Short-Term Capital Gain Tax on Shares in India:
The tax on profit earned from selling shares in India depends on how long you held the shares.
Short-Term Capital Gain (STCG): If you buy shares and sell them within one year (12 months) and make a profit, it will be considered as Short-Term Capital Gain (STCG).
Tax Rate on Short-Term Capital Gain: In India, a tax rate of 15% is applicable on Short-Term Capital Gain from listed shares. Surcharge (if applicable) and Cess may be added to this rate.
Some Additional Information
Securities Transaction Tax (STT): STT is applicable when buying and selling listed shares. This tax is deducted when you sell shares (it can apply to both buy and sell depending on the transaction type). While paying STT might offer some tax relief in certain cases, a flat 15% rate applies to STCG.
Calculation: Short-Term Capital Gain is calculated by deducting the purchase price of the shares and expenses directly related to the share transfer (like brokerage commission, STT, etc.) from the selling price of the shares.
Income Tax Return: You must add the capital gain earned from share transactions to your total income and file your Income Tax Return, paying the applicable tax.
Important Note
This information applies to listed equity shares. Rules may differ for mutual funds or other types of securities.
Tax rules can change over time. It is essential to refer to the latest income tax laws and regulations or consult a tax expert for the most current and accurate information regarding the applicable tax rate and rules for share transactions.
Do I Have to Pay Tax If I Sell a Share After 1 Year?
Long-Term Capital Gain (LTCG) Tax Rules in India
- Capital Gain up to ₹1 Lakh is Tax-Exempt: If your total Long-Term Capital Gain in a financial year (from various shares or equity funds) is up to ₹1 lakh, then no tax will be levied on that gain.
- Tax on Gain above ₹1 Lakh: If your Long-Term Capital Gain exceeds ₹1 lakh in a financial year, a tax of 10% will be applicable on the additional amount. Indexation benefit is generally not available when calculating this tax.
Example:
Suppose in a financial year, you have made a total Long-Term Capital Gain of ₹3,50,000 from selling shares.
- There is no tax on the first ₹1,00,000 of the gain (tax-exempt limit).
- Tax will be applicable at 10% on the remaining ₹2,50,000 (₹3,50,000 – ₹1,00,000) of the gain.
- The tax payable will be 10% of ₹2,50,000, which is ₹25,000.
Some Important Points:
- These rules primarily apply to shares listed on stock exchanges and equity-oriented mutual funds where Securities Transaction Tax (STT) has been paid.
- There is a special rule (Grandfathering Rule) for calculating LTCG for shares purchased before January 31, 2018. If you bought shares before this date, the calculation of your profit might be slightly different. In this case, the market value of the share on January 31, 2018, plays an important role. This rule can be a bit complex.
- The tax rates and rules mentioned above are subject to change as per the latest budget announcements. Therefore, for accurate and up-to-date information, it is always prudent to check the Income Tax Department of India’s website or seek advice from a professional tax consultant.
In simple terms, if you sell shares after holding them for more than a year and make a profit, you get a significant tax exemption (up to ₹1 lakh), and the additional profit is taxed at a relatively lower rate (10%) compared to the 15% rate for short-term gains. This is why many investors prefer long-term investments.
Made ₹10 Lakhs Profit in Less Than a Year from Stocks – Do You Have to Pay Tax?
Yes, you definitely have to pay tax. According to the example you provided:
- You bought shares within 1 year and sold them within 1 year.
- You made a profit of ₹10 lakh (100% profit).
Since you sold the shares within one year, your profit of ₹10 lakh will be considered as Short-Term Capital Gain (STCG).
In India, a tax rate of 15% is applicable on Short-Term Capital Gain earned from listed shares.
Therefore, the tax will be calculated at 15% on your ₹10 lakh profit.
The amount of tax payable will be: ₹10,00,000 * 15% = ₹1,50,000.
In this case, you will have to pay ₹1,50,000 as tax. Applicable surcharge and cess may be added to this.
Please remember, in the case of Short-Term Capital Gain, there is no exemption on profit up to ₹1 lakh, as is applicable for Long-Term Capital Gain. Tax is applicable on the entire amount of Short-Term Gain (if it is positive).
