Stock market gains. That's what every trader and investor wishes to get when they dip their feet into the?stock market, right?
After all, isn't it a great feeling to see your portfolio in green and witness your stocks fetching higher and higher values? But wait for the caveat. With all your gains comes?the taxation.?
Read on as we unfold how stock market gains and losses are treated and taxed.
Firstly, your stock market gains are simply bifurcated into two categories,? Short term?capital gain (STCG) and long term capital gain (LTCG).
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If you sell a stock after holding it for more than one day and up to 1 year, then it will attract short term capital gains tax.
STCG Tax on short term capital gains for stocks/equity and equity mutual funds is?15% of the gains.
But remember, it is 15% of the gain if the transactions (buy/sells) are executed on recognized stock exchanges where STT (Security transaction tax) is paid.?
If the transactions (buy/sells) are executed via off-market transfer (where shares are transferred from one person to another via delivery instruction booklet and not on the exchange) where STT is not paid, STCG will be taxable as per your applicable tax slab rate.?
For non-equity oriented/ debt mutual funds: As per your individual tax slab
For non-equity mutual funds and debt funds, if you stay invested for less than 3 years, it is considered short term, and hence such gains fall into the STCG category. Your short term capital gains will be added to your other income and tax will hence be paid according to your income tax slab.
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When you sell a stock after holding it for more than 1 year, your transaction falls into the long term capital gains category. For stocks/equity and equity mutual funds, LTCG tax is zero up to ?1 lakh in gains, and gains above ?1 lakh will be taxed at @10%.
The above taxation rate is only if the transactions (buy/sells) are executed on recognized stock exchanges where STT (Security transaction tax) is paid. As discussed above, LTCG is a holding period of more than 1 year.
If the transactions (buy/sells) are executed through off-market transfer where shares are transferred from one person to another via delivery instruction booklet and not via a recognized exchange by paying STT, then LTCG is 20% in the case of both listed and non-listed stocks (Listed are those which trade on recognized exchanges). Do note that when you carry an off-market transaction Security Transaction Tax (STT) is not paid, but you end up paying higher capital gains tax.
Whereas for non-equity oriented/Debt mutual funds, LTCG tax is flat at 20% on the gain with indexation benefit.
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When you buy & sell stocks within a single trading day, then such transactions are called intraday equity/stock trades.? Gains earned from intraday trading are categorized and treated as your business income, and hence added to your annual income, and taxed according to the income tax slab you fall in.
STT is applicable on all equity shares sold or bought on a stock exchange. As mentioned above as well. these STCG and LTCG tax implications are only applicable for shares listed on a stock exchange. As any sale/purchase on a stock exchange is subject to STT, these mentioned tax implications are only for shares on which STT is paid.
For the uninitiated, STT is a kind of financial transaction tax that is similar to tax collected at source (TCS). STT is a direct tax levied on every purchase and sale of securities that are listed on the recognized stock exchanges in India. It is governed by the Securities Transaction Tax Act (STT Act), with taxable securities¡¯ list including equity, derivatives, unit of an equity-oriented mutual fund, besides unlisted shares sold under an offer for sale to the public included in the IPO, and where such shares are subsequently listed in stock exchanges. Remember, STT is an amount paid over and above transaction value and hence, results in increasing the total transaction value.
STT is required to be collected by the recognized stock exchange or by the prescribed person or entity, as the case may be, and subsequently payable to the Government. The STT rate varies depending on the nature of security and transaction and ranges between 0.001%-0.2%.
Now, let's also talk about stock market losses and how you can offset them.?
When selling your shares within 1 year, if you incur a loss, then that short-term capital loss can be offset against short-term or long-term capital gain from any capital asset. If the loss is not set off entirely, it can be carried forward for eight years and adjusted against any short term or long term capital gains made during these eight years.
But remember that a taxpayer will only be allowed to carry forward losses if he has filed his income tax return within the due date. Filing an income tax return?is a must for carrying forward these losses.? ?
And if you incur a loss on the sale of shares that you held for more than a year, it can be carried forward.
But remember this is only effective for long-term capital loss from a transfer made on or after 1 April 2018. Long-term capital loss can be set off against any other long-term capital gain. Note that you cannot set off long term capital loss against short term capital gains.?
Also, any unabsorbed long-term capital loss can be carried forward to the subsequent eight years for set-off against long-term gains. Again,? set off and carry forward these losses, a person has to file the return within the due date.
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