Tax on Income from Shares

All securities bought and sold after 1st September 2004 attract Security Transaction Tax (STT). The profit on stocks sold within 1 year of purchase is known as Short Term Capital Gains & is taxed at the rate of 10%. The profit on stocks sold after 1 year of purchase is called Long Term Capital Gains & is exempted from tax.

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Tax on Income from Shares

Commonly, income from salary, rental earnings and business or partnership income is taxable. When it comes to income from shares or sale or acquisition of shares, retired people, many homemakers, use their time profitably by purchasing and trading shares but are uncertain of how this income is demanded. Tax on income from shares is a fully tax-free investment. Income or loss from the sale of equity shares is included under the head ‘Capital Gains’.

Benefits of Tax on Income from Shares

Completely tax-free

You do not have to spend charges on the benefits increasing through dividends. You just have to submit the report in Form 16 below the section intended for providing the necessary particulars. Property in equity shares thus puts you on top support over other sorts of investment which are taxable.

No pressure regarding long-term capital gains

Capital gains are a significant cause of investment for equity sharers. When you maintain your property for a year and above, you will not come below the tax bracket. This displays a long-term capital gain. But, if you try placing your shares in 6 months, from the date of investment, you will be levied charges in the kind of short-term capital gain taxes.

The option to set off capital gains

If you have created a series of losses on different forms of property, you can balance the capital gains increasing from the purchase of equities against the short-term capital loss resulting from a different form of purchase. Your taxes will be saved respectively.

Utilize the carry forward option to save your taxes

If you have benefited from the purchase of shares, you can use profits to compensate losses over arising from the sale of allowances. Your taxes can be reduced both by compensating losses or profits and by practising the carry forward benefits concurrently.

Get more tax gains by investing your money with the equity-linked saving scheme

Under Section 80C, benefits from payrolls, company or real-estate can save costs when the purchase is made through an equity-linked saving scheme. This is to the number of 1.5 lakhs per year. You can spend through the Equity Linked Savings Scheme (ELSS) and collect taxes as long as Rupees 46,000.

Rajiv Gandhi Equity Savings Plan

This option is also applicable to investors who are new to the stock or the equity market. You can obtain tax benefits as long as Rs.50,000 when you spend your money through the Rajiv Gandhi Equity Saving Scheme.

What are the gains and loss from Equity Shares?

Short-term capital gains and losses

If equity shares registered on a stock market are exchanged within 12 months of acquisition, the dealer may take short-term capital gain or acquire a short-term capital loss. The seller provides short-term capital increase if shares are sold at a price greater than the buying price.

Estimation of short-term capital gain = selling price(less) Prices on Sale (less) purchase price.

Long-term capital gains and losses

If equity shares registered on a stock market are exchanged after 12 months of purchase, the dealer may offer a long-term capital gain or acquire a long-term capital loss.

Before the initiation of budget 2018, the long-term capital gain obtained on the purchase of equity shares or equity-oriented members of mutual fund was excluded from tax below Section 10(38)

As per the requirements of the Financial Budget of 2018, if a trader makes long term capital gain of more than Rs. 1 lakh on purchase of equity dividends or equity-oriented parts of a mutual fund. The earnings produced will bring a capital gains rate of 10% long-term money earnings tax. Also, the advantage of indexation will not be possible for the dealer. These requirements refer to changes done on or after 1 April 2018.
Taxation of Gains from Equity Shares

Tax on short-term capital gains

Short term capital gains are payable at 15%. The specific rate of tax of 15% refers t short term capital gains, disregarding your price slab. Similarly, if your whole taxable income excluding short term earnings is under taxable income i.e Rs 2.5 lakh. you can resolve this shortfall towards your short term profits. The rest of the short term gains shall be later charged at 15% + 4% cess on it.

Tax on long-term capital gains

Long term capital gain on equity dividends listed on a property exchange is not payable up to the limit of Rs 1 lakh.

As per the measures in the budget, the long term capital gain of more than Rs 1 lakh on the selling of property shares or equity-oriented sections of the mutual fund will bring a capital gains tax of 10% and the interest of indexation will not be possible to the seller. These requirements refer to transfers made on or after 1 April 2018.

Short-term capital loss

Any short term capital loss from the investment of equity dividends can be set off on short term or long term capital gain from any property or capital asset. If the loss is not set off completely, it can be moved forward for 8 years and focused against any short-term term or extended-term capital gains made through these 8 years.

It is good to note that a taxpayer will only be permitted to carry forward losses if he has registered his income tax return within the scheduled date. Hence, even if the entire income received in a year is less than the minimum chargeable income, registering an income tax returns online is a need for carrying forward to these losses.

Long-term capital loss

Long term capital loss from property shares until Budget 2018 was estimated to be a dead loss. It can neither be modified nor moved forward. This is because long term capital gains from registered equity shares were excluded. Furthermore, losses from them were not allowed to be set off nor brought forward.

Documents required for tax on Income

  • Form 16: It is a TDS certificate allotted to you by your company to give details of the payroll paid to you and TDS taken on it if any.
  • Interest certificate from the post office and bank.
  • Form-16B/Form-16A/Form-16C
  • Form 26AS: It is your combined annual tax report. It is like your tax passbook which has notice of all the taxes that have been placed upon your PAN. It comprises:
    • a. TDS deducted by banks
    • b. Advance taxes are transferred by you during the financial year.
    • c. TDS deducted by your firm.
    • d. Self-assessment taxes paid by you.
    • e. TDS is deducted by any other companies from payments given to you.
  • Tax-saving advance proofs
    • a. Documentary evidence to claim
    deductions under section 80D to 80U
  • b. Home loan report from bank or NBFC
  • c. Pre-validation of bank statement for ECS payment
  • Capital gains
  • Aadhaar card
  • Get details of investment in confidential shares
  • Get bank account details
  • Update post office and bank savings account passbook, PPF account passbook
  • Salary slips

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