Taxation Guide for Stock Trading in India
Welcome to the Trading Ek Mission Taxation Guide. This document provides essential information about how your trading earnings are taxed in India and tips to help you stay compliant and optimize your tax liability.
1. Overview of Taxation on Trading Income
Income from stock market trading can be classified as either capital gains or business income depending on the nature of transactions. Proper classification affects tax rates and filing requirements.
Capital Gains Tax (CGT)
Capital gains are profits earned from selling shares or securities. These gains can be short-term or long-term based on the holding period:
- Short-Term Capital Gains (STCG): Gains from securities held for less than 12 months (for equity shares and equity mutual funds) are taxed at 15% plus applicable surcharges and cess.
- Long-Term Capital Gains (LTCG): Gains from securities held for more than 12 months exceeding ₹1 lakh in a financial year are taxed at 10% without indexation benefits.
Business Income
If trading is frequent and done as a profession or business, income may be treated as business income. Tax rates follow the individual's or company's slab rates, and expenses incurred in the business can be deducted.
2. Securities Transaction Tax (STT)
STT is a tax levied on purchase and sale of securities listed on recognized stock exchanges:
- Paid at the time of transaction.
- Applicable on delivery and non-delivery transactions.
- Deducted at source and credited to the government.
STT paid can be considered for tax computation depending on the nature of income.
3. Income Tax Slabs for Individuals (FY 2024-25)
The following are tax slabs applicable under the old tax regime (excluding surcharge and cess):
| Income Range (₹) |
Tax Rate |
Remarks |
| Up to 2,50,000 |
Nil |
Basic exemption limit |
| 2,50,001 – 5,00,000 |
5% |
5% of amount exceeding ₹2,50,000 |
| 5,00,001 – 10,00,000 |
20% |
20% of amount exceeding ₹5,00,000 |
| Above 10,00,000 |
30% |
30% of amount exceeding ₹10,00,000 |
Additionally, health and education cess of 4% is applicable on total tax.
4. Income Tax Return (ITR) Filing
Traders must file ITR to report their income and pay applicable taxes:
- ITR-3: For individuals/businesses with income from business/profession including trading as business income.
- ITR-2: For individuals with capital gains but no business income.
- Filing deadline is generally July 31st for individual taxpayers (subject to government extensions).
- Advance tax payments may be required to avoid interest penalties.
5. Other Taxes & Charges
- Stamp Duty: Varies by state, payable on delivery-based share transactions.
- Goods and Services Tax (GST): Applicable to some brokerage and advisory services.
- Surcharges: Additional surcharge applies for income over ₹50 lakh.
- Capital Gains Tax Exemptions: Exemptions available for investments under specific schemes (e.g., ELSS for tax saving mutual funds).
6. Filing Tips & Record Keeping
- Maintain detailed records of all buy/sell transactions, brokerage, STT, and other charges.
- Keep all contract notes and bank statements for reference during tax filing.
- Consult with a tax professional to explore deductions and plan tax efficiently.
- Leverage the correct ITR form depending on your trading activity type.
7. Useful Resources
For detailed guidance, Trading Ek Mission recommends consulting a qualified Chartered Accountant or tax professional.