Investing in the stock market can be a lucrative endeavor, but it comes with its own set of tax implications, especially when you are earning a salary alongside your stock market gains. In India, income tax is levied on both salary income and stock market earnings. This article will guide you through the process of calculating income tax on your stock market earnings, including short-term and long-term capital gains, FNO (Futures and Options), dividend income, and interest income, with and without indication.
Short-Term Capital Gains
Short-term capital gains refer to profits made by selling stocks or other securities that you have held for less than one year. In India, short-term capital gains are subject to a flat tax rate of 15%. To calculate your tax on short-term capital gains:
- Determine the total short-term capital gains made during the financial year.
- Multiply this total by 15% to calculate the tax due.
Long-Term Capital Gains
Long-term capital gains are profits made by selling stocks or securities that you have held for more than one year. Long-term capital gains on listed stocks are exempt from tax up to Rs. 1,00,000. Any gains exceeding this limit were taxed at a rate of 10%. To calculate your tax on long-term capital gains:
- Determine the total long-term capital gains during the financial year.
- If the total gains exceed the exemption limit, apply a 10% tax on the amount exceeding the limit.
FNO (Futures and Options) Trading
Income from FNO trading is treated as business income rather than capital gains. This means that you will need to calculate and pay taxes on your net income from FNO trading.
- Calculate the total income earned from FNO trading, which includes both profits and losses.
- Deduct business expenses and costs related to FNO trading.
- Calculate the net income.
- Apply the applicable income tax slab and rate to determine your tax liability.
Dividend Income and Interest Income
- Dividend income from stocks and interest income from investments are taxed differently:
Dividend Income: Dividend income is taxable in the hands of shareholders under head Income from Other sources. If the amount of Dividend received is more than Rs.5000, then TDS @10% will be deducted.
Interest Income: Interest income earned from fixed deposits, savings accounts, or other financial instruments is taxable. Calculate your total interest income and include it in your total income.
We should always check that our Capital Gain Account Statement and our 26AS should be tallied before we file ITR.
Conclusion
Calculating income tax on stock market earnings, alongside your salary, in India requires a good understanding of tax rules for different types of income, including short-term and long-term capital gains, FNO income, dividend income, and interest income. It is essential to maintain accurate records of your stock market transactions and stay informed about the latest tax regulations to ensure compliance with Indian tax laws.
Consulting with a tax professional is advisable for complex tax situations and to maximise tax-saving opportunities.
-The author is a chartered accountant and MD of Neeraj Bhagat & Co. Views expressed are personal.
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