Taxation for Shareholders
If you invest in the stock market or earn through share trading, understanding taxation on securities is crucial. This summary simplifies the tax implications for shareholders, traders, and investors in India.
Income Categorisation: Business Income vs Capital Gains
Your income from share trading is taxed based on how it is categorised:
1. Business Income:
- Income from regular trading activities or intraday trading is treated as business income.
- Expenses like brokerage and exchange fees can be claimed as deductions.
- Speculative income (e.g., intraday trading) is taxed as per your applicable income tax slab. Losses can be offset against speculative profits or carried forward for 4 years.
- Non-speculative income (e.g., derivatives, currencies) is also taxed under individual slabs, with losses carried forward for 8 years.
2. Capital Gains:
- Income from selling shares held as investments falls under capital gains.
- Long-Term Capital Gains (LTCG): Gains on equity shares held for over 12 months are exempt up to ₹1 lakh, with a 10% tax on gains above this limit (without indexation). For debt securities, the tax rate is 20% (with indexation) or 10% (without indexation).
- Short-Term Capital Gains (STCG): Gains on equities held for less than 12 months are taxed at 15%, while gains from debt funds are taxed per your income slab.
Tax on Dividends and Interest
- Dividends are taxed as per your income slab under “Income from Other Sources.” For traders, dividends may be taxed as business income.
- Dividend payments over ₹5000 attract TDS at 10%, as per Section 194 of the Income Tax Act.
Key Takeaways for Traders
Stay informed about the latest tax rules to optimise your financial strategy. File IT returns on time to claim deductions and carry forward losses. This knowledge ensures you remain compliant and minimise unnecessary tax liabilities.
Disclaimer: Tax laws are subject to change. Always consult a financial advisor for tailored advice.