Share trading has gained widespread popularity as a means of making a quick buck. But not many know that there are taxes you have to pay on stock market transactions. Read on to find out more about the taxes incurred on share trading.
Share trading transactions involve buying and selling of shares on the stock exchanges. These are the taxes that these transactions incur:
Capital gains tax: Capital gain is the profit earned when you sell the shares at a price higher than the purchase price. For example, if you bought the shares for US$ 100 and sold them for US$ 150, your capital gain is US$ 50. This gain attracts a short term capital gains tax of 10% if you sell the shares within a year. However if you sell these shares after a year, you do not have to pay this tax and so it is advisable to hold your shares for at least a year before selling them.
Securities Transaction Tax (STT): STT was first introduced by Finance Minister P. Chidambaram in July, 2004 in an attempt to stem the flow of speculative money in the Indian stock markets. Indian stock markets have the highest number of speculative activities and deliveries account for less than 20% of trading. This makes a small investor very vulnerable to stock market volatility. It was with the aim of protecting these small investors that STT was first introduced. At present, the STT rate is 0.025% of transaction value. For derivatives, it is 0.017%.
Stamp duty: Stamp duty is the tax you pay in order to get the shares registered in your name. This duty is payable when you buy the shares or get the shares transferred to your name. It is 0.5% of the value of the shares.
Service tax: When buying and selling shares, you have to pay brokerage as the charges for the services provided by your broker. As it is a service, it attracts service tax. At present, the service tax rate is 12.25%. Any transaction in the share market attracts this tax.
Education cess: Education cess is the surcharge levied by the government on the service tax in order to fund the basic education in the country and to provide nutritious meals to school children.
Now that you know the various taxes you have to pay when trading in shares, it makes sense to think carefully before participating in share trading, since you can end up paying substantial amounts in taxes.
Source: Economic Times
Thanks and Regards,
Sanchari Sinha,
Intern at DENIP Consultants Pvt. Ltd.
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