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TAX ON STOCK TRADING

As you know, all transactions that take place in the country are taxed. Stock market related transactions are not exempted from this rule. But the tax on stock trading in India differs from that on other financial transactions. In this article, we will discuss all taxes levied on stock market transactions and how they concur or differ based on duration of holding the securities. The different taxes we will look at include taxes on transactions and on capital gains.

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TAX ON STOCK TRADING

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  1. TAXONSTOCK TRADING

  2. Introduction–TaxonStockTrading Asyouknow,alltransactionsthattakeplaceinthecountryaretaxed.Stockmarket related transactions are not exempted from this rule. But the tax on stock trading in India differs from that on other financial transactions. In this article, we will discuss all taxes levied on stock market transactions and how they concur or differ based on duration of holding the securities. The different taxes we will look at includetaxesontransactionsandoncapitalgains.

  3. TableofContents Introduction–TaxonStockTrading TaxesonTransactions StampDuty GoodsandServicesTax CapitalGainsTax STCG LTCG StockMarketLosses

  4. TaxesonTransactions When you take a trade on the stock market, you have to pay certain brokerage charges as well as other taxes levied on the transaction. Generally, these taxes are levied as a percentageofthetransactionvalueandmaydifferbasedonthetypeofsecurity(equity, derivatives, commodities, etc.). Now, let us look at the tax on share market trading in Indiaandfindoutthedifferentpercentagesforeachsegmentandtypeoftrade.

  5. SecuritiesTax(STT)/CommoditiesTransactionTax(CTT) Prior to introduction of STT/CTT, people used to show fictitious net losses on theirtradingandinvestmentstoavoidpayingtaxesontheirincomeontradingin the stock market or commodity market. To ensure that people stopped evading taxation,thegovernmentdecidedtolevytaxonthetradingtransactions,making it a tax collected at source (TCS). STT is directly levied on purchase and sale of securitiessuchasstocks,derivatives,andequitymutualfunds.Itisalso applicable on IPO transactions. It is governed by the Securities Transaction Tax ActwhichwasintroducedbythethenFinanceMinisterP.Chidambaramandhas been applicable since 2004.It is collected by the stock exchange where the transactiontakesplace.

  6. STTratesforEquityTrading: IntradayTrades:STTischargedonlyonsellsideat0.025%oftransactionvalue. Delivery Trades: STT is charged on both legs of the transaction, buy and sell, at 0.1%oftransactionvalue. STTforDerivativeTrading: FuturesContracts:0.01%ofthetransaction’ssellsideturnover,irrespectiveof whetheritisanintradayorpositionaltrade. OptionsContracts:Chargedonpremiumvalueofthesellsidetransactionat 0.05%. ThereisnoSTTontradingofCurrencyDerivatives.

  7. STTratesforEquityTrading: IntradayTrades:STTischargedonlyonsellsideat0.025%oftransactionvalue. DeliveryTrades:STTischargedonbothlegsofthetransaction,buyandsell,at 0.1%oftransactionvalue. STTforDerivativeTrading: FuturesContracts:0.01%ofthetransaction’ssellsideturnover,irrespectiveof whetheritisanintradayorpositionaltrade. OptionsContracts:Chargedonpremiumvalueofthesellsidetransactionat 0.05%. ThereisnoSTTontradingofCurrencyDerivatives.

  8. StampDutyRates: EquityIntradayTrades:0.015%onbuyside EquityDeliveryTrades:0.003%onbuyside Equity Futures Trades: 0.002% on buy side EquityOptionsTrades:0.002%onbuyside Currency Futures Contracts Trades: 0.0001% on buy side CommodityFuturesContractsTrading:0.002%onbuyside CommodityOptionsContractsTrading:0.003%onbuyside

  9. GoodsandServicesTax GSTisataxleviedbytheGovernmentofIndiaontradingsinceitisconsideredas a service rendered to the trader or investor. It has two equal components: SGST (State Goods and Services Tax) and CGST (Central Goods and Services Tax). This means that half of the total GST will go to the State government while the other halfwillgotheCentral government.ItisleviedonBrokerage,Transaction Charges,andClearingMemberCharges. The GSTon trading is18% (9% SGSTand 9% CGST),irrespective of the tradingsegmentorsecuritytraded.

  10. CapitalGainsTax Any profit that you book on your trades is subject to taxation. This taxation percentage is fixed for transactions on recognized exchanges if you have paid STT. If not, the capital gains are taxed according to the tax slab your annual incomefallsunder.Itisdividedintotwocategoriesdependingontheduration of the trade (which is calculated from date of acquisition of security to date of saleortransfer),ShortTermorLongTerm. NowletustakealookonincometaxonsharetradingprofitinIndia2022.

  11. STCG STCG refers to Short Term Capital Gains Tax. Short term refers to holding a trade for a duration of less than one year. This includes tax on intraday trading as well as delivery trades and it is applicable on all types of securities traded on thestockmarkets.Itisleviedat15%oftheprofitmadefromthetrades. LTCG LTCG refers to Long Term Capital Gains Tax. Long term refers to holding a trade foradurationofoneyearormorethanoneyear.Thistaxisapplicableat10%of profitiftheprofitmadefromthetradeismorethan₹1lakh.Thisisapplicableto gains made from selling your equity investments and on equity-oriented mutual fundinvestments.ItisnotapplicabletoDerivativestradingofanysegmentsince derivativescontractshaveanexpiryofoneweekoronemonth. Prior to Budget 2018, there was no Long Term Capital Gains tax on the profit made on long term investments. This tax was introduced in the financial budget of2018andisapplicableonlyongainsstartingfrom1stFebruary,2018.

  12. StockMarketLosses Any losses made on the stock market can be offset against the gain or profit made by the trader. You can offset your short term losses against short term gainsorlongtermgainswhereaslongtermlossescanonlybeoffsetagainstthe long term gains. In case the loss is not entire set off against one year of capital gain, it can be carried forward for up to eight years from incurring the loss. But this can only be done if the taxpayer has filed it as a loss in that financial year’s incometaxreturnswithintheduedatefortaxfiling. In addition to the various taxes on transactions and capital gains, there are a few other charges involved in trading on the stock market. SEBI (Securities ExchangeBoardofIndia)chargesfeesof₹0.10perlakhonEquityandDerivative trades, ₹0.15per lakhon Currency Derivatives and Commodity Derivatives Trading.

  13. While this is not a tax and only a fee charged by SEBI, it also adds to the entire charge you pay for your trading transactions. Clearing Members charge a certain fee on derivatives trading in equity, currency, and commodities segment. Stock exchangesalsochargethetraderwithcertainTransactionCharges.Thesecharges differforeachstockexchange(NSE,BSE,MCX,andNCDEX)andfordifferenttypes of securities. The two stock depositories, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), also charge for holding the shares in dematerialized form but this charge is taken from the Brokerage Firm (as it is the depository participant), not from the trader or investor. Since these charges are lower than the taxes discussed above, they have not been discussed in more detail in this article. This concludes our discussion on tax on share market trading in India. These taxes are above and beyond the brokerage charged by your stock market broker. We hope this has been useful and has helped you understand more about the charges on trading transactions and the taxesleviedonthem.

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