Effect of taxation on profit and loss of shares.

While filing for your Income tax returns, one would ponder and think about, Why should I pay taxes?. Taxes are used for various welfare schemes in a country. If you have paid your taxes, you have successfully contributed to better healthcare facilities, education, employment programs, subsidies, and many more services provided by the Government. 

EasyfileITR has made filing for Income tax returns tranquil and breezy. It provides proper guidance and the best customer experience. The company has a team of experts who are well acquainted with taxes and how the stock market functions.

There are primarily five sources of income which are Business Income, Salary, Capital Gain, House Property, and other sources. Everyone wants to eliminate losses. However, profit opportunities are not devoid of risks. You can minimize the damage done by losses by properly accounting for them while calculating your tax liability. In this article, we will understand the various effects of taxation on the stock market.

What is a Capital Gain or Capital Loss?

A Capital Gain or loss is an increase or decrease of an asset’s value when it is sold. A Capital gain may be short-term or long-term and must be claimed on income taxes.

Taxation for Investing in Stock Market- As Investment

  • Short-term capital gain (STCG)- If you square up trade within 12 months of investment it is called STCG. You need to pay a 15% tax on STCGs. If you incur a loss you can set off against any short or long-term capital gain. It can be carried forward for 8 years.
  • Long-term capital gain (LTCG)- If you hold equity for more than 12 months and decide to sell it off with a profit. You need to pay 10% tax on LTCGs if you make a profit of more than 1 lakh rupees. Long-term capital losses can only be set off against long-term capital gains.

LTCG are charged to tax at 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax at 10% (plus surcharge and cess as applicable).

The benefit of charging long-term capital gain @ 10% is available only in following

Cases:

  •  Long-term capital gains arising from the sale of listed securities and exceeds Rs.1,00,000 (Section 112A)
  • Long-term capital gains arising from transfer of any of the following assets:
  • a) Any security (*) which is listed in a recognized stock exchange in India.
  • b) Any unit of UTI or mutual fund (whether listed or not) ($)
  • c) Zero-coupon bonds

 (*) Securities for this purpose means “securities” as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956. This definition generally includes shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities of a like nature in or of any incorporated company or other body corporate, Government securities, such other instruments as may be declared by the Central Government to be securities and rights or interest in securities.

($)This option is available only in respect of units sold on or before 10-7-2014

Taxation for Investing in Stock Market-As Business

  • Speculative Income

If you are buying and selling stocks on the same day it is called Intraday ‘Equity’ trading. Profits made from intraday trading are termed speculative income. Here, their intention is not an investment but a business.

For speculative business income, you need to pay taxes as per normal slabs. Loss in speculative income can be set off against profits in speculative business only. Losses can carry forward to 4 assessment years

  • Non-speculative Income

Profits made from intra-day and overnight trading of Future and Options (F&O) fall under non-speculative income.

For non-speculative income, you need to pay taxes as per normal slabs. Loss from non-speculative income can be set off by Equity or F&O trading. It can carry forward to 8 assessment years.

We all are busy increasing our earnings. Although, understanding tax treatment is equally important to increase your net savings from the stock market. EasyfileITR ensures you complete income tax return filing for the stock market timely and gains maximum benefits from it.