What are the tax slabs to sell the stocks in the Indian Stock Market?
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Types of Taxes in Indian Stock Market
The tax on selling stocks depends on the type of trading you choose.
Short-Term Capital Gain Tax:
If you hold the stock for 1 day to 1 year, it comes under Short Term Capital Gain. One has to pay 15% on the profit irrespective of the tax slab.
If you lose money in STCG, it can be adjusted on Long Term/ Short Term Capital Gain taxes for the next 8 years.
Long-Term Capital Gain Tax:
If you hold the stock for more than 1 year, it comes under the Long Term Capital Gain. There is no tax up to 1 lakh profit and a 10% tax is applicable if the profit crosses 1 lakh.
If you lose money in LTCG, it can be adjusted on Long Term Capital Gain taxes for the next 8 years.
Tax on Intraday Trading:
It was treated as speculative business income and taxable at the applicable slab rates of the individual.
Speculative loss can only be set off against speculative income for the next 4 years.
Dividend & Derivative Taxes:
Dividend and Derivative trading taxes are applicable as per the tax slabs of the individual.
Taxation in Stock Market in India
When you sell stocks in India, you must pay various taxes, depending on the gains you have made, the duration for which you hold the stocks, and your total income.
The following are the types of taxes you have to pay after selling stocks in India:
1. Tax on Short-Term Capital Gains (STCG):
If you sell stocks within one year of purchasing, the profits on that stocks are considered “short-term capital gains“.
These gains are taxed at your applicable income tax rate. Short Term Capital Gain Tax covered under section 111A is charged at 15% on the profit.
2. Tax on Long-Term Capital Gains (LTCG):
If you hold stocks for more than one year before selling, the profits are considered as long-term capital gains.
As of 2023, LTCG is taxed at 10% for gains from stocks & mutual funds. However, tax percentage goes to 20% when you sell realestate related stocks.
3. Securities Transaction Tax (STT):
In India, Securities Transaction Tax (STT) is a tax levied on the value of the securities transacted. It is automatically deducted by the stock exchange at the time of the buying/selling a stock.
STT is applicable to both buying and selling stocks, this tax was deducted at the time of transaction itself.
4. Tax on Dividends:
In India, dividends received from stocks are currently tax-free in the hands of the recipient.
However, the company distributing the dividend pays a Dividend Distribution Tax (DDT).
5. Tax Deduction at Source (TDS):
If your total income from stock trading, including gains, exceeds a certain threshold, the broker may deduct TDS when you withdraw funds from your trading account.
You can claim a refund if your actual tax liability is lower.
6. Tax Saving Options:
You can potentially reduce your tax liability by utilizing investment options like the Equity Linked Savings Scheme (ELSS) and taking advantage of tax deductions under Section 80C of the Income Tax Act.
7. File Your Tax Returns:
Whether you have made gains or not, it’s essential to file your income tax returns if you’ve undertaken stock trading during the financial year.