How Much Tax Do You Need To Pay When Selling Stocks In India?

The income or loss from the selling of equity shares is classified as a capital gain. The capital gains tax is determined on the gain generated from selling the shares after determining whether it is long term capital gain or short term capital gain. The capital gains tax rate on the sale of shares, equity mutual funds, and debt mutual funds is determined by a number of factors, including the holding period of the shares, type instrument i.e. shares, equity mutual fund, or debt mutual fund, and whether STT (Securities Transaction Tax) was paid on the sale of shares and mutual funds listed on recognized stock exchanges. Let's discuss how the selling of stocks is taxed in India.

Tax On Short-Term Capital Gains

Section 111A states that if you sell shares or mutual funds within one year of purchasing them, all proceeds will be treated as short-term capital gains. Profits made from the sale of STT (Securities Transaction Tax) paid shares listed on recognised stock are taxed at a 15% rate if sold within 1 year of purchase. Short-term capital gains resulting from the sale of non-STT paid shares, bonds, debentures, and other listed instruments, on the other hand, shall be taxed under the income tax slabs relevant to the holder. In the case where STT is not paid on the sale of bonds, debentures, shares, and other securities, these are taxed at a marginal tax rate of the holder i.e. from 10 to 30 per cent plus cessation of 3 per cent plus surcharge. In case of sale of debt mutual funds within three years of the date of purchase, income from such sales will be regarded as a short-term capital gain and will be taxed on the marginal income tax slab applicable to the holder. Furthermore, you can offset this deficit against your short-term gains, if your total taxable income after short-term capital gains is less than your taxable income, that is, Rs 2,5 lakh and the outstanding gains will be taxed at 15% including a 4% cess.   

Tax On Long Term Capital Gains

Section 10 (38) regards any gains resulting from such a sale to be a long-term capital gain if you sell the shares and mutual funds within three years of their date of acquisition. The minimum holding period of 1 year for STT paid sale of shares listed on recognised stock and mutual funds is taxed at 10 per cent for earnings exceeding Rs 1 lakh. Long-term capital gains, when sold after 1 year, are taxed at ten per cent on profits made on sales of non-STT paid bond, debentures, shares and other listed instruments. Within three years from the date of purchase if you sell any assets other than STT paid shares and mutual funds, all profits from the sale will be taxed at a rate of 20% including relevant surcharge and cess. Any income from such sales is regarded as the long term capital gain when you sell your debt mutual fund after three years or more from its date of purchase. On the sale of debt mutual funds or equity shares, the long term capital gain is taxed at a rate of 20% with indexation and 10% without that including surcharge and cess.     

How to save tax on capital gains?

The capital gains tax is determined on the gains earned from selling the shares after taking into account the period they were kept to determine whether it was a long or short term capital gain. Make sure you keep them for over a year to avoid capital gain tax. The option of a tax harvest technique is another means of avoiding taxation on the capital gain. The approach is to acquire long capital gains and reinvest the profit in the same mutual fund to sell the desired part of your kept units. An LTCG of more than Rs 1 lakh would be taxed at a rate of 10% without the benefit of indexation. Short-term capital gains (STCG) are taxed at a rate of 15%, whereas long-term capital gains (LTCG) are taxed at a rate of 15%. To put it in another way, you can use tax-loss harvesting to lower your LTCG and STCG tax liabilities.