What are the capital gain taxes on share in India?

What are the capital gain taxes on share in India

What are the capital gain taxes on share in India?

Hi Investors. Welcome to the day 17 of my ’30 days 30 posts’ challenge. Today, we are going to discuss taxes in investing & trading.  We will cover the taxes involved in intraday, short-term, long-term, and futures & options.

Before you study about the different capital gain taxes on share market, there are few things that you need to know first.

Long-term investment: 

When the holding period of your investment in equity is more than 12 months, then it is called long-term investment. The gain on selling these stocks after 1 year holding time is called long-term capital gain.

Short-term investment: 

Those investments in equity where the holding period is less than 12 months are called short-term capital investments. The gain on selling stocks under 1-year holding time is called short-term capital gain.

Speculative business income: 

The income from intraday trading is considered under speculative business income. They are appraised as other income (than your salary or business income), and hence they are taxed according to the income tax slab you fall in.

Non-speculative business income: 

The profit or loss from the Futures & options trading is considered under non-speculative business income.

In case you do not know the tax rate under different slabs, here is the income tax slab table for individual taxpayers in India.

Income tax slab for Individual taxpayer in India (Less than 60 years old)

Income Slab Tax Rate
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%

New to stocks? Here is an online course for beginners in Indian stock market- How to pick winning stocks? Start your investing journey today!

Capital gain taxes on share in India

capital gain tax shares

Short-term capital gain:

For the short term capital gain, investors/traders have to pay flat 15% as tax.

Here are few other important points regarding short-term capitals loss:

  • You cannot offset short-term losses against salary income/business income.
  • Short term losses cannot be carried forward for next years.

It doesn’t matter which income tax slab you are in, you have to pay a flat short-term capital gain tax of 15%.

For example, Let’s say your annual salary is Rs 12,00,000 and you have a short-term capital gain of Rs 50,000. Here, although your tax slab is for 30%, you have to pay the short-term capital gain tax of 15% on Rs 50,000 i.e. Rs 7,500.

However, if your net income is less than the taxable amount (i.e. less than Rs 2.5 lakhs), in such case the 15% tax will only be paid on the amount above Rs 2.5 lakhs.

For example, if your salary is 1,80,000 and you have an additional short-term capital gain of Rs 1,00,000. In this case, your total income will be Rs 2,80,000. However, you have to pay short-term  capital gain tax only on Rs 30,000 {Rs 2,80,000 – Rs 2,50,000).

Also read: Different Charges on Share Trading Explained- Brokerage, STT & More

Long-term capital gain:

There is no tax on the long-term capital gain.

You do not need to pay anything to the government if you are holding the stock or equity mutual fund for more than 1 year.

However, for the long-term capital loss, here are few points that you should know:

  • You cannot offset the long-term capital loss against salary income or other business income.
  • The long-term capital loss can’t be carried forward for next years.

Speculative business income:

As mentioned earlier, gains from the Intraday trading are considered under speculative business income. This is because you will be trading without the intention of taking delivery of the contract.

These gains are taxed as per tax slab you fall in.

For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 at a tax rate of 30% on the total amount.

Here are the other important points that you should know about speculative business income:

  • You can offset the speculative income loss against speculative income. However, you cannot offset this loss against salary income, business income or non-speculative income.
  • Nevertheless, this loss can be carried forward to next 4 years.

Also read: Fundamental vs Technical Analysis of Stocks

Non-Speculative business income:

Futures & options trading is considered under non-speculative business income as in F&O contracts are meant to be held for a longer time. These instruments are used for hedging and also for taking/giving delivery of the underlying contract.

Few other non-speculative incomes are income from rent, income from selling products etc.

These incomes are taxed as per your tax slab.

For example, if your annual income is Rs 6,00,000. Then you are under 20% tax slab. If you earned a profit of Rs 1,00,000 by future trading in a year, then your total taxable amount will be Rs 6,00,000 + Rs 1,00,000 = Rs 7,00,000.

Few other important points to know:

  • You can offset the non-speculative loss against non-speculative & speculative income. However, you can’t offset it against salary income.
  • Non-speculative loss can be carried forward to next 8 years.

Note: All the cases mentioned above are for those whose primary source of income is salary, self-employment or business. In case you declare trading as your primary business income, i.e. in case of full-time traders, you have to pay the short-term capital gain according to your tax slab (not a flat 15% tax). Other cases will remain the same as they are charged according to your tax slab.

Taxation on dividends

Dividends are exempted from tax.

The company already pays a ‘dividend distribution tax’ to the government before giving the dividends to its shareholders. Effectively, you already paid the tax through the company.

Note: Dividends above Rs 10 lakhs is taxable to 10%. However, for the dividends to be greater than 10 lakhs, you have to invest above 2.5 crores (if we take a high dividend yield of 4% from the stocks).

Also read: Dividend stocks: Should you invest in it?

Conclusion:

taxes in share market india

Here is the answer to few of the most common questions asked about taxes on share in India.

Is income from stock market taxable?

It depends on your holding period. If you are holding the stocks for long-term (more than 1 year), then the capital gain is not taxable. However, for the short term capital gains (holding period of less than 1 year), there is a flat capital gain tax of 15%.

How much do day traders pay in taxes?

Day traders, who are involved in intraday trading, pay taxes according to their tax slab. For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 with a tax rate of 30% on the total amount.

Do you have to pay the taxes if you do not sell the stock?

No, you do not have to pay taxes if you do not sell the stock. Moreover, if you sell the stock after holding it for more than 12 months, again there will be no tax. Tax is applicable only when the holding period of stocks is short (less than 12 months).

Are dividends taxable?

Dividends are exempted from tax. The shareholders do not need to pay any tax on the dividends it receives from the company he holds.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for this post on ‘What are the capital gain taxes on share market in India?’. I hope this is useful to the readers.

If you have any question, feel free to write in the comment box below. 

Footnotes: Sources

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About Kritesh Abhishek 86 Articles
Hi, I am Kritesh. I'm 23, Electrical Engineer, Investor & Blogger. I have a passion for stocks and has spent my last 3 years learning, investing and educating people about stock market investing. And so, I delighted to share my learnings with you on this blog. #HappyInvesting

7 Comments

  1. Very informative article. I have been looking for info on income tax with regard to short term and speculative incomes. Your post clarified it.

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