Taxation of shares transactions for Individuals
Table of Contents
Taxation of shares transactions for Individuals
Kind of share Trading transaction: When it comes to the taxation of shares transactions for individuals treating it as a business, Three Categories and taxation varies based on category, Intraday- Buying and selling shares on the same day, Delivery based- Buying shares & holding them for a certain time period & Doing Futures and Options Trading. the categorization and taxation vary based on the type of transaction. Here is a detailed breakdown for each category:
1. Intraday Trading
· Buying and selling shares on the same day. Intraday Trading income is Considered as speculative business income. Taxed at the normal slab rates applicable to the taxpayer. Speculative losses can only be set off against speculative gains. Speculative losses can be carried forward for up to 4 years and set off only against speculative gains in subsequent years. High-frequency intraday trading. Day Trader Is treated as Business Income. Only few Expenses Deductible i.e. Brokerage, internet charges, and other related expenses. Added to total income and taxed at slab rates.
2. Delivery Based Trading:
Buying shares and holding them for a certain period before selling. Treated as business income (not speculative). Income is to Tax at the normal slab rates applicable to the taxpayer. Non-speculative business losses can be set off against any other income except salary income. Non-speculative business losses can be carried forward for up to 8 years and set off against any business income in subsequent years.
3. Futures and Options (F&O) Trading:
Trading in derivative instruments like futures and options. Considered as non-speculative business income. Income is to Tax at the normal slab rates applicable to the taxpayer. Non-speculative business losses from F&O trading can be set off against any other income except salary income. Non-speculative business losses can be carried forward for up to 8 years and set off against any business income in subsequent years.
Summary Explain about taxation of shares transactions for individuals
Category | Nature of Income | Taxation | Set-off and Carry Forward |
Intraday Trading | Speculative Business | Normal slab rates | Speculative losses: Set off against speculative gains, carry forward 4 years |
Delivery Based Trading | Non-speculative Business | Normal slab rates | Non-speculative losses: Set off against any income except salary, carry forward 8 years |
F&O Trading | Non-speculative Business | Normal slab rates | Non-speculative losses: Set off against any income except salary, carry forward 8 years |
Taxation of Gains from Equity Shares
- Short-Term Capital Gains (STCG) : Gains from selling equity shares listed on a stock exchange within 12 months of purchase. Tax Rate on STCG is @ 15%
- Long-Term Capital Gains : Long-Term Investor is holding shares for over a year before selling. Capital Gains. LTCG taxed at 10% on gains exceeding ₹1 lakh. Gains from selling equity shares listed on a stock exchange after 12 months of purchase. Tax Rate is 10% on gains exceeding ₹1 lakh (post 1 April 2018, without indexation benefit) Long term capital Gains up to 31 January 2018 are exempt.
- Loss from Equity Shares – Short-Term Capital Loss : Can be set off against STCG or LTCG from any capital asset. Up to 8 years, adjustable against any capital gains.
- Long-Term Capital Loss (LTCL) : Can only be set off against LTCG. Up to 8 years, adjustable against LTCG.
Summary Table of Taxation of Gains from Equity Shares
Type of Gain/Loss | Definition | Tax Rate | Set-off | Carry Forward |
STCG | Sale within 12 months | 15% | Against STCG or LTCG | 8 years |
LTCG | Sale after 12 months (post 1 April 2018) | 10% (above ₹1 lakh, no indexation) | Against LTCG | 8 years |
STCL | Loss within 12 months | Not applicable | Against STCG or LTCG | 8 years |
LTCL | Loss after 12 months (post 1 April 2018) | Not applicable | Against LTCG | 8 years |
Securities Transaction Tax:
Securities Transaction Tax applicable & Levied on all equity shares transactions on a stock exchange. Registration charges, brokerage, and other charges are deductible from the sale value to calculate net gain or loss.
Securities Transaction Tax Collections see a major surge in the first three months of FY 2024-25, April 1-July 11 STT Collections rise nearly 130% YoY Source – CNBC TV18
CBDT Guidelines Report their share trading activities
1. Classification Criteria
The classification of gains or losses from the sale of shares as ‘business income’ or ‘capital gains’ depends on several factors:
- Volume and Frequency of Transactions: High frequency and volume, particularly in intraday trading or futures and options, may indicate business income.
- Intent: If the intent is to profit from short-term price movements, it is typically treated as business income.
- Holding Period: Longer holding periods often suggest capital gains, while shorter periods suggest business income.
2. Calculation Methods
o Income from Business: All expenses incurred in earning the business income can be deducted. Profits are added to the total income for the financial year and taxed at applicable slab rates. ITR-3 is required, showing income from share trading under ‘income from business & profession’.
o Income from Capital Gains: Expenses incurred on the transfer can be deducted. Short-Term Capital Gains (STCG) are taxed at 15%. & Long-Term Capital Gains (LTCG) over ₹1 lakh are taxed at 10%. ITR Form Depending on other income sources, typically ITR-2 is required.
Summary position mention here under :
Criteria | · | Business Income | Capital Gains |
Volume/Frequency | · | High (e.g., day trading, F&O trading) | Low to moderate |
Intent | · | Short-term profit | Long-term investment |
·Expenses Deduction | · | All business-related expenses | Transfer-related expenses only |
Tax Rate | · | Normal slab rates | 15% (STCG), 10% on gains > ₹1 lakh (LTCG) |
ITR Form | · | ITR-3 | Typically ITR-2 |
CBDT Circular (Listed Shares) | · | Option to choose, consistent in subsequent years | Option to choose, consistent in subsequent years |
Unlisted Shares | · | Not applicable | Always treated as capital gains |
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