Analyzing The Impact Of Tax On Profit From Shares In India

Do you want to know the impact of tax on profit from shares in India? If yes, then you must get through this article till the end to have a clear insight into it. There are many homemakers as well as retired people who spend their time gainfully buying and selling shares.

Tax is levied on the sale of shares and the profit you gain from it. In India, tax on profit from shares depends on the type of gain( Short term or long-term). The nature of the transaction are applicable to the tax rate.

Tax on Profit From shares in India matters a lot as it can deduct the portion of your profit that you have gained by selling the shares.

Understanding The Concept Of Tax On Profit From Shares In India

Taxation on profits from shares in India depends on the nature of income (capital gains vs. business income) and the holding period of the shares. The tax treatment differs for investors and traders.

Different Sources Of Taxable Income From Shares In India

There are different sources from where the government of India collects taxes from the sale of shares. Now there are several factors related to it. So, let’s explore the facts to get a clear insight into it properly.

1. Taxation In Capital Gains ( For Investors)

If the shares are brought as well as sold for investment purposes then profits are classified as capital gains. Capital gains can be divided into two categories like:-

A. Short-Term Capital Gains (STCG)

• Applies when: Shares are sold within 12 months of purchase.
• Tax Rate: 15% (plus surcharge & cess).
• Example:
  • Buy shares for ₹50,000 and sell them for ₹60,000 within 6 months.
  • Profit = ₹10,000
  • Tax = 15% of ₹10,000 = ₹1,500

B. Long-Term Capital Gains (LTCG)

• Applies when: Shares are sold after 12 months of holding.
• Tax Rate: 10% on gains above ₹1 lakh per financial year (without indexation benefit).
• Example:
  • Buy shares for ₹1,00,000 and sell them for ₹2,50,000 after 2 years.
  • Profit = ₹1,50,000
  • Exemption = ₹1,00,000
  • Taxable LTCG = ₹50,000
  • Tax = 10% of ₹50,000 = ₹5,000

2. Taxation From Business Income

If a person frequently trades in shares then profits may be treated as business income it works that too under the Income Tax Act. This can be applicable in two cases.

A. Intraday Trading (Speculative Business Income)

• Applies when: Buying & selling shares on the same day.
• Tax Rate: Profits are added to total income and taxed as per income tax slab rates.
• Loss Set-Off: It can be set off only against speculative business profits, and carried forward for 4 years.

B. F&O Trading (Non-Speculative Business Income)

• Applies when: Trading in futures & options (F&O).
• Tax Rate: Profits are added to total income and taxed as per income tax slab rates.
• Loss Set-Off: This can be offset against any income except salary and carried forward for 8 years.

3. Tax On Dividends

Dividend Income is Taxed at the investor’s applicable slab rate. TDS (Tax Deducted at Source): 10% deduction if dividend income exceeds ₹5,000 in a financial year.

4. Set Off And Carry Forward Of Losses

Short-Term Capital Loss (STCL) can be offset against both STCG & LTCG and brought forward for 8 years. Long-Term Capital Loss (LTCL): Can be set off only against LTCG and brought forward for 8 years. Tax on profit from shares in India matters a lot for you in long run.

How To Calculate The Capital Gains On Equity Shares?

There are some simple steps that you need to follow to calculate the capital gains on equity shares. All the computation of the capital gains from equity shares is quite different from long-term and short-term assets. There are some key factors that you must consider here from your end:-

1. Sale Value Of Assets

It is the amount gained when any assets are sold irrespective of the fact that assets belong to a short-term or long-term category. Regarding the equity shares the value of sales is calculated when you deduct the gross selling price from the brokerage fees as well as securities transaction tax

2. Cost Of Asset Acquisition

The cost of asset acquisition is the buying price of an asset that is sold and comprises the brokerage charges that are incurred at the time of purchase of an asset. Certain steps will help you to calculate the cost of asset acquisition.

• All the fair market value of the investment.
• The amount is differentiated from the original value of the asset and lesser the amount.
• In most of the cases, the value is compared to the purchase value of an investment. If it has a higher value then it is considered an acquisition of an asset.

3. Expenses Incurred Due To Sale Or Transfer

All the expenses that you incur from the sale of the shares are either brokerage charges or registry charges with various other expenses incurred on the sale of assets. For all the equity shares that comprise STT charges at the sale of transactions, all the charges are added in the calculation of capital gain on equity shares.

4. Holding Period

A holding period is given for several months or days with short-term capital gains. It depends on the facts how investors held the assets. All the holding periods will start from the acquisition date of an asset. It continues on the date preceding the asset transfer.

Formula For Calculating Long-Term Capital Gain For Shares

LTCG = Sale value of Long Term Equity Assets – (Cost of asset acquisition + expenses incurred owing to their sale or transfer)

Break Down Of New Tax Rules For Stocks, Mutual Funds & More

The union budget for 2024 which was announced recently has made some significant tax changes for the investors. All these changes will affect investors across various asset classes that including real estate, mutual funds, and stocks. Most importantly this can impact your financial planning and you may have to revisit the investment strategy.

What Are The New Changes In The Union Budget

Let’s find out the Tax Rates For Listed Assets that are now present in the union budget. Some of the key factors to know from here are as follows:-

Note: All the annual LTCG exemption limits are enhanced from Rs 1 lakh to Rs 1.25 lakh for equity and stocks mutual funds.

Tax Rates For Unlisted Assets

Asset TypePrevious STCG RateCurrent STCG RateHolding PeriodChange In Holding PeriodPrevious LTCG RateCurrent LTCG Rate

Budget 2024 Tax Changes & Their Impact On Investors

Long-Term Capital Gain Tax

There have been changes in the long-term capital gain tax. Now matter of fact what has changed? The LTCG Tax rate has been altered from 10% to 12.5%.

Example

If you bought shares for Rs 100000 and sold them after 2 years for Rs 120000.

• Old Tax ( Rs 50000- Rs 100000)X 10% = Rs 4000
• New Tax ( Rs 50000-Rs 125000) X 12.5% = Rs 3125

Impact On Investor

• Offers slightly higher taxes on long-term gains.
• The increased exemption rate (Rs 1.25 lakh)

Changes In Short Term Capital Gain Tax

The STCG tax rate for the equity increased from 15% to 20%. This is one of the significant hikes in tax rates in this sector.

Example:-

If you have bought shares for Rs 100000 and sold them after 6 months for Rs 120000.

• Old tax Rs 30000 x 15% = 4500
• New Tax Rs 30000 x 20% =6000

Impact On Investors

• For short-term equity investors have to pay higher taxes.
• It may encourage the investors to have a longer holding period.

Changes In Real Estate Taxation

What Changed?

• All the indexation benefits were removed from the property that you brought after July 23, 2024.
• You have a new option to select from 12.5% tax without indexation or 20% from indexation for all the properties that are bought before July 23, 2024.

Key Points To Note

• The 1.25 lakh exemption applies to both schemes and reduces the taxable capital gains to a considerable extent.
• All the properties that you have brought before July 23 2024 investors can choose the more beneficial option between old and new schemes.
• The new scheme (12.5% without indexation) applies exclusively to properties purchased after July 23, 2024, with an exemption of ₹1.25 lakh.
• Eliminating indexation for properties purchased after July 23, 2024, could lead to increased tax burdens, particularly for long-term holdings during high inflation periods.

What Steps Can You Take As An Investor?

There are certain steps you can take as an investor to get off from this problem. Some of the key steps you can adopt are as follows:-

• You must review your investment strategy and reassess your portfolio in light of new tax changes.
• Make use of increased LTCG exemption. Seek the benefits of Rs 1.25 lakh exemption for stocks and equity mutual funds.
• Focus on Long-term investing as a short-term investment can cost you more.
• Try to diversify your portfolio.
• Reassess the real estate investment.
• Try to stay informed about the market instruments.
• Evaluate the impact on retirement planning.

Final Take Away

Hence, these are some of the core impacts of the tax on profit from shares in India. Additionally, you must be well aware of the scenarios that can offer you the scope for earning better returns from your investments.

You can share your views and opinions in our comment box which can boost the chances of your tax on profit from shares in India. So, you must not make your choices in the dark. Feel free to share your views in our comment box.

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ICA Edu Skills Team

Working with businesses in diverse industries. I'm passionate about helping others understand and manage their finances effectively. This blog is where I share practical tips, insightful guides, and the latest updates on accounting, taxation, GST, TallyPrime, and advanced Excel. Feel free to ask questions, leave comments.

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