INCOME TAX ON SHARE TRADING AND HOW TO SAVE IT

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While we calculate returns on share trading we usually don’t consider income tax on share trading. All equity investments are taxed in a different manner. In this article, we will understand income tax on share trading and how to minimize it.

Before understanding the taxation structures we need to understand two terms

LONG TERM

Any investment which is held for more than 12 months, It is termed as long-term in share trading.

short-term

If an investment is held for less than 12 months then they are termed as short term.

capital gain

Let us assume that I purchased shares worth Rs1000/- and sold it for Rs1200/-. Which means I made a profit of Rs200/- which is called as capital gain.

Other charges which are levied on shares trading are STT, Brokerage, GST and exchange charge. If you want to minimize capital gain tax, you should understand how income tax on share trading works.

income tax on share trading

If we sell the shares in short-term i.e. within 12 months you will be charged capital gain of flat 15% and if we sell in long-term all tax is exempted. Please note that only capital gain is exempted but you need to pay STT and brokerages which is unavoidable.

All income earned in share market is added to your existing income and you will be charged according to your existing tax slabs.

But long-term Income tax exemption is not valid on shares sold on the different country stock exchange.

Pro Tip: All Capital Gains exemptions are viable only on Indian stock exchanges. So if you want to buy shares of any foreign company check for the Indian version. E.g. Federal Bank India.

In case of profit on equity shares sold on stock exchanges in India held for short term. They are taxed at a flat rate of 15 percent even if you fall under 5 % income tax slab.

income tax on Dividends received on shares

Dividend received on shares are fully exempt from payment of tax if you are dealing in Indian stock exchanges only. However, the core company of which you bought shares, is required to pay a tax called Dividend Distribution Tax on such dividend at the rate of 15 percent on such dividend. Which means a company has already paid 15% tax on dividend before giving you the final amount.

How to MINIMIZE income tax paid on share trading?

Capital gain and income tax cannot be avoided but can be minimized. There are two classes of taxpayers salaried and businessmen.

Case 1: Salaried

As usual salaried people cannot do anything all income from share trading is added to their income and accordingly, income tax has to be paid.

Case 2: Businessmen

Here you have a chance for exploitation, all expenses can be debited from total profit gained from share trading. Few expenses like Internet, Offices, Salaries to employees in case you have registered business are for which you can get the exemption.

Must Read: Best Tax Saving Mutual Funds

wrap up

Hope above information has clarified all doubts regarding income tax on share trading and how to minimize it. Always consider income tax factor before you calculate Net returns from share trading.

If you have any suggestion or want to update anything regarding this post kindly let me know in comments below.

 

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