Can I claim deduction under Section 80C against capital gains from listed shares?

I am a senior citizen and a retired person. I have earned short-term capital gains of around ₹5 lakh till now on listed shares. My interest income is expected to be around ₹2 lakh for the year. I have fully invested and spent over ₹1.50 lakh in avenues covered by Sec 80C. After a deduction of ₹1.50 lakh under Section 80C, my taxable income should be ₹5.50 lakh. My tax consultant contends that the benefit of Section 80C is not available against the short-term capital gains from the sale of listed shares, and therefore, I will have to pay tax on the entire short-term capital gains at 20%. Can you please help me understand how my tax liability will be computed?

Your tax consultant has rightly observed that the benefit of Section 80C is available only on your normal income, which is ₹2 lakh. It is not available against short-term capital gains on listed shares. Therefore, your normal income becomes Rs. 50,000/-. Since there is a shortfall of 2.50 lakh against your basic exemption limit of Rs. 3 lakh applicable to senior citizens, the balance short-term capital gain of ₹2.50 lakh will get taxed at a flat 20% presuming that you are a resident under the income tax laws.

Section 80C Benefit Only Under Old Tax Regime

Please note that the benefit of section 80C is available only under the old tax regime. You can adopt no strategy to save or reduce this tax. Yes, you can set off any short-term loss which you may earn during the remaining part of the year, which can be set off against such short-term capital gains.

Incidentally, any short-term gain or loss you earn from any other source is treated as your normal income and attracts, if it is a gain, the benefit of Sec 80C is available against such capital gains. And if it is a loss, you can set off such short-term capital gains against short-term capital gains on listed shares.

Please note that the benefit of recouping a shortfall in the basic exemption limit is not available to a non-resident, and he will have to pay full tax @ 20% on 5 lakh of short-term capital gains.

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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant, his X handle.

Disclaimer: The views and recommendations above are those of individual analysts, not Mint. We advise investors to check with certified experts before taking any investment decisions.