Income tax: Can I claim a deduction under Section 80C against capital gains from listed shares?

I am a retired senior citizen. I have short-term capital gains of around ₹5 lakh till now on listed shares. My interest income is expected to be around ₹2 lakhs for the year. I have fully invested/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 around ₹5.50 lakh. My tax consultant says that the benefit of Sec 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. Section 80C benefits are not available against short-term capital gains on listed shares. Therefore, your normal income becomes ₹50,000.

Section 80C benefits: Income tax consultant explains adjustments for senior citizens

Since there is a shortfall of ₹2.50 lakh against your basic exemption limit of ₹3 lakh applicable to senior citizens, the shortfall of ₹2.50 lakh shall be adjusted against the taxable short-term capital gains to that extent and the balance short-term capital gain of ₹2.50 lakh will get taxed at flat rate of 20% or 15% depending on whether the short term capital gains is earned before or on or after 23 rd July 2024 presuming that you are a resident under the income tax laws.

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 you may incur during the remaining part of the year, which can be set off against such short-term capital gains.

Incidentally, any other short-term gain or loss you earn from any other source is treated like your normal income, and the benefit of Sec 80C is available against such short-term capital gains. Please note that the benefit of setting off the shortfall in the basic exemption limit is not available to a non-resident, and he will have to pay full tax @ 20% /15% on 5 lakh of short-term capital gains on listed shares.

Balwant Jain is a tax and investment expert and can be reached at [email protected] and @jainbalwant on his X handle.

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