What are the Capital Gain Taxes on Share in India cover

What are the Capital Gain Taxes on Share in India?

Understanding the Capital Gain Taxes on Share in India (Updated): Hello Stock Market Investors and traders. In this post, we are going to discuss taxes while investing & trading in the Indian share market.  We will cover the taxes involved in intraday, short-term, long-term, and capital gain taxes on profits from derivative trading i.e. futures & options options.

However, before you study 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

Here are a few terms that will be commonly used in this article. Make sure that you understand these terms beforehand so that this article can be easier for you to grasp:

  • 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 a long-term capital gain (LTCG).
  • 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 a 1-year holding time is called a short-term capital gain (STCG).
  • 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 Futures & options trading is considered under non-speculative business income.

Capital Gain Taxes on Share in India

capital gain tax shares

1) Short-term Capital Gain (STCG) Tax

For the short-term capital gain, investors/traders have to pay a flat 15% as STCG Tax on their profits.

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. Nonetheless, 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:

  • A 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.

2) Long-term Capital Gain (LTCG) Tax

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.

3) Speculative Business Income Tax

As mentioned earlier, gains from 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 the tax slab you fall in.

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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.

4) Non-Speculative Business Income Tax

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.

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A 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

The dividend received from an Indian company was exempt from taxes until 31 March 2020 (FY 2019-20). However, the Finance Act, 2020 changed the method of dividend taxation and the dividend shall now be taxable in the hands of shareholders. (The previous DDT liability on companies and mutual funds has been withdrawn.)

The tax burden was shifted from the recipients to the companies and Mutual Funds themselves. Hence, from FY 2020-21 onwards, dividends from domestic companies and mutual funds are taxable in the hands of the shareholders and unitholders at their applicable slab rates.

FAQs on Capital Gain Taxes on Share in India

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

Is income from the stock market taxable?

It depends on your holding period. 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, 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?

Yes! From FY 2020-21 onwards, dividends from domestic companies and mutual funds are taxable in the hands of the shareholders and unitholders at their applicable slab rates.

Closing Thoughts

In this post, we discussed the Capital Gain Taxes on Share in India. As discussed above, the long-term investors in India enjoy the lowest taxes on their capital gains at the rate of 10% of their LTCG. On the other hand, short term investors have to pay a tax of 15% on their STCG, or according to their tax slab if they are an intraday trader.

That’s all for this post on what are the capital gain taxes on share market in India. We hope this was useful to you. If you have any questions, feel free to write in the comment box below. Happy investing and trading.

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Comments
  • Gokulnath says:

    Very good information dude. Looking forward for 365 days project from your blog.

  • Murali krishna says:

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

  • Abhilash says:

    Basically what is the difference between bse(100,200,800…)&nse.

  • SAPAN GANDHI says:

    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–
    Can you explain this? I did not get it

    • If you have a loss while performing speculating trading, you can carry forward it to next four years and offset it with upcoming year speculative gain. However, this doesn’t mean that you can reduce the loss from your salary/business income during the loss year and pay less tax. In other words, loss from intraday equity trading can’t be offset against any other income but can be carried forward for next 4 years and offset against speculative gains. I hope it helps.

  • SIDHANT says:

    income; intraday-20000, other income 31500 stcg- 330000, ltcg- loss 112300 80c 150000
    i am getting tax liability of around 9000 due to stcg @15 over 250000. i.e. basic exemption limit as other income and intraday got setoff against 80c.

    Can i classify stcg as business income and claim deduction of balance 80c , so that the tax liability becomes 0?

  • Rahul says:

    Thanks for sharing the great information.

  • Kuldeep Meena says:

    How much a psu employees can invest in market?

  • kunal patel says:

    Hi I want to know is there any provision government has taken that if you have more then 30 lakh ( 3000 Shares) value share of one company any Fixed % government is deduction from you demat account

  • Aditi says:

    I’m a housewife and I don’t have any other income except from investing in shares. I want to know how it would affect the short term capital gain tax? You wrote in that second example with salary 1,80,000 that only the extra 30,000 would be taxed flat 15%. If my short term gains are less than 2,50,000 (for example, around 50,000) would they be exempt from short term gains tax since I do not have any other income? I am not able to find this answer anywhere, it would be great if you would clarify this as well. Thanks!

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