Understanding the tax implications of your stock market investments is crucial for maximising your returns in the markets in India. Let's break down the key points you need to know:
Short-Term vs. Long-Term Gains
Your stock holding period significantly impacts your tax liability:
Short-Term Capital Gains (STCG): If you sell a stock within 12 months of purchase, your profits are considered Short-Term Capital Gains.
Long-Term Capital Gains (LTCG): Profits made from selling stocks held for more than 12 months qualify as Long-Term Capital Gains.
Taxation Rates
STCG on Listed Equity Shares: STCG is currently taxed at a flat rate of 15%, plus any applicable surcharge and cess.
LTCG on Listed Equity Shares:
The first Rs. 1 lakh of your LTCG in a financial year is tax-exempt.
Any gains exceeding Rs. 1 lakh are taxed at a rate of 10%, plus surcharge and cess.
💡 Important Note: These rates specifically apply to listed equity shares and equity-oriented mutual funds. Other investment types may have different tax treatments.
Exemptions & Deductions
Section 80C: Investments in specific assets like Equity Linked Savings Schemes (ELSS) can allow you to claim tax deductions up to Rs. 1.5 lakh per year under Section 80C of the Income Tax Act
Dividend Income: Dividends from Indian companies are taxable at a flat rate with the company deducting taxes before payout. You might be able to claim credit for the dividend tax against your overall tax liability.
Set-off of Losses: Both short-term and long-term capital losses can be offset against capital gains within the same year or carried forward for up to 8 subsequent financial years.
A Note on Past Taxation
Before 2018, LTCG on listed equity shares in India was entirely tax-exempt. The introduction of the current LTCG tax structure means you'll pay 10% tax on profits exceeding Rs. 1 lakh per year.
Additional Considerations
Securities Transaction Tax (STT): Keep in mind that STT is applicable on both the purchase and sale of listed stocks.
Professional Guidance: If you have complex investment scenarios or need personalised tax advice, it's always a good idea to consult a tax advisor or chartered accountant.
Disclaimer: Tax laws can change. It's essential to stay updated on the latest regulations and seek professional advice for your individual circumstances.
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