InvestorQ : How would the applicability of Section 111A of capital gains work in case of preference shares? Is it the same as equity shares?
Dia Deshpande made post

How would the applicability of Section 111A of capital gains work in case of preference shares? Is it the same as equity shares?

Answer
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Ria Jain answered.
1 year ago


The Income Tax Act basically looks at preference shares based on whether it is listed or unlisted. Let us take the example of Raju who is a middle level salaried employee in Hyderabad. In the month of December, 2017 he purchased 100 preference shares of Resin Salts Ltd. @ Rs. 100 per share. These shares were sold in August, 2018 @ Rs. 110 per share. Can the capital gain be termed as STCG covered under section 111A?

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax. In the given case the shares are preference shares (not equity shares) and hence the provisions of section 111A are not applicable and such gain will be treated as normal STCG. In other words, STCG on sale of preference shares cannot be termed as STCG covered under section 111A. In this case, the STCG is normal like any other non-equity asset, hence, will be charged to normal tax rate depending on the total income slab of Raju. The concessional rate of 15% will not be applicable in this case. This benefit of concessional rate of tax under Section 111A is only applicable in case of equity shares and equity mutual funds.