Given the nature of investors, the tax implications of Stock trading are a major concern for many. From an investor’s perspective, it is important to understand the various taxes levied on share market trading and their implications. Income tax on share trading is levied at rates prescribed by the Income Tax Act of 1961. The tax rate applicable to an individual’s share trading profits depends on the quantum of such profits and other factors like the investor’s age, residential status, etc.
Keep reading as we explore the implication of tax on share market trading in India.
How are Stock Market Transactions Taxed in India?
In India, stocks and derivatives are treated as capital assets. Any gains or losses realized from selling these assets will be subject to income tax.
Capital gains tax applies to the profits made by selling shares after a certain period of holding them (long-term capital gains) and those earned within a short time (short-term capital gains).
- The periods for long-term and short-term holdings differ depending on the type of asset being traded. For example, if an individual holds shares for more than 12 months before selling them, then any profit generated from such a transaction would be considered as long-term capital gain and taxed accordingly. However, if the same shares are sold within 12 months from the date of purchase, any profit generated from such a transaction would be considered short-term capital gains and taxed accordingly.
- The tax rate applicable to long-term capital gain on the sale of shares is generally lower than that of short-term capital gain. The current tax rate for long-term capital gains on the sale of equity stocks is 10%. Short-term capital gain on the sale of equity stocks is taxable at 15%.
- A securities transaction tax (STT) also applies when any stock or derivative transactions are made in India. This tax will add to your trade cost and should be factored into your decision while trading in the share markets.
What About Intraday Trading?
Intraday trading is when the investor buys and sells stock on the same day. Since the stocks are not held for more than one day, any profits generated from such transactions are treated as short-term capital gains and taxed accordingly at 15%.
It is also important to note that if you have incurred losses in your intraday trades, you can avail of tax benefits by setting off them against any other gain or income earned during the year. This will help to reduce your taxable income and ultimately reduce the amount of tax that has to be paid.
What Happens During Stock Market Loss?
Suppose an investor incurs a loss from trading shares or derivatives. Such losses can be set off against any other gains (short-term capital gain or long-term) earned by the individual during that financial year. This means the overall tax liability will come down accordingly.
Additionally, suppose an individual has not been able to fully set off the losses against his/her other gains and still has some unabsorbed losses at the end of a financial year. In that case, these can be forwarded to the next years and used to offset any gains made during that year.
Now that you know the ins and outs of stock market taxes in India, why not get started with your share trading journey today? With 0% brokerage, Shoonya by Finvasia can help you get started right away.