Tax Implications for Income Derived from Shares

Tax Implications for Income Derived from Shares

04 Jul 2019

We are relatively well-versed with the fact that tax has to be paid on income earned through sources such as earnings from profession / business and salary, rentals from property, etc.

But, what if your income is derived through the sale or purchase of shares? Several common investors are even today unsure of how the income from selling and buying of shares is taxed. Income or loss from the sale of equity shares is considered under the heading ‘Capital Gains’ as per the extant provisions of the Income Tax Act, 1961.

In this blog, we will try and educate you on the tax liabilities / tax implications arising out of various types of incomes derived from shares.

When you sell shares in your portfolio at a price which is higher than what you have paid for it, you’re generally going to be taxed on the increase in value. This increase in value is known as a “capital gain”, as mentioned before.

Capital Gains fall into the following 2 categories:-

1. Short Term Capital Gains :

  • The seller may make short term capital gain (STCG) or incur loss if equity shares listed on a stock exchange are sold within a period of 1 year from the date of purchase.
  • If the selling price of the shares is higher than the purchase price, then the seller makes a short term capital gain (STCG).
  • A 15% flat tax rate is applicable to STCG, irrespective of your individual tax slab rate (viz., 10% or 20% or 30%).
  • For instance, if your total taxable income is below Rs 2.5 Lacs – you can simply adjust this shortfall against your short term gains. The tax on the remaining short term gains will be 15% plus 4% cess on it.

2. Long Term Capital Gains :

  • The Seller may make long term capital gain (LTCG) or incur loss if equity shares listed on a stock exchange are sold after a period of one year from the date of purchase.
  • LTCG on equity shares are not taxable up to the limit of Rs. 1 Lac.
  • If your LTCG is more than Rs. 1 lac, then it will attract a capital gains tax of 10% and the seller will not be provided with the benefits of indexation.

To sum up, Long-term capital gains (LTCG) and Short-term capital gains (STCG) are taxed at different rates as per the prevailing income tax laws. If shares or mutual funds were held for one year or less, it is considered as a short-term capital gain. If the asset was held for a period greater than one year, it would be considered as a long-term capital gain.

Capital Gains tax (CGT) is charged on the gains in the financial year in which the capital asset is transferred, but the tax is only payable in the financial year in which the money from transfer/sale proceeds are actually received by the assessee.

Founded in 2005 by new–age entrepreneur Abhishek Bansal, the Abans Group has evolved into a globally diversified conglomerate, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management. The Group is a comprehensive financial and non-financial services and solutions provider, aiming to provide end-to-end solutions to its clients.