Section 10(38) of the Income Tax Act, 1961, is a provision that exempts long-term capital gains arising from the sale of listed equity shares or units of equity-oriented mutual funds from income tax, provided these transactions are subject to Securities Transaction Tax (STT). This section was introduced to encourage investment in the stock market by offering tax benefits on profits earned from holding shares or equity mutual funds for more than one year.
For small business owners and first-time investors, understanding Section 10(38) is important because it affects how gains from stock market investments are taxed. If the gains meet the criteria under this section, they are completely tax-free, which can help in better financial planning and investment decisions.
In practical terms, when you sell listed shares or equity mutual fund units and have paid STT on the transaction, the profit you earn (long-term capital gain) will not be included in your taxable income under this section. However, it's essential to maintain proper records of transactions and STT payments for accurate reporting during income tax filings.
Though Section 10(38) offers tax exemption benefits, it is vital to stay updated on any changes in tax laws, as the government periodically revises these provisions. For detailed guidance on income tax and related compliance, businesses and investors can explore professional solutions at FinTax24 Income Tax Services. This helps ensure adherence to tax rules while optimizing tax liabilities effectively.