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Tax on Equity Share Trading

author portrait

Hiral Vakil

Capital Gains
Income Tax Rates
ITR-2
Tax Audit
Last updated on June 29th, 2021

If you have invested in Equity trading you need to file your ITR and pay tax on this income. Trading in equity shares and stocks have become very easy due to the availability of online trading platforms. Therefore, under Income Tax, trading in equity share can be categorized into two types:

  1. Delivery Trading (Capital Gains or Non-Speculative Business Income)
  2. Intraday Trading (Speculative Business Income)

Equity Delivery Trading means buying an equity share, hence you need to take its delivery and sell it on a different trading day. The ownership of the share is then transferred to the trader and it is delivered to the trader’s Demat account. The profit or loss from equity delivery trading may be considered as Capital Gains or Non-Speculative Business Income.

ITR for Equity, Intraday and F&O Traders
Need to file your ITR? Don't worry, we can help you
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ITR for Equity, Intraday and F&O Traders
Need to file your ITR? Don't worry, we can help you
[Rated 4.8 stars by customers like you]

Tax Heads For Equity Share Trading

Capital Gains Income

A trader who does trading in listed shares and securities with an intention to invest, the profit or loss is considered as Capital Gains Income.


Non-Speculative Business Income

A trader who does significant trading activity and trading income is the only source of income, the profit or loss is considered as a Non-Speculative Business Income. The trader can claim expenses incurred for earning such business income and needs to file ITR-3.



Income Tax on Equity Share

The rate of Income Tax on trading in equity share depends on the income head. If it is considered as a Non-Speculative Business Income, it is taxed at income tax slab rates. However, if treated as Capital Gains Income, below are the tax rates.

Treated as Capital Gains Income

  Type of Security Period of Holding LTCG Short Term Capital Gain
Domestic Company Listed Equity Share (STT paid) 12 months 10% in excess of Rs. 1,00,000 under Sec 112A 15% under Sec 111A
Listed Equity Share (STT not paid) 12 months 10% without Indexation Slab Rates
Unlisted Equity Share (STT not paid) 24 months 20% with Indexation Slab Rates
Foreign Company Listed Equity Share 24 months 10% without Indexation Slab Rates
Unlisted Equity Share 24 months 20% with Indexation Slab Rates

ITR Form, Due Date and Tax Audit Applicability for Equity Traders

FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 10th January 2021. If tax audit is applicable the due date to submit the audit report is 15th January 2021 and ITR filing when tax audit is applicable is 15th February 2021
Tip
FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 10th January 2021. If tax audit is applicable the due date to submit the audit report is 15th January 2021 and ITR filing when tax audit is applicable is 15th February 2021
Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
Explore

Carry Forward Loss for Equity Trading

Let’s take an example to understand it better

For example, Mr. Ajay is a salaried individual and has done some share trading in the FY 2019-20. His total salary income for a year is INR 8,70,000. And has a Short Term Capital Loss of INR 30000 and LTCG of INR 2,50,000.

Now in the above example, Ajay needs to file ITR-2 for FY 2019-19. And his total income and tax liability will be as follows:

Particulars Amount Amount
Salary Income   870000
Capital Gains    
Short Term Capital Loss 30000  
LTCG 250000  
Less: Exemption u/s 112A (100000)  
Taxable LTCG 150000  
Total Capital Gains after set-off of losses (taxed @10%)   120000
Total Taxable Income   990000
Tax at slab rate 86500  
Tax at special rate 12000  
Total Income Tax   98500
Health & Education Cess @4%   3940
Total Tax Liability   102440

FAQs

If I only have Mutual Fund Investment, which ITR do I need to file?

Since you have only capital gains income you need to file ITR-2.

What is Tax Loss Harvesting?

It means to realize(by selling your loss-making investments) your unrealized losses before the end of the financial year in order to reduce your tax liability.

Can I open multiple trading accounts?

Yes. An Individual can have as many trading accounts as they want. You can also link the same bank account with different trading accounts. However, you can’t have multiple accounts linked with the same broker.

Got Questions? Ask Away!

  1. Hi @Ravi_Kachhadiya,

    1. If the holding period for shares and securities is less than 1 year, it will be Short Term Capital Gains which will taxed at 15%. If the holding period for shares and securities is more than 1 year it will be considered as Long Term Capital Gains, which are taxed at 10% above INR 1 Lakh. Read more about Capital Gains and taxes here.

    2. Tax liability arises when income is accrued or arise during a financial year. Even when you do not withdraw any funds/profit from your Demat account, you are liable to pay tax on the sale of shares of securities. Depending on the nature of income, the taxability will be different.

  2. Avatar for d.r d.r says:

    If I make a profit or loss by shorting a stock (either by SLBM or other means) what are the applicable taxes?

  3. Hi @d.r, tax is applicable when you have realized gains the taxability comes into the picture. Intraday trading is treated as speculative business income from an income tax perspective and should be reported under the head income from business and profession when filing ITR 3.

    In case you have losses, you can set it off against any other speculative business income and carry forward the remaining loss.

    Hope this helps :slight_smile:

  4. Avatar for d.r d.r says:

    Hi, My question is a bit different in that I am not asking about selling, instead I am asking about shorting (not intraday shorting). Shorting is when someones borrows a stock and sells it, this can be done via SLBM (Securities lending and borrowing scheme). I want to know the taxation for a short held over a day or longer.

  5. Hey @d.r

    As per the Income tax laws and circular, any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities shall not be regarded as transfer and hence, no capital gain tax will be applicable for such transfer.

    Further, if any income arises except of transfer of securities shall be taxed under other incomes or business incomes depending upon nature of activities under SLBM.

    Hope, it helps!