Do I have to include the Securities Transaction Tax (STT) when calculating capital gains tax?
The generally accepted methodology is to take the full value of the transfer, deduct the cost of acquisition and calculate the applicable tax rate on this amount. So don't make the mistake of adding back the STT that has been deducted.
Let's say you invested Rs 80,000 in an equity mutual fund. At the time of redemption, the amount is Rs 1,00,250. But out of this amount, you only get Rs 1,00,000 as Rs 250 is deducted on account of STT.
The capital gain will be calculated on the sales proceeds received, which is Rs 1,00,000 in your case. Therefore, short-term capital gains will be Rs 20,000 and you will have to pay a short-term capital gains tax at the rate of 10 per cent (plus cess and surcharge) on this amount.
This article was originally published on January 29, 2008.
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