As we approach March, a sense of dread pervades everyone’s mind, and it has to do with taxes. Especially for those who are involved in some manner with the stock market. Capital Gains, Intraday Trading, F&O Trading, Dividend Income, and so on are examples.
First and foremost, those who are concerned about taxes should not be concerned; you will only be taxed if you have income or profit. There will be no tax if there is no profit.
Different types of traders/investors include:
- Traders that trade on a daily basis (Equity)
- Traders in futures and options (Intraday & delivery basis)
- Short-Term Capital Gains (Investment with a one-year holding term)
- Long-term capital gains (investments held for more than a year)
Income from dividends
- Assets on the internet (Crypto currencies)
- Before we go any further, it’s important to note that if you engage in trading or investing, you must file an income tax return. Even if you have lost money, you must file an ITR.
- So, let’s take a look at each category individually.
Traders that trade on a daily basis (Equity)
- Intraday equities trading are when you buy and sell inside a day’s market hours (9:15 a.m. – 3.30 p.m.).
- Intraday equity is, by definition, speculative business income. As a result, there is no fixed tax rate here.
- Speculative losses can be carried forward for a period of four years and offset only against speculative gains made during that time.
- Speculative income must be combined with all other sources of income (salary, other business income, bank interest, rental income, and so on), as well as taxes paid in accordance with your tax bracket.
Traders in futures and options (Intraday & Delivery Basis)
- According to the IRS, income from trading F&O (both intraday and overnight) on all exchanges is considered non-speculative business income.
- Non-speculative business revenue, like speculative income, must be added to all other income and taxes paid according to your tax bracket.
- Non-speculative losses can be offset against any other business revenue in the same year, except salary income. Non-speculative losses are carried forward for the next eight years;
Capital Gains on a Short-Term Basis (STCG)
- STCG refers to any gains or losses in shares with a holding duration of less than a year. Fix a tax rate of 15% on the profit. This is true regardless of the tax bracket.
- Any gain on an equity-oriented mutual fund investment held for less than a year is subject to STCG, which is taxed at 15% of the gain. It’s worth noting that if 65 percent of a fund’s assets are invested in local companies, it’s called equity-based.
- Short-term capital losses, if reported on time, can be carried forward for up to eight years and offset any gains achieved during that time.
Capital Gains on Long-Term Investments (LTCG)
- It is considered long term if you sell any holding after one year, which can be 13 months, 2 years, 5 years, or more.
- If the gain is less than 1 lakh, there is no tax, and if the gain is more than 1 lakh, there is a 10% tax. This is true regardless of the tax bracket.
There are no STT deductions for both STCG and LTCG (Securities Transaction Tax). STT is a tax paid to the Indian government that cannot be deducted while investing. If you have given brokerage, you can claim turnover charges, SEBI charges, stamp duty, and so on as deductions.
Income from dividends
- Dividend income does not have its own tax bracket. The taxable income that is taxed is dividend income.
- If your dividend income is larger than 5000 from a single firm, that company will deduct 10% TDS, which you will be able to claim back when completing your ITR.
Assets on the internet (Cryptocurrencies)
- Gains from virtual digital assets or crypto assets would be subject to a flat 30% tax plus cess, according to Budget 2022.
- In addition, the government has implemented a 1% tax deducted at source (TDS) to track transaction trails and broaden the tax base.
- Keep in mind that a 1% TDS indicates that the platform will block 1% of every deal value. So, regardless of the P&L, in 50 trades, 50% of the account value can be blocked for TDS. Volumes are likely to fall, and spreads are likely to expand dramatically.
Disclaimer: Before submitting your returns, consult a Chartered Accountant (CA).
Last but not least,
Learn to make money first. Trading is a field where you can recover tax in a short period of time if you make regular gains. Only if you make a profit will you be taxed. There will be no tax if there is no profit.
So, if you are taxed, consider yourself fortunate since you have profited from the markets, where the majority of others lose.