What are the capital gain taxes on share in India

What are the capital gain taxes on share in India?

Hi Investors. In this post, we are going to discuss taxes on investing & trading.  We will cover the taxes involved in intraday, short-term, long-term, and futures & options. However, before you study about the different capital gain taxes on share market, here are a few things that you need to know first.

Terms to know before we get started:

  • 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 one 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.

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

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 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%

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.

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).

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

  • Short term capital loss can be set off against short or long term capital gain from any capital asset. However, you cannot offset short-term losses against salary income/business income.
  • In case of loss not entirely set off, it can be carried forward for the next 8 years.

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. 

According to the updated tax rules announced in budget 2018 by Mr. Jaitley, long term capital gains exceeding Rs 1 lakh will be taxed 10% after 1st April 2018.

For example, let’s suppose you bought stocks worth Rs 12,00,000 and the market price of those stocks moved up. After one year, you sold the stocks and your final selling worth is Rs 14,50,000. Here, you made a long term capital gain of Rs 2,50,000. As the government has given a relaxation of gains till Rs one lakh, therefore, you have to pay a capital gain tax of 10% on  (2,50,000- 1,00,000=) Rs 1.5 lakh.

In the case of long term capital losses, it can now (post introduction of LTCG tax of 10% in budget 2018) be set off against long term gains and can be carried forward to subsequent eight years.

long term capital loss taxation india

Source: Frequently Asked Questions (FAQs) regarding taxation of long-term capital gains proposed in Finance Bill, 2018-reg

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 the 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 the 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

Income from dividends is exempted from tax in India.

This is because the company issuing dividends 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. Anyways, an income from dividends above Rs 10 lakhs is taxable to 10%.

Note: 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% of the stocks). [Also read: Dividend stocks: Should you invest in it?]

Conclusion:

taxes in share market india

Here is the answer to a 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 For the long term, the capital gain exceeding Rs 1 lakh, is taxed 10%. 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 then you have to pay a tax of 10% (for gains above 1 lakhs). A 15% Tax is applicable when the holding period of stocks is short-term (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.

Footnotes: Sources

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. 

Different Charges on Share Trading

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

Different Charges on Share Trading Explained. Brokerage, STT, DP & More- There are a number of charges involved while trading in India i.e. buying or selling of shares. Some of them are common like brokerage charge & STT, while there are many whom the investors are not afraid of. In this post, I am going to explain all of the different charges on share trading. Some of them are brokerage charge, Security transaction charge, stamp duty etc. But before we learn about them, there are few basics things that we need to understand first.

So, be with me for the next 8-10 minutes to understand the explanation of all the different charges on share trading.

Following are the things that you need to know first:

1. Intraday Trading and Delivery:

  • When you buy & sell a share on the same day, then it’s called an Intraday trading. For example, you bought a share in the morning and sold it before the market closes on the same day, then it will be considered as an intraday
  • On the other hand, when you buy a share and hold it for at least one day, then it’s called a delivery. For example, you bought a share today and sold it any day but today then it will be considered it as a delivery. Here you can sell the stock tomorrow, or the day after that, or a week later, a year later or 20 years later.

 2. Full-Service Brokers and Discount Brokers:

  • Full-Service brokers are the traditional brokers who offer full-service trading like stocks, commodities, currency along with research and advisory, sales and asset management, investment banking all in one account. For example, ICICI Direct, Kotak Securities etc.
  • Discount brokers are who offer high speed and the state-of-the-art execution platform for trading in stocks, commodities and currency derivatives. They charge a reduced commission and do not provide investment advice. For example, Pro stocks, Zerodha, Trade Smart Online etc.
  • In general, a full-service broker charge between 0.01% – 0.50% brokerage charge on Intraday and delivery.
  • The discount brokers charge a flat fee (fixed fee of Rs 10 or Rs 20 per trade) on intraday and delivery trading. There are also a couple of discount brokers who do not charge any fee on delivery trading.

It is important to note that you have to pay a brokerage charge on both times of trading i.e. while buying a share and selling a share. There are some brokers (very few) who charge brokerage fee only at one side of transaction i.e. either on buying or selling.

Let’s take an example to understand the brokerage charge better. Suppose there is a brokerage firm called – ABC. Now, ABC charges a brokerage fee of 0.05% on intraday trading and 0.30% on delivery trading. The total charges on both tradings can be given as-

Intraday Trading Delivery
Brokerage charge= 0.05% of total turnover Brokerage charge= 0.30% of total turnover
If we buy a single stock worth Rs 100, then
Brokerage charge = 0.05% of Rs 100 = Rs 0.05
If we buy a single stock worth Rs 100, then brokerage charge = 0.30% of Rs 100 = Rs 0.30
Total brokerage charge on trading (for both buying and selling) = 2 * 0.05 = Rs 0.10 Total brokerage charge on trading (for both buying and selling) = 2 * 0.30 = Rs 0.60

As the competitions in the brokers are increasing, the brokerage charges are decreasing. In coming days, these rates can even reduce further.

Apart from brokerage charge, there are also an additional couple of charges and taxes to be paid while share trading. For example, Security transaction tax, service tax, stamps duty, transaction charges, SEBI turnover charges, depository participant (DP) charges and capital gain tax.

Let’s understand the other different charges on share trading and taxes involved first. Then we will see an example for further understanding.

Different Charges on Share Trading-

Security Transaction Tax (STT):

  • This is the second biggest charge after the brokerage charge.
  • For delivery trading, STT is charged on both sides (buy & sell) of trading.
  • For intraday trading, STT is charged only when you sell the stock.
  • In general, for delivery, the STT charge is around 0.1% of total transaction (on each side of trading)
  • For intraday, the STT charge is around 0.025% of the total transaction (while selling).

Service Tax:

It is same for intraday and delivery trading. Service tax is equal to the 15% of whatever brokerage charge you paid.

Stamp Duty:

This is charged by the state government. Different states have different stamp duty. Here is the stamp duty of two of the Indian states-

  Intraday Delivery
Maharashtra 0.002% 0.01%
Delhi 0.0025% 0.0025%

Stamp duty is also charged on both sides of trading (buying & selling) and are charged on the total amount (turnover).

Transaction Charges:

  • This is charged by the stock exchanges. Transaction charges are charged on both sides of the trading and are same for both intraday & delivery.
  • National stock exchange (NSE) charges a transaction fee of 0.00325% of the total amount.
  • Bombay stock exchange (BSE) charges a transaction fee of 0.00275% on total amount.

SEBI Turnover Charges:

  • Here, SEBI stands for Securities exchange board of India and it is the security market regulator. SEBI makes the rules and regulations for the exchanges.
  • It is charged on both sides of transaction i.e. while buying and selling.
  • The SEBI turnover charge is 0.0002% of the total amount and is same for both intraday and delivery trading.

Depository Participant (DP) Charges:

  • There are two stock depositories in India- NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
  • Whenever you buy a share, it is kept in an electronic form in a depository. For this service, the depositories charge some fixed amount.
  • They don’t charge the investors directory but charge the depository participant. Here, the broker company or your demat account company is the depository participant (DP).
  • DP acts as a linkage between the depository and the investor as the investors cannot approach depository directly. So, overall the depository charges the depository participant and then the depository participant (DP) charges the investors.
  • DP charges are a flat of between Rs 10 to 35 depending on your broker and this is also charged only for delivery trading (not for intraday)

Capital Gain Tax:

  • This is the most important tax to understand for a trader.
  • There are two types of Capital gain tax – Short-term capital gain tax and Long-term capital gain tax.
  • When you sell a stock before 1 year of buying, then it is considered as a Short-term. Here a flat 15% of the profit is charged as short-term capital gain tax.
  • When you sell a stock after 1 year of buying, then it is called long-term capital gain tax. There is no tax on long-term capital gain.
  • For a short-term capital gain tax, the delivery trader has to pay flat 15% and it doesn’t matter what tax slab they are in. But this doesn’t apply to an intraday trader as they have to pay capital gain tax according to their tax slab.
  • As the long-term capital gain tax is nil, the big investors try to get maximum profit from it by investing for long term.

If you want to read further in details, I will recommend you to read this book: Everything You Wanted to Know About Stock Market Investing -Best selling book for stock market beginners. 

Now, let us see an example to understand these different charges on share trading and taxes involved better. Suppose there are two traders- Rajat and Prasad. Here Rajat is a delivery trader who invests in long-term i.e. for 2-3 years. On the other hand, Prasad is an intraday trader.

They both have their accounts in same brokerage company named ABC. The brokerage charge for ABC is 0.05% on intraday trading and 0.30% on delivery trading. Also, let us suppose that both Rajat and Prasad have invested a total of Rs 10,000 in the shares of Tata Motors. In addition, they both live in Maharastra.

Now the different charges and taxes paid by them for complete trading i.e. from buying to selling the shares can be given as-

Rajat

Delivery Trader (Long term)

Prasad
(Intraday Trader)
Total Investment Rs 10,000 Rs 10,000
Exchange NSE NSE
Brokerage Charge 0.30% of Total Amount
= 0.30% of Rs 10,000 = Rs 30
Total brokerage charge= 2*30 = Rs 60
0.05% of Total Amount
= 0.0% of Rs 10,000 = Rs 5
Total brokerage charge= 2*5 = Rs 10
STT 0.1% of total amount
= 0.1 % of Rs 10,000 = Rs 10
Total STT = 2*10 = Rs 20
0.025% of total amount
= 0.025 % of Rs 10,000 = Rs 2.5
Total STT = 1*2.5 = Rs 2.5
Service Tax 15% of brokerage charge
=15% of Rs 60 = Rs 9
15% of brokerage charge
=15% of Rs 10= Rs 1.5
Stamp Duty (Maharashtra) 0.01% of total amount
= 0.01% of Rs 10,000= Rs 1
Total stamp duty = 2*1= Rs 2
0.002% of total amount
= 0.002% of Rs 10,000= Rs 0.2
Total stamp duty = 2*0.2= Rs 0.4
Transaction Charges 0.00325% of total amount
= 0.00325% of Rs 10,000= Rs 0.325
Total stamp duty = 2*0.325= Rs 0.65
0.00325% of total amount
= 0.00325% of Rs 10,000= Rs 0.325
Total stamp duty = 2*0.325= Rs 0.65
SEBI Turnover Charge 0.0002% of total amount
= 0.0002% of Rs 10,000= Rs 0.02
Total stamp duty = 2*0.02= Rs 0.04
0.0002% of total amount
= 0.0002% of Rs 10,000= Rs 0.02
Total stamp duty = 2*0.02= Rs 0.04
DP Charge Rs 15 NIL
Capital Gain Tax 0 Pays according to tax slab

 

Overall, here is the summary of all the charges and taxes paid by Rajat and Prasad.

  Rajat Prasad
Brokerage Charge Rs 60 Rs 10
STT Rs 20 Rs 2.5
Service Tax Rs 9 Rs 1.5
Stamp Duty (Maharashtra) Rs 2 Rs 0.4
Transaction Charges Rs 0.65 Rs 0.65
SEBI Turnover Charge Rs 0.04 Rs 0.04
DP Charge Rs 15 0
Capital Gain Tax 0 Pays according to tax slab
Total Charges Rs 106.69 15.09 + Capital Gain Tax

On the first glance, it looks cheap to invest in intraday as the total charges are comparatively less here. But you should note that the frequency of trading for intraday traders is quite high. So, they have to pay these charges again and again.

Also, let us take a scenario where Prasad chooses to sell his stocks after 2-3 days as the prices were quite low on that day and he was expecting some price increase on next days. In such case, Prasad turns from an intraday trader to delivery trader. Hence, his total charges also changes from Rs 15.09 to Rs 169.69.

Let us also assume that Prasad makes a profit of Rs 100 on selling. So, the capital gain tax that he has to pay will be equal to 15% of Rs 100 i.e. Rs 15. Now his situation turns out like this-

Total Charges Rs 106.69
Short term capital gain tax Rs 15
Total Charges Rs 124.63
Profit Rs 100

Here, although Prasad’s profit is Rs 100, still his expenditure is Rs 124.69 on different charges. Overall, Prasad is in loss of Rs 24.69.

Hence, charges and taxes are a very important part of trading and should not be ignored. You might think that you are in profit, but the real profit is the one which is left after deducting the charges and profit. I hope the traders will keep this in mind before trading the next time.

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Tags: Different Charges on Share Trading Explained, Different Charges on Share Trading Intraday, Different Charges on Share Trading long term, Different Charges on Share Trading in delivery trading, common different Charges on Share Trading