tax on stock trading (1)

1. Introduction–TaxonStockTrading • 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 tradingin India differs from that on other financialtransactions.In thisarticle,wewill 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 andoncapitalgains. • TableofContents • Introduction–Taxon Stock Trading • TaxesonTransactions • StampDuty • Goodsand ServicesTax • Capital GainsTax • STCG • LTCG • StockMarketLosses • 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 percentage of the transaction value and may differ based on the type of security (equity, derivatives, commodities, etc.). Now, let us look at the tax on share market trading in India and find out the different percentages for each segment and typeoftrade. • SecuritiesTransactionTax(STT)/CommoditiesTransactionTax(CTT) • Prior to introduction of STT/CTT, people used to show fictitious net losses on their trading andinvestmentsto avoidpayingtaxes on theirincome on tradingin the stock market or commodity market. To ensure that people stopped evading taxation, thegovernment decided to levy taxon the trading transactions,making ita tax collected at source (TCS). STT is directly levied on purchase and sale of securities such as stocks, derivatives, and equity mutual funds. It is also applicable on IPO transactions.ItisgovernedbytheSecuritiesTransactionTaxActwhichwas

2. introducedbythethenFinanceMinisterP.Chidambaramandhasbeenapplicable since2004.Itiscollectedbythestockexchangewherethetransactiontakesplace. STTratesforEquityTrading: IntradayTrades:STTischargedonlyon sellside at0.025%oftransactionvalue. DeliveryTrades:STTischargedonbothlegsofthetransaction,buyandsell,at 0.1% oftransactionvalue. STTforDerivativeTrading: FuturesContracts:0.01%ofthetransaction’ssellsideturnover,irrespectiveof whetheritisanintradayorpositionaltrade. OptionsContracts:Charged on premiumvalueofthesellsidetransactionat0.05%. ThereisnoSTTontradingofCurrencyDerivatives. CTTonCommodityDerivatives: 0.01%onthesellsidetransactionofcommodityfutures.Thisisnotapplicableon agriculturalcommodities. STT/CTTisapplicableonthetransactionvalueandthusincreasesthetotal transactionvalue. StampDuty Stamp Duty is a tax charged by the state government on the transfer of security from one party to another.Previously,the stamp duty wasdifferentfor every statebut nowitisuniformforallstatessince1stJuly,2020.Thisuniformratehasensuredthat statesdonottakeundueadvantageofthedutybychargingahigherrate. StampDutyRates: EquityIntradayTrades:0.015%onbuyside

3. EquityDeliveryTrades:0.003%onbuyside EquityFuturesTrades:0.002% onbuyside Equity OptionsTrades:0.002%onbuyside CurrencyFuturesContractsTrades:0.0001%onbuyside Commodity FuturesContractsTrading:0.002% onbuyside Commodity OptionsContractsTrading:0.003% onbuyside Goodsand ServicesTax GST is a tax levied by the Government of India on trading since it is considered as a servicerenderedtothe traderorinvestor.Ithastwoequalcomponents: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 half will go the Central government. It is levied on Brokerage, Transaction Charges, and ClearingMemberCharges. The GST on trading is 18% (9% SGST and 9% CGST), irrespective of the trading segmentor securitytraded. CapitalGainsTax Anyprofitthatyoubookonyour tradesissubjectto taxation.Thistaxation percentageisfixedfortransactionsonrecognizedexchangesifyouhavepaidSTT. If not, the capital gains are taxed according to the tax slab your annual income falls under.Itisdividedintotwocategoriesdependingonthedurationofthetrade(which is calculated from date of acquisition of security to date of sale or transfer), Short TermorLongTerm. NowletustakealookonincometaxonsharetradingprofitinIndia2022. STCG

4. STCGreferstoShortTermCapitalGainsTax.Shorttermreferstoholdingatrade 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 the stock markets.Itisleviedat15%oftheprofitmadefromthetrades. LTCG LTCGreferstoLongTermCapitalGainsTax.Longtermreferstoholdingatradefor a duration of oneyear or morethan oneyear. This taxis applicable at 10% of profit if theprofit made from the trade is more than ₹1 lakh. This isapplicableto gains madefrom sellingyourequityinvestmentsandonequity-orientedmutual fund investments.ItisnotapplicabletoDerivativestrading ofanysegmentsince derivativescontractshaveanexpiryofoneweekoronemonth. Prior to Budget 2018, therewas no Long Term Capital Gains tax on theprofit made on long term investments. This tax wasintroducedin the financial budget of 2018 andisapplicableonlyongainsstartingfrom1stFebruary,2018. StockMarketLosses Any lossesmade on the stock market can be offset against thegain or profitmade by the trader. You can offset your short term losses against short term gains or long termgainswhereaslongtermlossescanonlybeoffsetagainstthelongtermgains. 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 lossin that financialyear’s income taxreturns within the due datefortaxfiling. In addition tothe varioustaxes on transactions and capitalgains, there are a few other charges involved in trading on the stock market. SEBI (Securities Exchange BoardofIndia)chargesfeesof₹0.10perlakhonEquityandDerivativetrades, ₹0.15 per lakh on Currency Derivatives and Commodity Derivatives Trading. While this is not a tax and only a fee charged by SEBI, it also adds to the entire charge you pay foryour tradingtransactions.Clearing Memberschargea certainfeeon derivatives trading in equity, currency, and commodities segment. Stock exchanges also charge the trader with certain Transaction Charges. These charges differ for each stock exchange (NSE, BSE, MCX,and NCDEX) and for differenttypes of securities.The two stockdepositories, NSDL(NationalSecuritiesDepository Limited)andCDSL(CentralDepositoryServicesLimited),alsochargeforholding theshares in dematerialized form but this chargeistaken from theBrokerage Firm (asitisthedepositoryparticipant),notfromthetraderorinvestor.Sincethese

5. 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 moreaboutthechargeson tradingtransactionsandthetaxesleviedonthem.