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How are stock market gains taxed and how to declare in ITR?

05 August 20225 mins read by Angel One
How are stock market gains taxed and how to declare in ITR?
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2021 has been an outstanding year for India’s stock market, with an unprecedented bull run. Resultantly, investors have booked profits throughout the year. However, there are income tax implications associated with it, depending on the nature of the trades.

Mentioning salary, rental income, interest incomes, and likes is a common practice while computing taxes, factoring in the income from selling securities is a miss in most cases. These incomes or profits are taxable and covered under the ITR that you file every year.

So how are these stock market gains taxed? Read on to learn more.

How to Calculate Income Tax on Stock Market Gains?

As per the Income Tax Act of 1961, the taxability of stock market gains varies depending on transaction volume and holding period. If you purchase shares to invest, in that case, they will be regarded as capital assets and taxes as capital gains. Whereas if you purchase shares and then sell them within a short period, repeatedly, it will be treated as business income and taxed accordingly.

Taxation of capital gains has two classifications based on the holding period, short-term capital gains tax and long-term capital gains tax. On the other hand, the business income is taxable as per the slab rate you are subjected to.

Capital Gains Tax – An Overview

As specified above, capital gains tax is applicable to the profit that you earn from your stock market investments. Also, there are two sub-types to it based on the duration of an investment. Here are the details –

  • Short-term Capital Gains Tax

Short-term capital gains tax is applicable if one sells the share investment within 12 months of investment. It means, for example, if you make an investment on 21 January 2021 and sell it within 21 January 2022, you will have to pay STCG on your capital gains.

  • Long-term Capital Gains Tax

Long-term capital gains tax is charged on any gains made through the sale of shares after 12 months of investment. Taking a cue from the example mentioned above, if you sell your investment after 21 January 2022, it will come under LTCG.

Here is a table representing the tax rates of STCG and LTCG:

Type of Tax Condition Applicable Tax Rate
Short-term Capital Gains On the sale of equity shares 10% over and beyond Rs. 1 lakh
Except on the sale of equity shares 20%
Long-term Capital Gains On security transactions 15%
Not on security transactions As per the income tax slab

How to Declare Capital Gains on ITR?

You need to use the ITR 2 form to declare your capital gains from any and every such investment. While filling your ITR, you need to complete this process and then compute your annual income tax accordingly.

Bottom Line

The movement of India’s share market has been upwards only in recent times, and it shows no sign of slowing down. Therefore, as an investor, you stand a chance of earning lucrative profits on it. Hence, being aware of the capital gains taxation rules can aid one to pay his/her income tax dues and avoid any legal implications that come with non-payment of income tax properly.

To get all the updates on India’s stock market, refer to the Angel One Blogs.

Source: ET Now

Frequently Asked Questions

  1. What is the last date of filing an income tax return?
    The last date of filing an income tax return for a financial year is 31 March.
  1. What is the basic income tax exemption limit irrespective of age?
    The basic income tax exemption limit irrespective of age is Rs. 2.5 lakh in a fiscal year.
  1. What age-wise classifications are on the income tax slab?
    The age-wise classifications on the income tax slab are – individuals up to 60 years, senior citizens of 60 to 80 years, and super senior citizens of above 80 years.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.

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