Trading in the financial markets entails various costs, ranging from brokerage fees to a variety of taxes. Knowing what the different trading charges are can help you keep them in check and protect your profits.
If you’re planning to trade in the Indian financial markets, you need to know about the various costs that can potentially impact your profits. Being aware of them can also help you plan your trades better and make you more efficient.
Brokerage charges have a big impact on the final amount that the trader takes home. The following are the types of brokerage charges that allow traders to choose the most cost-effective solutions for their trades.
Key Takeaways
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Many factors influence the overall trading costs in India. This includes brokerage, multiple government charges, exchange rates, etc.
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STT, CTT, SEBI turnover fees, and stamp duty influence the overall cost of every trade.
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GST applies to brokerage, transaction charges, and SEBI fees. This increases total expenses.
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Capital gains tax depends on the asset type and holding period. This makes cost awareness essential for better trading decisions.
Types of Brokerage Charges
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Percentage-Based Brokerage: The broker charges a small percentage of the total trade value. Common in equity and derivatives trading. Cost rises with larger trades.
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Fixed Fee Brokerage: Irrespective of the trade size, a flat fee is charged. This is ideal for high-value trades, since the fee doesn’t scale with order amount.
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Discount Brokerage: Discount brokers offer lower brokerage charges, usually through flat-fee or reduced percentage models. This is suitable for traders looking for budget-friendly pricing without additional full-service features.
Costs Associated with Trading in the Indian Financial Markets
From brokerage costs and transaction charges to the various central and state government taxes, let’s look at the plethora of different expenses that you need to account for when trading.
1. Brokerage fees
Brokerage fees are one of the major costs that can significantly impact your returns. It's often the most sizable expense compared to the others. Brokerage is essentially the fee that stockbrokers levy for facilitating trades through their platform. The amount of brokerage you need to pay may vary based on factors such as the type of asset or trading segment, trading volume, and brokerage plan. The amount of brokerage you need to pay may vary based on factors such as the type of asset or trading segment, trading volume, and brokerage plan.
Generally, brokerage fees are charged as a percentage of the transaction value or as a fixed fee per trade. For example, assume your stockbroker levies a brokerage at 0.1% of the total trade value. If the value of your trade is ₹1,50,000, then you will be liable to pay ₹1,500 (₹1,50,000 * 0.1%).
On the other hand, if your broker levies brokerage at the lower of ₹20 or 0.1%, with a minimum fee of ₹5 for equity intraday and delivery trades, you will have to pay an amount that is between ₹5 and ₹20 on every executed trade.
For the latest Angel One pricing information, always refer to the pricing page before making decisions.
2. Securities Transaction Tax (STT)
Levied by the Government of India, Securities Transaction Tax (STT) is a type of direct tax. It is levied on all buy and sell trades of all types of financial instruments, except for commodities. STT is levied as a percentage of the total trade value and varies by trading segment. Here’s a table outlining the different STT rates.
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Trading Segment |
Securities Transaction Tax Rate |
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Delivery |
0.1% on both the purchase and sale of assets |
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Intraday |
0.025% only on the sale of assets |
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Futures |
0.02% on the sale of futures |
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Options |
0.10% on the sale of options |
3. Commodity Transaction Tax (CTT)
The Commodity Transaction Tax (CTT) is also imposed by the Government of India. However, as the name implies, it is only applicable to non-agricultural commodity derivative transactions. Here’s a table outlining the different CTT rates.
|
Trading Segment |
Securities Transaction Tax Rate |
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Commodity Derivatives |
0.01% on the sale value of derivative contracts |
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Commodity Options |
0.05% of the premium to be paid by the options seller |
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Commodity Options (if the option is exercised) |
0.0001% of the settlement price to be paid by the buyer of the options contract |
4. SEBI Turnover Fees
The Securities and Exchange Board of India (SEBI) imposes turnover fees on both buy and sell transactions executed on stock exchanges. Turnover fees are calculated based on your traded turnover and are collected by the exchanges on behalf of SEBI. The turnover fee for all financial securities except debt securities is 0.0001% of the total value of the purchase or sale transaction. Meanwhile, the turnover fee for debt securities is 0.000025% of the total value of the purchase or sale transaction.
5. Stamp Duty
Stamp duty is a tax imposed on various financial transactions, including the transfer of securities by state governments. The rate of stamp duty varies from one state to another and is calculated based on the transaction value. The stamp duty is collected by the stock exchange or clearing corporation from the purchaser of the security and is remitted directly to the respective state governments. Here’s a table outlining the stamp duty rates for different trading segments.
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Trading Segment |
Stamp Duty Rate |
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Delivery |
0.015% payable by the purchaser |
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Intraday |
0.003% payable by the purchaser |
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Futures |
0.002% payable by the purchaser |
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Options |
0.003% payable by the purchaser |
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6. Transaction Charges
Transaction charges are fees levied by stock exchanges for facilitating trade on their platforms. These charges cover the costs associated with trade execution, clearing, and settlement services provided by the exchanges. Transaction charges are typically calculated based on the traded value. Let’s look at the transaction charges levied on the purchase and sale of financial instruments by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
|
Trading Segment |
Stamp Duty Rate |
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Delivery |
BSE - 0.00375% |
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Futures |
BSE - ₹0 per crore |
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Options |
BSE - ₹500 - ₹3,250 per crore of premium turnover |
7. Goods and Services Tax (GST)
Goods and Services Tax (GST) at the rate of 18% is applicable to brokerage fees charged by brokerage firms, transaction charges and SEBI turnover charges. As a trader, you need to account for GST when trading since it can quickly add to the overall expenses you incur.
8. Capital Gains Tax
Capital gains tax is applicable to the profit earned from the sale of capital assets. This includes financial instruments such as stocks, debt securities, derivatives and mutual funds. In India, capital gains tax rates vary depending on the asset's holding period.
If the holding period of equity and equity-related assets like mutual funds is more than 12 months, the gains are classified as Long-Term Capital Gains (LTCG). Any gains above ₹1.25 lakh are taxed at 12.5% under LTCG. On the other hand, if the holding period of equity and equity-related assets, such as mutual funds or derivative contracts, is less than 12 months, the gains are classified as Short-Term Capital Gains (STCG). They are taxed at a flat rate of 20%.
In the case of debt mutual funds, all the gains, irrespective of the holding period, are added to your total income and are taxed at the income tax slab rate applicable to you. In the case of equity or commodity derivative contracts, the gains are considered speculative income and are added to your total income and taxed according to your income tax slab rate.
Factors Affecting Brokerage Charges
Understanding what affects brokerage charges helps you plan your trades better and avoid unexpected costs. Many traders also use a brokerage charges calculator to estimate fees before placing an order.
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Type of Asset
Different assets, like stocks, futures and options have their own pricing rules. As a result of this, the brokerage charges may change depending on what you choose to trade.
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Trading Volume
Your total costs increase when you trade often or place large orders. Some brokers also adjust pricing based on how active you are.
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Brokerage Model
Brokers may charge a percentage of the trade value or a flat fee per order. The overall cost is influenced by the model that your broker follows.
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Trading Platform
Platforms with advanced charts, tools, or premium features may charge extra. Basic platforms usually come at no additional cost.
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Nature of Trade
Intraday trades often have lower charges because positions are closed on the same day. Delivery trades can cost more since you hold the shares.
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Trade Segment
Different segments like equity, derivatives or commodities come with their own fee structures. Each market follows separate pricing rules.
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Asset Price
When brokerage is percentage-based, higher-priced assets result in higher charges. Lower-priced assets reduce the overall cost.
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Quantity
Buying or selling more units increases the total brokerage you pay. Fewer units usually mean lower fees.
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Trading Account Type
Some accounts offer discounted rates or added features. Premium accounts may cost more but provide extra benefits.
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Brokerage Firm
Each broker sets its own pricing based on the services it offers. This is why charges can differ widely between firms.
Tips to Minimise Brokerage Fees
Given below are some effective tips with the help of which you can minimise your brokerage fees and take big profits home.
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Understand brokerage pricing models: Depending upon the type of pricing model that you use, brokerage charges can differ. While some models may charge a percentage per trade, others may charge a fixed fee regardless of trade size or number. This clarity allows you to understand the potential cost implications across different trading volumes.
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Brokerage calculator: By using a brokerage calculator, you can analyse the total costs of the trade. This includes brokerage and regulatory fees. With the use of this tool, one gets better visibility into transaction-related costs.
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The role of trading frequency: Higher cumulative costs from brokerage and taxes may arise from frequent trading. You can gain insight into how costs change with trading volume and frequency by looking at your trading patterns.
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Compare entry and exit load charges: Some investment products may have entrance (front-end) or exit (back-end) load fees. These fees are usually mentioned in the product documentation and can have an impact on the total cost of investing.
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Be aware of charges for inactivity: If some trading accounts are not utilised for a long time, you may have to pay inactivity fees. To determine when such fees will apply, it is crucial to go over the terms and conditions of the brokerage agreement.
Conclusion
Understanding and managing brokerage account taxes, fees and other trading charges is essential for evaluating your true trading costs. When you clearly understand the different expenses involved, you can make smarter decisions and shape strategies that protect your profits. Using tools like a brokerage calculator also helps you compare costs and choose the most efficient options for your trades.
To improve your trading approach, focus on a few key steps. Keep educating yourself about market changes and new regulations. Choose a broker whose pricing suits your trading style. And finally, plan your trades wisely to avoid unnecessary transactions and reduce overall costs.
