Comprehensive Guide: Income Tax on Share Market Investments in India (2024)

1.What is the tax treatment of capital gains from shares in India?

Capital gains from shares are categorized as either short-term capital gains (STCG) or long-term capital gains (LTCG) depending on the holding period:

• Short-Term Capital Gains (STCG): Gains from shares held for 12 months or less are considered STCG and taxed at 15%.
• Long-Term Capital Gains (LTCG): Gains from shares held for more than 12 months are considered LTCG. LTCG exceeding ₹1 lakh in a financial year is taxed at 10% without the benefit of indexation.

2.What is the Securities Transaction Tax (STT)?

Securities Transaction Tax (STT) is a tax levied on the purchase and sale of securities listed on recognized stock exchanges in India.

3.Are dividends from shares taxable in India?

Yes, dividends received from shares are taxable in the hands of the shareholder. As of FY 2020-21, dividends are taxed at the applicable income tax slab rate of the shareholder. Additionally, a tax deducted at source (TDS) at 10% is applicable if the dividend income exceeds ₹5,000 in a financial year.

4.How do I report capital gains from shares in my income tax return (ITR)?

Capital gains from shares should be reported in Schedule CG (Capital Gains) of your income tax return (ITR). Depending on whether the gains are short-term or long-term, fill in the respective sections with details like the full value of consideration, cost of acquisition, and resultant capital gains.

5.What is the tax treatment of intraday trading income?

Income from intraday trading is considered speculative business income and is taxed as per the applicable income tax slab rates. It should be reported under the head ‘Profits and Gains from Business or Profession’ as speculative income in the ITR.

6.What is the tax treatment for income from futures and options (F&O)?

Income from trading in futures and options (F&O) is considered non-speculative business income and is taxed as per the applicable income tax slab rates. This income should be reported under the head ‘Profits and Gains from Business or Profession’ in the ITR.

7. Can I set off capital losses against capital gains?

Yes, capital losses can be set off against capital gains as follows:

• Short-Term Capital Loss (STCL): Can be set off against both STCG and LTCG.
• Long-Term Capital Loss (LTCL): Can only be set off against LTCG.

8. Can I set off business losses against income from other sources?

• Speculative Business Losses: Can only be set off against speculative business income.
• Non-Speculative Business Losses (including F&O losses): Can be set off against any other income except salary income.

9. Can I carry forward losses for future years?

Yes, unutilized losses can be carried forward to future years as follows:

• Short-Term Capital Loss (STCL) and Long-Term Capital Loss (LTCL): Can be carried forward for up to 8 assessment years to be set off against future capital gains.
• Speculative Business Losses: Can be carried forward for up to 4 assessment years.
• Non-Speculative Business Losses (including F&O losses): Can be carried forward for up to 8 assessment years.

10. Is there any exemption available for long-term capital gains?

Yes, long-term capital gains up to ₹1 lakh in a financial year are exempt from tax. Gains exceeding this threshold are taxed at 10%.

11. How is the cost of acquisition calculated for shares acquired before 1st February 2018?

For shares acquired before 1st February 2018, the cost of acquisition is determined using the ‘grandfathering’ rule. The cost of acquisition is the higher of:

• The actual purchase price of the shares.
• The lower of the highest price of the share on 31st January 2018 or the sale price.

12. Are there any deductions available for investing in shares?

Investments in shares do not qualify for any specific deductions under the Income Tax Act. However, investments in certain equity-oriented mutual funds under Section 80C can provide deductions up to ₹1.5 lakh.

13. How are mutual fund gains taxed?

• Equity-Oriented Mutual Funds: Gains are taxed similarly to shares, with STCG taxed at 15% and LTCG above ₹1 lakh taxed at 10%.
• Debt-Oriented Mutual Funds: STCG is added to the investor’s income and taxed as per slab rates. LTCG is taxed at 20% with indexation benefits.