InvestorQ : How is the definition of long term and short term assets different in case of equity shares?
swati Bakhda made post

How is the definition of long term and short term assets different in case of equity shares?

Answer
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swati Bakhda answered.
1 year ago


Let us take the case of Manish Shah who is a retired executive from the pharma industry. In the month of April, 2018 he purchased equity shares of SBI Ltd. (listed in NSE and BSE) and sold the same in January, 2019. How will the gain be treated?

In this case, Manish has purchased the shares in April 2018 and sold them in January 2019, i.e., after holding them for a period of less than 12 months (he only held it for 9 months). Since 12 months is the cut-off period for listed equity shares assuming that the STT has already been paid, these shares will be treated as Short Term Capital Assets and taxed accordingly.

Let us look at an alternative scenario where the said transaction can be considered as a long term capital asset investment in shares. Manish Shah had also purchased equity shares of Reliance Industries Ltd. in April 2017 (listed in NSE and BSE) and sold the same in December, 2018. How will this sale be treated?

Remember, in case of listed shares on which STT has been paid, the definition of long term s a holding period of more than 12 months. In this case, shares are long term capital assets for Manish as they have been held for a period of 20 months. He purchased shares in April, 2017 and sold them in December 2018, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as Long Term Capital Assets and taxed accordingly.