2024-08-17 05:40:33
Tax on Share Profit: Not just one but many types of taxes are levied on investment in the stock market. Broadly understand that as soon as you enter the stock market, you will have to pay at least five types of taxes. Let us explain which taxes you will have to pay…
Capital Gains Tax
Before discussing the tax on investment in shares, let us first discuss the capital gain tax. The Finance Minister has increased it only last month. Actually, the Central Government levies capital gain tax on the profit you make by investing in stocks in the stock market. Consider it this way that when you earn something from the stock market, you will have to pay some part of that profit as tax.
Two forms of capital gains tax
After understanding the meaning of capital gain tax, you should understand that it has two forms. It is decided for how many days you kept the shares with you after buying them. If you keep a share for a period of more than 12 months after buying it, then it will be considered long term. You will have to pay long term capital gain tax on it. If you keep the share for a period of 12 months or less, then it will be considered short term. Therefore, short term capital gain tax will be levied on it.
How much tax on short term and long term
You have understood what is long term and short term in the stock market. Now you should also understand the tax rate on it. If you hold shares for short term, then you will have to pay 20 percent tax on the profit. Before 23 July, the rate of this tax was 15 percent. Through Budget 2024-25, it was increased to 20 percent. Earlier, 10 percent tax was levied on long term capital gain, which was increased to 12.5 percent in the budget.
Long term capital gain is another exemption
If you have earned through long term capital gain, then you get another exemption. That exemption is that some amount will be deducted from the profit. The rule is that if you earn long term profit up to Rs 1 lakh in a year, then you will not have to pay any tax on it. In the budget presented last month, it has been increased to Rs 1.25 lakh. This means that you will have to pay long term capital gain tax only on profits of more than Rs 1.25 lakh.
Understand with an example
Suppose Monica bought 500 shares of SBI in May 2021 at a price of Rs 350. After keeping it with her for more than two years, she sold the SBI share at a price of Rs 800. In this way, she earned a total profit of Rs 2,25,000 in this purchase and sale. Since she sold the shares after two years, it will be considered as long term capital gain. As per the rules, she will not have to pay any tax on the profit of Rs 1.25 lakh. The remaining one lakh rupees. So she will have to pay a tax of 12.5 percent on this amount. Meaning she will have to pay a tax of Rs 12,500.
Tax on Dividends
When a company decides to distribute a part of its profits to its shareholders, it is called a dividend. If a shareholder is taking a dividend from the company, he will have to pay tax on that income. However, the dividend you received will be added to your taxable income. Then it will be taxed according to your tax slab. If you fall in the 10 percent tax slab, then you will have to pay that much tax on dividend income. If you fall in the 30 percent bracket, then you will have to pay 30 percent tax. If your income is in the tax free slab, then you will not have to pay any tax.
TDS will also be deducted
If a person’s total income from dividend income in a financial year is Rs 5,000 or more, then the dividend paying company will also deduct TDS at the rate of 10 percent. This TDS will be deposited directly into the account of the Income Tax Department. If the taxpayer’s income is not that much, then this money will be refunded after filing the return.
securities transaction tax
Securities Transaction Tax or STT is a tax that everyone has to pay. Whether you have a loss or profit on investing in the stock market. As soon as you buy or sell a stock, you will have to pay STT. At present, the rate of STT is 0.1%. This tax is levied on the total value of any transaction done in the stock market. But, if you do day trading, that is, buy and sell stocks on the same day, then STT will be charged at the rate of 0.025% on the total trade value only when you sell that stock.
GST
The stock market or stock exchange is a place where you buy and sell shares. You cannot buy or sell shares directly. For this, you have to take the service of a broker registered in the stock market. If you take the service of a broker, you will also have to pay service tax on it. This is GST or Goods and Services Tax. The current rate of GST on stocks is 18%. GST is levied on brokerage, SEBI charges and transaction charges. Apart from brokerage, GST is also levied on SEBI charges and transaction charges. At present, SEBI’s charge is 0.0001%.
Stamp Duty
Whenever a share is sold or transferred in the stock market, stamp duty is applied on it. The stamp duty charged on the share is collected from the buyers by the central government. At present, stamp duty is charged at the rate of 0.015% on the price of the share purchased in the stock market. In simple words, you will have to pay stamp duty of Rs 1.5 for Rs 10,000. If you do intraday trade, then you will have to pay 0.003% as stamp duty.