Taxes applicable on profits earned from stock market

Profits earned from Stock market is explained as under. Your income will be taxable under the heading Capital Gains (CG) or Profits and Gains from Business or Profession (PGBP).

Capital Gains can be of two types: Long term Capital Gains (LTCG) or Short term Capital Gains (STCG).

Similarly, PGBP can also be of two types: Income from Speculation Business and Business Income.

Share Transactions can be divided in three parts:
1 When shares are delivered in your demat account – Profits will be Capital Gain. It can be further divided in two parts:
a. You hold these shares for Less than 12 months (STCG): 15% Tax
b. You hold these shares for More than 12 months(LTCG): No Tax i.e. profits are exempt

NOTE: It is possible that you hold some shares for less than 12 months and some for more than 12 months. In that case your profits will be bifurcated and profits on shares held for more than 12 months will be exempt from tax and balance will be taxable at 15%.

2 When shares are not delivered in your demat account (e.g.: Intraday Trading, or BTST) – Profits will be taxable as Income from Speculation Business – Tax rate will be determined as par the Income Tax Slab you are falling in. (Slab rates mentioned below)

3 Equity Futures and Options – Profits will be taxable as Business Income – Again Tax rate will be determined as par the Income Tax Slab you are falling in. (Slab rates mentioned below)
You might be thinking what’s the difference between Speculation Income and Business Income when both of them are taxable at the same rate. Well, there is a Major difference.

We all know things in stock market may not go as planned and sometimes we could end up in losses. Income Tax law in India allow us to carry forward these losses to future years and set off from profits that we may earn in Future and thereby reducing our taxable income resulting in tax saving. But there is a limit on number of years such losses can be carried forward.

Loss from Speculation Business
2) can be carried forward only for 4 subsequent years only and can be set off only against Income from Speculation Business only. Other Speculation income are Income from Lottery and Income from Race Horses

Whereas Normal Business Loss
3) can be carried forward for 8 subsequent yearsand can be set off against ANY business income or income from your profession.

Also it is worthwhile to remember that Short Term Capital Loss {Pt. 1(a)} can also be carried forward for 8 subsequent years and can be set off against again any Capital Gain (LTCG or STCG). And Long Term Capital Loss {Pt.1(b)} can also be carried forward for 8 subsequent years BUT can be set off against Long term Capital Gain only. Capital Gains may arise from Sale of Property like Building, Land, Jewelry, etc. Whether they will be LTCG or STCG will depend on how long you have been holding those assets.

Please NOTE that you can carry forward these losses only if you had filed your return before due date and claimed these losses in your return.

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