset in the same year. Thus, long-term capital loss cannot be set off against short-term capital gains. Any unutilized capital loss after absorption in the same year can be further carried forward to next 8 years and be utilized under the same conditions as above.

CAUTION POINT: You should file your I-T return before July 31 to carry forward any losses.