Section 10(38) of the Income Tax Act, of 1961 is an important provision that deals with the taxation of capital gains arising from the sale of equity shares or units of equity-oriented mutual funds. The section provides an exemption from tax on such gains subject to certain conditions. In this blog, we will discuss the key provisions of Section 10(38) and their implications.
Exemption under Section 10(38)
Section 10(38) of the Income Tax Act provides an exemption from tax on long-term capital gains arising from the sale of equity shares or units of equity-oriented mutual funds. The exemption is available only if the following conditions are satisfied:
- The equity shares or units of equity-oriented mutual funds are held for a minimum period of 12 months before their sale.
- The sale transaction is executed on or after 1st October 2004.
- Securities Transaction Tax (STT) is paid on the sale transaction.
If all the above conditions are satisfied, the long-term capital gains arising from the sale of equity shares or units of equity-oriented mutual funds are completely exempt from tax. This means that no tax is payable on the gains, and the entire amount can be retained by the taxpayer.
Implications of Section 10(38)
Section 10(38) has significant implications for investors in equity shares and equity-oriented mutual funds. By providing a complete exemption from tax on long-term capital gains, the section encourages investors to hold their investments for a longer period, which is beneficial for both the investor and the economy. This is because longer holding periods result in more stable investments, which in turn helps to promote economic growth.
Another implication of Section 10(38) is that it helps to simplify the tax system by reducing the number of tax provisions that investors need to comply with. By exempting long-term capital gains from tax, the section eliminates the need for investors to calculate their tax liability on such gains, making it easier for them to file their tax returns.
Final Conclusion
In conclusion, Section 10(38) is a significant provision of the Income Tax Act that provides an exemption from tax on long-term capital gains arising from the sale of equity shares or units of equity-oriented mutual funds. While it has been subject to some controversy, the provision remains an important tool for encouraging long-term investment and simplifying the tax system. As with any tax provision, investors are advised to seek professional advice before making any investment decisions to ensure compliance with all applicable tax laws and regulation
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Here are some frequently asked questions (FAQs) related to Section 10(38) of the Income Tax Act:
Q: What is Section 10(38) of the Income Tax Act?
A: Section 10(38) is a provision of the Income Tax Act that provides an exemption from tax on long-term capital gains arising from the sale of equity shares or units of equity-oriented mutual funds.
Q: What are the conditions for claiming the exemption under Section 10(38)?
A: The exemption under Section 10(38) is subject to the following conditions:
The equity shares or units of equity-oriented mutual funds are held for a minimum period of 12 months before their sale.
The sale transaction is executed on or after 1st October 2004.
Securities Transaction Tax (STT) is paid on the sale transaction.
Q: What is the tax rate for long-term capital gains on equity shares and equity-oriented mutual funds?
A: Long-term capital gains on equity shares and equity-oriented mutual funds are taxed at a concessional rate of 20%.
Q: Is the exemption under Section 10(38) available for short-term capital gains?
A: No, the exemption under Section 10(38) is available only for long-term capital gains. Short-term capital gains are taxed at the applicable slab rate.
Q: What is the impact of Section 112A on Section 10(38)?
A: Section 112A imposes a long-term capital gains tax of 10% on equity shares and units of equity-oriented mutual funds sold after 1st April 2018. However, Section 10(38) continues to provide an exemption for gains arising from the sale of such assets acquired before 1st February 2018.
Q: Is the exemption under Section 10(38) available for gains on debt-oriented mutual funds?
A: No, the exemption under Section 10(38) is available only for gains on equity shares and units of equity-oriented mutual funds. Gains on debt-oriented mutual funds are taxed at the applicable slab rate.
Q: Can the exemption under Section 10(38) be availed by NRIs?
A: Yes, NRIs can also avail of the exemption under Section 10(38) provided they satisfy the conditions specified in the provision.
