If you are a trader of stock market, it makes senses to know the taxes that are levied on you thus helping you choose the best alternative for yourself.
Capital gains Tax
The term capital gains refers to the profit earned by you when selling a stock at a higher price than what you purchased it at. If you hold on to these shares, capital gains do not arise but once sold, certain cut is demanded by the government from the gains that you made. The capital gains can be divided into two categories according to the stock holding period. The tax rates too differ for both these categories.
- Short Term Capital Gains: Gains made on a share that has been held for less than 12 months is considered to be short term capital gains. The tax rate on these gains is 15%.
- Long Term Capital Gains: Gains that are made on a share that has been held for more than one year is said to be a long term capital gain. If the STT has been paid on these transactions, the tax rate is 10% otherwise it is 20%. In addition, Long term capital gains till Rs 1 Lakh are exempted from tax in one single financial year.
The dividend received from any company was exempted from any tax till 31 March,2020 because the Dividend Distribution Tax (DDT) had already been paid by the company before the payment. However, since Financial Act 2020 DDT has been abolished and all dividends received by the shareholder are now taxable at normal applicable rates.
Securities Transaction Tax
STT or the securities transaction tax has to be paid on every sale or buying of stocks. It is basically levied on three financial instrument transactions- derivatives, stock markets and equity mutual funds. It is automatically deducted by your broker at the time of trading. This rate varies according to different broker contracts.
Goods and Services Tax (GST)
Many people consider stock market and equity transactions to be outside the net of GST. However, they fail to sense that it is the broker who is facilitating these equity transactions for a fee. It is in this fee that GST creeps in. The rate of GST is 18% on the brokerage fees paid to the broker for the trade execution.
The Bottom Line
Taxes and charges play an important role in the investment decisions. They are a valuable point of consideration when considering an investment bet. It would be highly stupid to ignore these costs and variable when considering stock market decisions. Thus, it is best to gain an in depth knowledge of these involved costs before investing in the stock market. Compare the brokerages and taxes involved with our financial experts today to make the right decision regarding investing your hard earned money in the stock markets.