Lets discuss Tax on Share Trading here, The income you earn from the sale of shares is subject to taxes. Many investors enter the stock market without conducting research on stock investments.
Basically, each investor is supposed to pay a specific amount of tax on the capital gains. Tax regulations in India vary depending on the investment instruments.
For example, the tax levied on the commodities is different from the same charge on the equity investments.
If you are unable to meet the tax obligations and make the payment on time, then you will have to bear the financial penalties.
Types of capital gains
The total tax you pay will depend on the total profit you make from share trading. There are two types of capital gains:
- Short-term capital gains
- Long-term capital gains
As the name implies, the short-term capital gains refer to the amount you earn from selling the shares within 12 months of the date you purchased them.
In other words, if you sell the shares within 1 year, you earn short-term capital gains.
The examples are the money you make from intra-day trading. It goes without saying that you make the short-term gains when you sell the shares at a price higher than the purchased price.
At the same time, the long-term capital gains happen when you sell the shares listed on the stock exchanges after 12 months of the date you purchased them.
In other words, you need to hold on to the investment for more than a year to earn long-term capital gains. According to the 2018 Financial Budget laws, if the investor makes a profit of more than 1 Lakh from the long-term capital gains, then they will have to pay 10% of tax on the amount earned.
You get to keep all your income from the long and short-term gains once you have paid the taxes.
Tax Rules on Short-term and Long-term Gains
No matter what your tax slab is, the short-term gains are subject to a fixed 15% tax on the money you make from the share market.
It is important to note that your income from long-term gains is not taxable as long as the amount does not exceed INR 1 Lakh. As soon as you go beyond that, you will have to pay 10% of tax on the income.
Now, there are certain rules you need to follow when investing in the share market. For example, each transaction needs to be carried out on a reputable stock exchange.
No Tax will be exempted if you purchase and sell the shares outside India. If your income falls below the exemption limit, then you could be exempted from the tax.
However, you are not going to be exempted from the tax payments if you make a large number of trades every single day.
It is important to note that the profits you make from the intra-day trading will be counted as the speculative business income. Now, these profits are not taxed individually.
They are rather added to the total income slab. In simple terms, it refers to the progressive tax that is charged on the total income you make by the end of the year.
Fortunately, Indian trading rules are not as complex as they seem.
It is calculated based on the choosing right investment instruments and how longer decided to stay invested in the share market.
Like other gains, you have to pay higher if you make a good amount from the share market.
Both short-term and long-term gains have a fixed tax rate, which is 15% and 10% respectively.
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