Income Tax On Share Trading

Share trading has become popular and prevalent in India and many taxpayers hold some of their investments in shares. In this article, we discuss the applicability of Income Tax On Share Trading.

Nature of Trading

Income Tax On Share Trading is levied based on the nature of activity pursued by the trader. The following is an overview of the various kinds of share trading activities:

Capital Gain

If a trader is involved in stock market transactions as an investor who is primarily engaged in delivery based training, the gains received can be classed into:

Long-term capital gain
Short-term capital gain

Long-term Capital Gain

Equity shares sold after 12 months is exempted from tax, provided that the security is traded in a stock exchange on which

STT (Securities Transaction Tax) has been paid. Exemption on LTCG cannot be obtained if the shares are traded outside India. Long term capital loss from equity shares can only be foregone, as it can neither be adjusted nor carried forward.

Short-term Capital Gain

A capital gain tax of 15% is applicable if the equity shares are sold within 12 months from the date of purchase, disregarding the prescribed tax slab. If any other income of the investor other than the short-term capital gain is lesser than the basic exemption limit, then he/she could avail the benefit of such shortfalls. Unlike the case of LTCG, losses in equity trading can be set-off against any short-term capital gains.

Business Income

Traders of any registered stock market in India, who are primarily engaged in non-delivery trade, can earn the kind of returns specified below:

Speculative business income
Non-speculative business income

Speculative Business Income

Profits derived from intraday trading are classed under speculative business income. Taxes for such gains will be similar to the income tax earned through a business. Losses occurring from these transactions can be set off against business profit.

Non-Speculative Business Income

Income derived from trading futures in a recognized stock exchange is classed under non-speculative business income. Again, taxes imposed on share trading in this scenario are similar to the one imposed on business income. Losses occurring from such trading can be set-off against business profit.

Latest Update on the Pay Later Option for Income Tax Filing

The Income Tax e-filing portal has recently rolled out a 'Pay Later' option, allowing you to complete your tax filing process before making any tax payments. You can pay taxes after you are done filing. For additional information, please refer to our guide – Pay later option for the Income tax return filing.

Back to Learn

Frequently Asked Questions

Common questions about Income Tax on Share Trading in India: Key Insights.

Long-term capital gains refer to profits earned on the sale of shares held for more than 12 months, and are generally exempt from tax if the shares were traded on a recognized stock exchange and Securities Transaction Tax (STT) was paid. Short-term capital gains, on the other hand, are profits from selling shares within 12 months of purchase, and are taxed at a flat rate of 15%.

Long-term capital losses from equity trading cannot be set off against any other income or carried forward to subsequent years. However, short-term capital losses can be set off against any other short-term capital gains during the same financial year.

Speculative business income refers to profits derived from intraday trading, where shares are bought and sold on the same day. Such income is treated as business income and taxed accordingly. Non-speculative business income, on the other hand, is income from trading in futures on a recognized stock exchange, which is also treated as business income for tax purposes.

Losses from speculative business income (intraday trading) can be set off against any other business income in the same financial year. Similarly, losses from non-speculative business income (futures trading) can also be set off against other business income.

The Income Tax e-filing portal has recently introduced a 'Pay Later' option, which allows taxpayers to complete their tax filing process without making any tax payments immediately. This option enables taxpayers to file their returns first and pay any due taxes at a later date.

Yes, income tax is applicable on share trading outside India as well. The exemption on long-term capital gains is not available if the shares are traded outside India, even if Securities Transaction Tax (STT) has been paid.

If an investor's other income, apart from short-term capital gains, is less than the basic exemption limit, they can avail the benefit of the remaining exemption limit on their short-term capital gains.

Income tax on speculative and non-speculative business income from share trading is calculated in the same way as income tax on any other business income, based on the applicable tax slab rates for the individual or entity.

No, long-term capital gains cannot be set off against short-term capital losses or any other type of losses. Long-term capital gains and losses are treated separately from short-term capital gains and losses.

Yes, the exemption on long-term capital gains from equity share trading is only available if the shares were traded on a recognized stock exchange and Securities Transaction Tax (STT) was paid on the transactions.