I have earned more than Rs.5 lakhs this year from trading. Is this amount taxable?
Yes. This is taxable. As a first step to know the tax liability, you will have to segregate the income received from share trading into short-term and long term capital gains. If you held the shares for more than a year and sell it after that, the gajin you received is a long term gain. Otherwise, it is termed as a short term gain. If you have paid securities transaction taxes ( STT), on all the shares, long term gains will be exempted from taxable income, while short-term gains will be treated at a flat rate of 15 percent.
Your gross tax outlay will depend on the income received from your regular sources like salary or income from business, income from capital gains and income received from any other sources like interest from FD, rental income etc, and the entitled deductions.
This has reference to your above reply. Just wanted to understand more about trading taxes:
- if an individual has paid STT then do they have to pay any other tax on long term capital gain?
- short term capital gain will be consider at flat 15 % or this income will add in salary income or income from other sources and sum of it will be taxable at respective slab?
e.g. my income from salary is 3 lakh & income from short term capital gain is 50k then how may i going to pay taxes? is it 2.5 lakh exempted, then i have to pay flat 10% on (3-2.5 = 50k) + (50k income from short term gain) = 1lakh so net paid taxes will be 10% of 1lakh i.e. 10k, is it correct or do i have to pay tax on 50k (income from salary) @ 10% & 50k (income from trading short term capital gain) @ 15%?
Answer for Q1: In case the transaction is done through a recognized stock exchange for which the security transaction tax is paid, you are exempted from the long term capital gain tax under section 10(38). The bill issued by your share broker will have details whether the security transaction tax has been paid or not.
In case you are trading frequently on the stock exchange generating bulk of your income by buying and selling stocks, income earned from stocks is considered as business income. In such a scenario the income you earn from sale of stocks gets added to your business income. Of course you can offset the income by showing expenses for internet, stock market advisory etc to reduce your overall income tax liability.
Answer for Q2: Short term capital gain is levied on equity stocks that you buy and sell within one year. The taxation depends on whether you take the delivery of the stock in your demat account before selling.
For trading through a recognized stock exchange, you will be levied 15% short term capital gains tax. However the short term capital gain tax is applicable only in case you have taken physical delivery of the stock in your demat account. For example if you are a day trader and buy and sell equity stocks for active trading without taking delivery of the stock in your demat account, the gains made are added to your income from other sources. The income tax rate depends on your final tax bracket depending on your overall income. The tax in such a scenario may well exceed the short term capital gains tax bracket of 15%. The good news however is that you can offset trading charges with your business related expenses.
In your case since you have an annual income of Rs. 3 Lakhs and a short term capital gain of 50,000. Assuming you took physical delivery of the stocks before selling them you would be charged 15% for all short term capital gains as tax. So you pay 15% of 50,000 as short term capital gains tax and 10% of 50,000 from your salary (Rs.3 Lakhs minus the exemption limit of Rs. 2.5 Lakhs) at 10%.
Thanks, also wanted to ask if i don’t take physical delivery in my demat account then what could be scenario?
As mentioned in the last answer, if you are a day trader and buy and sell equity stocks for active trading without taking delivery of the stock in your demat account, the gains made are added to your income. While filling your income tax act, all earnings made by sale of such stocks would be compiled under the income from other sources section.
The final income tax that you will need to pay in such earnings will depend on the total earnings in the financial year as per the tax bracket. The income tax therefore for such earnings can very well exceed the 15% mark one pays in case one takes a physical delivery in the demat account. You can meanwhile offset all trading charges like computer expenses, stock advisory charges and other expenses made while trading to reduce your overall gains.
When you sell stocks on the stock market, assuming at a profit, any shares sold within 1 year of purchase are referred to as short term capital gains/loss. According to section 111A of the Income Tax Act 1961, a flat rate of 15% is taxed on your income from short term gains. If it is sold after a year, it is completely tax free. This is because you have already been charged with STT (Securities Transaction Tax). Since your income exceeds the base slab of 2.5 Lakhs/annum, a flat rate of 15% will be charged only on the short term earnings after setting it off against all losses incurred.
hello sir, i’m buying and selling stocks through a broker for last 2 years. Sometimes after one year and sometimes within one or two months. And in every transaction (buying/selling) I’m paying STT. My investment is little. yearly I’m taking a slender profit . Now my Broker is saying that, though I’m not under income tax but I have to hire an advocate an show my papers to Govt. for clearance.( My only income is from selling shares) Is it something I really need to do??? plz help…
Not necessary. How much income you are earning out of stocks a year? The income tax slab is 2.5 lakhs. Which means, you need to pay tax only if your annual income is above 2.5 lakhs. If your annual income is above this slab, you will have to pay tax for your earnings.
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You will need to pay capital gains tax on income from trading in shares. As per the Income Tax rules in India, if an investor holds an immovable asset for less than 36 months before selling it, the gains made on such a sale would be considered short-term capital gains. But this is not applicable to stocks. If shares are held for 12 months or less before they are sold, the gains made fall under short-term capital gains. However, this rule is applicable only to securities which are listed and traded on the stock exchange. If you are trading in unlisted or over-the-counter securities, then the 36-month rule will apply.
While short-term capital gains from sale of shares is taxed at 15%, long-term capital gains are exempt from tax.
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Yes, it is taxable. Ideally the brokering firms like Karvy Stock Broking inform the their clients and facilitate speed up the process of taxation on capital gains.
If you sell the shares with a year after buying, you are taxed 15% for short term capital gains. However, if you had been holding the shared for more than a year, that should not be the case. Good stock broking firms like Karvy inform their clients about all such scenario. I’d suggest you check with your broker/broking firm for further assistance and clarifications.