Capital Gains Tax Case Study
Suppose the investor has two lots of shares of the same company. One lot was bought several years ago and is hence, liable only to long-term capital gains tax, in case of a sale. This is levied at 10 per cent flat or an inflation-indexed at 22 per cent whichever is lower. The second lot was, however, bought within the last fiscal. This is liable to 33 per cent short-term CGT in the event of a sale.
All this has of course changed, with the Budget 2004-2005 announced on 8th of July by the Finance Minister, Shri P. Chidambaram. There will be no more long-term capital gains tax, and a flat rate of 10% short-term capital gains tax.
If you sold a physical lot, presumably you would deliver the older set to minimize the payout. But in case of a demat, there is an extremely grey area about which CGT rate should be levied. The Central Board of Direct Taxes hasn't worked out a clear procedure for distinguishing the earlier lot from the later lot. You could find yourself locked in a dispute and facing a demand for short-term capital gains tax. This is obviously of major