If you invest in the stock market, then it is important for you to know how the income earned from it becomes taxable.
Stock Market: We all know that we have to pay tax on salary, rental income and business income. Apart from this, you can also earn big money from the sale or purchase of shares. In such a situation, it is very important for you to know how the tax liability is made on the earnings from the stock market. Many housewives and retired people make profits by investing in the stock market but they do not know how this profit is taxed. Income or loss arising from the sale of equity shares is covered under ‘Capital Gains’.
There are two types of capital gains tax – short term and long term. This classification is done according to the holding period of the shares. Holding period means the date of investment to the date of sale or transfer. Let us know what it is.
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Long Term Capital Gains Tax (LTCG)
If there is a profit on selling the shares listed in the stock market after 12 months, then it has to be taxed under LTCG. Long term capital gains tax was reintroduced in the 2018 budget. Earlier, profits from the sale of equity shares or units of equity mutual funds were not taxed. It was exempted from tax under section 10 (38) of the Income Tax Rules.
The provision included in the 2018 budget said that if capital gains of more than Rs 1 lakh have been made on the sale of shares and units of equity mutual funds sold after one year, then it will be taxed at 10 percent.
Short Term Capital Gains Tax (STCG)
If you sell a share listed in the stock market within 12 months of purchase, then you will have to pay tax at the rate of 15 percent. Whether you fall in the 10 per cent slab of income tax liability or 20 or 30 per cent slab, if you have made short term capital gains, then it will be taxed at 15 per cent only.
If your taxable income is less than Rs 2.5 lakh, then the profit earned from selling the shares will be adjusted against this and then the tax will be calculated. It will attract 15 percent tax along with 4 percent cess.
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Security Transaction Tax (STT)
Securities Transaction Tax (STT) is levied on the shares sold and bought on the stock exchange. Whenever there is buying and selling of shares in the stock market, this tax has to be paid on it. The seller has to pay 0.025 percent tax on the sale of shares. This tax is to be paid on the sale price of the shares. Sale of delivery based shares or units of equity mutual funds is taxed at the rate of 0.001 per cent.
Tax on intra-day, futures-option trading
If you trade through intra-day trading or futures-options, then the income earned on this is also taxable. Earnings from intra-day trading are called speculative business income. In addition, earnings from futures and options trading are called non-speculative business income. You have to pay tax according to the tax slab on the income earned from them. This means that as per the slab, income up to Rs 2.5 lakh will not be taxed. Earnings above this will be taxed as per the tax slab.