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Tax Implications on Trading of Shares

Saturday July 30, 2016,

3 min Read

Here I have an interesting article to share……

In 2014-15, there was a steep rise in demat accounts…nearly 150 Lakh demat accounts were opened, nearly double the openings that happened in 2013-14.

This implies.......Nowadays no one seems to be interested in the return that bank's generally offer (6% to 8%). So people slowly started shifting to investing in Stock Exchange to earn quick money...

There are few positives that are accompanied with this shift :

1. This increases the revenue of government through receipt of Security Transaction tax and service tax (on brokerage)…   

2. Increases the liquidity of the market (Since many people are investing, one can easily buy and sell the securities)

Though many people have started investing in stocks, only few of them are aware of the tax implications exactly… Being unaware of tax implications may lead to a decrease in the gains or the benefit of set off of the losses against future income may be lost and finally people may end up with returns less than what the bank offers….

So I hope the following article will help you understand your tax liability….

Taxation of gains/profits earned on sale of shares

A person can invest in shares with following two intensions.

                        Investment &

                        Trading

Method 1: - Investment

When securities are held as investment, Gain on sale of shares is taxed as Capital gains.

Capital Gains are further divided into two types based on holding period of securities

                           More than One year – Long Term &

                           Less than one year – Short term

Gains that accrue on sale of shares in a recognized stock exchange (BSE/NSE) on which STT (Security Transaction Tax) is paid are taxable as follows:– 

               Long Term Capital Gain       -       Exempt

                Short Term Capital Gain      -       Taxable @ 15%

Set off & Carry forward of losses

Losses under the head capital gains cannot be set off against any other head

Long term capital loss can be set off/carry forward & set off against long term capital Gain only

Short term capital loss can be set off/carry forward & set off against both Long Term Capital gain and Short Term Capital gain

Carry forward of losses – Time Limit

Losses under head Capital Gains can be carried forward for 8years

Method 2:- Trading

When shares are acquired for pure trading, Gain on sale of securities are taxed as business income

Expenses like rent, salaries of employees, electricity etc., can be adjusted against gains on sale of securities.

Gains under this portfolio will be taxed at the rates applicable for the assessee which is on the basis of status of assessee viz.. Individual – Tax Slabs, Firm – 30%, Company – 30%

Set off & Carry forward of losses

Set off

Losses under this head can be set off against any other income except Salaries.

Carry forward & Set off

Loss under this head can be carried forward and set off only against profits of business

Carry forward – Time Limit

Losses under head business loss can be carried forward for 8years

Note: Losses can be carried forward to next financial year only when Income Tax Return is files within due dates… i.e., 31st July or 31st September…

This may be a difficult area to understand for a few….So here We, the Chartered Accountants can help you enjoy all the benefits with minimum cost and at the same time makes you free to concentrate on increasing the value of your portfolio……..

                                                                                           --CA.Teja Prasanna Kumar

Any feedback or suggestion or queries are encouraged at [email protected]

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