TAX ON STOCK TRADING

Tax on stock trading in India is governed by the Income Tax Act, of 1961, and the Securities Transaction Tax (STT) levied by the government. Here's a breakdown of the taxes applicable to stock trading in India:



  1. Securities Transaction Tax (STT):

    • STT is a tax levied on the purchase and sale of securities listed on recognized stock exchanges in India.
    • It is applied as a percentage of the transaction value and is collected by the stock exchanges on behalf of the government.
    • The rates of STT vary depending on the type of transaction. For example, equity delivery trades attract a different rate compared to equity futures and options trades.
    • STT aims to discourage speculative trading and generate revenue for the government.

  2. Capital Gains Tax:

    • Capital gains tax is applicable on the profits earned from the sale of stocks or other securities.
    • In India, capital gains tax is classified into short-term capital gains (STCG) and long-term capital gains (LTCG) based on the holding period of the securities.
    • Short-term capital gains tax is applicable if the securities are held for a period of less than one year. It is taxed at the applicable slab rates based on the individual's total income.
    • Long-term capital gains tax is applicable if the securities are held for a period of more than one year. For listed securities, LTCG tax on equity shares is currently exempt up to Rs. 1 lakh per financial year. Any LTCG above this threshold is taxed at 10% without the benefit of indexation.

  3. Dividend Distribution Tax (DDT):

    • Dividend Distribution Tax is levied on companies distributing dividends to their shareholders.
    • It is paid by the company declaring the dividend and is deducted at source before distributing dividends to shareholders.
    • The effective rate of DDT for domestic companies is currently 15%, excluding surcharge and cess.

  4. Goods and Services Tax (GST):

    • GST is applicable to brokerage and other charges incurred while trading in stocks and securities.
    • The current rate of GST on brokerage services is 18%.

  5. Other Taxes and Levies:

    • Apart from the above taxes, investors may also need to consider other taxes and levies such as stamp duty, which varies from state to state, and any applicable transaction charges imposed by the stock exchanges and depositories.

 

 

 

 

 

 

 

 

 

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