How are capital gains taxed on stock investments in India?

Capital gains tax on stock investments in India depends on the holding period of the stocks. If you sell shares within one year, you pay a 15% tax on Short-Term Capital Gains (STCG). If you sell after one year, you pay a 10% tax on Long-Term Capital Gains (LTCG) exceeding ₹1 lakh in a financial year. This tax applies to profits made from stock trading and investments.

1. What is Capital Gains Tax on Stocks in India?

When you sell stocks at a profit, the income is called capital gains. The government taxes these gains under two categories:

• Short-Term Capital Gains (STCG): If you sell shares within 12 months, a 15% tax is applied.
• Long-Term Capital Gains (LTCG): If you sell shares after 12 months, a 10% tax is applied on gains exceeding ₹1 lakh.

2. How to Calculate Capital Gains Tax?

To calculate capital gains tax, subtract the purchase price from the selling price of your stocks. The tax rate depends on whether it is a short-term or long-term gain.

Example:

• You bought stocks for ₹2,00,000 and sold them for ₹2,50,000 after 14 months.
• Profit = ₹50,000 (LTCG category).
• Since gains are under ₹1 lakh, no tax is applicable.

3. Are There Any Tax Exemptions or Deductions?

Yes, certain exemptions and deductions help reduce capital gains tax:

• ₹1 Lakh LTCG Exemption: No tax on long-term capital gains up to ₹1 lakh in a financial year.
• Set Off Losses: If you have losses from stocks, you can use them to offset your gains and reduce tax liability.
• Tax-Saving Investments: Investing in specific assets like residential property can help in claiming tax benefits under sections like 54F.

4. How to Pay Capital Gains Tax?

Capital gains tax can be paid through the following methods:

• Advance Tax: If your tax liability exceeds ₹10,000, you must pay it in installments during the financial year.
• ITR Filing: Report capital gains in your Income Tax Return (ITR) under ‘Capital Gains’ and pay the applicable tax.

5. Conclusion

Understanding capital gains tax is crucial for Indian stock investors. Short-term gains are taxed at 15%, while long-term gains above ₹1 lakh are taxed at 10%. Planning your investments strategically and using exemptions can help you save on taxes while maximizing profits.