TAX ON STOCK TRADING

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TAX ON STOCK TRADING
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Introduction 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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Table of Contents
Introduction Tax on Stock Trading Taxes on
Transactions Stamp Duty Goods and Services Tax
Capital Gains Tax STCG LTCG Stock Market Losses
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Taxes on Transactions
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
type of trade.
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Securities Tax (STT) /Commodities Transaction Tax
(CTT)
Prior to introduction of STT/CTT, people used to
show fictitious net losses on their trading and
investments to avoid paying taxes on their income
on trading in the stock market or commodity
market. To ensure that people stopped evading
taxation, the government decided to levy tax on
the trading transactions, making it a 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. It is
governed by the Securities Transaction Tax Act
which was introduced by the then Finance Minister
P. Chidambaram and has been applicable since
2004. It is collected by the stock exchange where
the transaction takes place.
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STT rates for Equity Trading
Intraday Trades STT is charged only on sell side
at 0.025 of transaction value. Delivery Trades
STT is charged on both legs of the transaction,
buy and sell, at 0.1 of transaction value. STT
for Derivative Trading Futures Contracts 0.01
of the transactions sell side turnover,
irrespective of whether it is an intraday or
positional trade. Options Contracts Charged on
premium value of the sell side transaction at
0.05. There is no STT on trading of Currency
Derivatives.
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STT rates for Equity Trading
Intraday Trades STT is charged only on sell side
at 0.025 of transaction value. Delivery Trades
STT is charged on both legs of the transaction,
buy and sell, at 0.1 of transaction value. STT
for Derivative Trading Futures Contracts 0.01
of the transactions sell side turnover,
irrespective of whether it is an intraday or
positional trade. Options Contracts Charged on
premium value of the sell side transaction at
0.05. There is no STT on trading of Currency
Derivatives.
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Stamp Duty Rates
Equity Intraday Trades 0.015 on buy side Equity
Delivery Trades 0.003 on buy side Equity
Futures Trades 0.002 on buy side Equity
Options Trades 0.002 on buy side Currency
Futures Contracts Trades 0.0001 on buy side
Commodity Futures Contracts Trading 0.002 on
buy side Commodity Options Contracts Trading
0.003 on buy side
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Goods and Services Tax
GST is a tax levied by the Government of India on
trading since it is considered as 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 half will
go the Central government. It is levied on
Brokerage, Transaction Charges, and Clearing
Member Charges. The GST on trading is 18 (9
SGST and 9 CGST), irrespective of the trading
segment or security traded.
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Capital Gains Tax
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
income falls under. It is divided into two
categories depending on the duration of the
trade (which is calculated from date of
acquisition of security to date of sale or
transfer), Short Term or Long Term. Now let us
take a look on income tax on share trading profit
in India 2022.
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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 the stock markets. It is levied at 15
of the profit made from the trades.
LTCG LTCG refers to Long Term Capital Gains Tax.
Long term refers to holding a trade for a
duration of one year or more than one year. This
tax is applicable at 10 of profit if the profit
made from the trade is more than ?1 lakh. This is
applicable to gains made from selling your
equity investments and on equity-oriented mutual
fund investments. It is not applicable to
Derivatives trading of any segment since
derivatives contracts have an expiry of one week
or one month. 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 of 2018 and is
applicable only on gains starting from 1st
February, 2018.
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Stock Market Losses
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 gains or long term gains whereas long
term losses can only be offset against the 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 years income tax returns within the
due date for tax filing. 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
Exchange Board of India) charges fees of ?0.10
per lakh on Equity and Derivative trades, ?0.15
per lakh on Currency Derivatives and Commodity
Derivatives Trading.
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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
exchanges also charge the trader with certain
Transaction Charges. These charges differ for
each stock exchange (NSE, BSE, MCX, and NCDEX)
and for different types 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 taxes levied on
them.
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