TAX ON STOCK TRADING

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Introduction Tax on Stock Trading

• As you know, all transactions that take place in
  the country are taxed. Stock market related
  transactions are not exempted from this rule. But
  the tax on stock trading in India differs from
  that on other financial transactions. In this
  article, we will discuss all taxes levied on
  stock market transactions and how they concur or
  differ based on duration of holding the
  securities. The different taxes we will look at
  include taxes on transactions and on capital
  gains.
• Table of Contents
• Introduction Tax on Stock Trading
• Taxes on Transactions
• Stamp Duty
• Goods and Services Tax
• Capital Gains Tax
• STCG
• LTCG
• Stock Market Losses
• Taxes on Transactions
• When you take a trade on the stock market, you
  have to pay certain brokerage charges as well as
  other taxes levied on the transaction. Generally,
  these taxes are levied as a percentage of the
  transaction value and may differ based on the
  type of security (equity, derivatives,
  commodities, etc.). Now, let us look at the tax
  on share market trading in India and find out
  the different percentages for each segment and
  type of trade.
• Securities Transaction Tax (STT) / Commodities
  Transaction Tax (CTT)
• Prior to introduction of STT/CTT, people used to
  show fictitious net losses on their trading and
  investments to avoid paying taxes on their income
  on trading in the stock market or commodity
  market. To ensure that people stopped evading
  taxation, the government decided to levy tax on
  the trading transactions, making it a tax
  collected at source (TCS). STT is directly levied
  on purchase and sale of securities such as
  stocks, derivatives, and equity mutual funds. It
  is also applicable on IPO transactions. It is
  governed by the Securities Transaction Tax Act
  which was

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introduced by the then Finance Minister P.
Chidambaram and has been applicable since 2004.
It is collected by the stock exchange where the
transaction takes place. STT rates for Equity
Trading Intraday Trades STT is charged only on
sell side at 0.025 of transaction
value. Delivery Trades STT is charged on both
legs of the transaction, buy and sell, at 0.1
of transaction value. STT for Derivative
Trading Futures Contracts 0.01 of the
transactions sell side turnover, irrespective of
whether it is an intraday or positional
trade. Options Contracts Charged on premium
value of the sell side transaction at 0.05.
There is no STT on trading of Currency
Derivatives. CTT on Commodity Derivatives 0.01
on the sell side transaction of commodity
futures. This is not applicable on agricultural
commodities. STT/CTT is applicable on the
transaction value and thus increases the total
transaction value. Stamp Duty Stamp Duty is a
tax charged by the state government on the
transfer of security from one party to another.
Previously, the stamp duty was different for
every state but now it is uniform for all states
since 1st July, 2020. This uniform rate has
ensured that states do not take undue advantage
of the duty by charging a higher rate. Stamp
Duty Rates Equity Intraday Trades 0.015 on
buy side
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Equity Delivery Trades 0.003 on buy side Equity
Futures Trades 0.002 on buy side Equity
Options Trades 0.002 on buy side Currency
Futures Contracts Trades 0.0001 on buy
side Commodity Futures Contracts Trading 0.002
on buy side Commodity Options Contracts Trading
0.003 on buy side Goods and Services Tax GST is
a tax levied by the Government of India on
trading since it is considered as a service
rendered to the trader or investor. It has two
equal components SGST (State Goods and Services
Tax) and CGST (Central Goods and Services Tax).
This means that half of the total GST will go to
the State government while the other half will
go the Central government. It is levied on
Brokerage, Transaction Charges, and Clearing
Member Charges. The GST on trading is 18 (9
SGST and 9 CGST), irrespective of the trading
segment or security traded. Capital Gains
Tax Any profit that you book on your trades is
subject to taxation. This taxation percentage is
fixed for transactions on recognized exchanges if
you have paid STT. If not, the capital gains are
taxed according to the tax slab your annual
income falls under. It is divided into two
categories depending on the duration of the trade
(which is calculated from date of acquisition of
security to date of sale or transfer), Short
Term or Long Term. Now let us take a look on
income tax on share trading profit in India
2022. STCG
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STCG refers to Short Term Capital Gains Tax.
Short term refers to holding a trade for a
duration of less than one year. This includes tax
on intraday trading as well as delivery trades
and it is applicable on all types of securities
traded on the stock markets. It is levied at 15
of the profit made from the trades. LTCG LTCG
refers to Long Term Capital Gains Tax. Long term
refers to holding a trade for a duration of one
year or more than one year. This tax is
applicable at 10 of profit if the profit made
from the trade is more than ?1 lakh. This is
applicable to gains made from selling your
equity investments and on equity-oriented mutual
fund investments. It is not applicable to
Derivatives trading of any segment since
derivatives contracts have an expiry of one week
or one month. Prior to Budget 2018, there was no
Long Term Capital Gains tax on the profit made
on long term investments. This tax was introduced
in the financial budget of 2018 and is
applicable only on gains starting from 1st
February, 2018. Stock Market Losses Any losses
made on the stock market can be offset against
the gain or profit made by the trader. You can
offset your short term losses against short term
gains or long term gains whereas long term
losses can only be offset against the long term
gains. In case the loss is not entire set off
against one year of capital gain, it can be
carried forward for up to eight years from
incurring the loss. But this can only be done if
the taxpayer has filed it as a loss in that
financial years income tax returns within the
due date for tax filing. In addition to the
various taxes on transactions and capital gains,
there are a few other charges involved in
trading on the stock market. SEBI (Securities
Exchange Board of India) charges fees of ?0.10
per lakh on Equity and Derivative trades, ?0.15
per lakh on Currency Derivatives and Commodity
Derivatives Trading. While this is not a tax and
only a fee charged by SEBI, it also adds to the
entire charge you pay for your trading
transactions. Clearing Members charge a certain
fee on derivatives trading in equity, currency,
and commodities segment. Stock exchanges also
charge the trader with certain Transaction
Charges. These charges differ for each stock
exchange (NSE, BSE, MCX, and NCDEX) and for
different types of securities. The two stock
depositories, NSDL (National Securities
Depository Limited) and CDSL (Central Depository
Services Limited), also charge for holding the
shares in dematerialized form but this charge is
taken from the Brokerage Firm (as it is the
depository participant), not from the trader or
investor. Since these
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charges are lower than the taxes discussed above,
they have not been discussed in more detail in
this article. This concludes our discussion on
tax on share market trading in India. These
taxes are above and beyond the brokerage charged
by your stock market broker. We hope this has
been useful and has helped you understand more
about the charges on trading transactions and the
taxes levied on them.