How will my gains from stocks and mutual funds be taxed?

Income Tax Income from Capital Gains
1

We’re all on the lookout for ways to make our money work for us, and investing in stocks and mutual funds is a popular choice. As we chase after capital appreciation, understanding the tax implications becomes key to smart planning and predicting our actual profits.

So, when you dive into stocks or mutual funds, you’re in for two types of earnings – dividends and the gains from selling your assets. The taxation for both of these will be different.

  1. Tax on dividend received:

Dividends are basically a share of a company’s profits distributed to its shareholders. If you get these dividends, they get taxed as “income from other sources” at your applicable slab rates.

Moreover, if the dividend payout exceeds ₹5000, the company also deducts a 10% TDS on this dividend.

For instance, if you get ₹8000 in dividends, the company deducts ₹800 (10% TDS), leaving you with ₹7200. Now, if you fall into a higher tax slab, say 30%, you’ve got to chip in the remaining 20% tax on the whole amount.

  1. Tax on capital gains:

Whenever you sell these stocks or mutual funds, there could either be a profit or a loss. Capital gains arise when you sell a capital asset at a profit, and these gains are taxable.

To know how much tax you’ll be liable to pay on these profits, you will first have to know whether these gains are short-term or long-term, and this depends on how long have you held the stocks for.

In the case of listed equity shares and equity mutual funds, if the holding period is more than 12 months, your gains will be classified as long-term and if it is less than 12 months, the gains will be short-term. For LTCG, the tax will be applicable at 10% and for STCG, the rate of tax will be 15%.
Now, these rates differ depending on the type of asset. The holding period for various assets along with their tax liability are as follows.

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“The rules for debt mutual funds were changed from April 1, 2023. Now, debt mutual funds are taxed at your slab rates without any indexation benefits.”

Exemption of ₹1 lakh on LTCG

LTCG of up to ₹1L are exempt from taxes. This means that you will have to pay tax on gains above ₹1 lakh. For example, say you had long-term gains of ₹1.3L. Out of this, ₹1L will be exempt and you will have to pay tax on only ₹30,000.

What if I incur losses?

Well yes, there might be losses as well. In case of capital losses, you do not have to pay any taxes. Even better, you can offset these losses. So, if you have short-term losses, you can set these off with STCG as well as LTCG. But, when you have long-term losses, those can be set off against only LTCG.

If there are not enough gains in the current year to set off the losses, you can also carry forward the losses for 8 years and can set them off whenever there are gains in subsequent years.

Here’s a video that explains it all!

If you have any queries, ask us below!

2

Hi,

Supposing a company issues partially paid up shares. It calls for the balance consideration a year later and the shares become fully paid up. For the purpose of computing LT vs ST capital gains, is the date of acquisition considered to be the date the partially paid up shares were allotted or the date on which they became fully paid up ?

Thank you

4

Hello @RanS

For calculation of capital gains, date of allotment is to be considered.

Partly paid up or fully paid up is just the payment type which a company can decide. Few companies might not require full amount initially and thus they issue partly paid shares and call for the balance amount as and when required from the existing shareholders.

Hope, this helps.

5

Good Day,

I had transferred all my equities to 5Paisa from Zerodha and I have sold some of shares after transferring to 5PAISA.

Kindly advise in order to file ITR, how to consider purchase price? Should I get it from ZERODHA? I have a record of purchase price and the date ( Zerodha) but not brokerage and other costs. Is it enough for filing the returns? Kindly advise, please.

6

Hello @michuanu2002

Capital Gains will be calculated as below:

CG = Sales Price(5paisa) - Purchase price(zerodha)

For calculation of CG in ITR, internal transfer between broker shall not be considered. You can take into consideration the price at which you bought the share and the price at which you sold the share. Even the holding period for the purpose of calculating STCG or LTCG shall be from the original date of purchase.
You can calculate the expense and manually deduct it from the sales price to compute the CG since transfer expense on purchase would be levied by zerodha and transfer expense on sales would be levied by 5 paise.

Hope, this helps.
Thank you.

7

Dear Akash,

Thanks for excellent support.

8

I was a Debt MF holder purchased in the FY2018-19. Am I eligible for LTCG for the said units that I had sold in the current FY? If so, can I offset the gains/losses made out of this against the losses/gains made in stocks held for long term and sold?

9

Hey @gdshan,

Yes, long-term capital losses can be set off against long-term capital gains.

Hope this helps.

10

Will there be any tax other than what is earned from short term share earning… or is it 15% fixed if we earn only from equity share because in that we are paying STT charge… There is no surcharge either education cess on short term gain of equity share

11

Hey @GoGuide_Map,

In case of equity stares, STCG are taxed at a rate of 15%. Moreover, a 4% health and education cess is applicable on the tax liability.

If the income exceeds ₹50L, a 10% surcharge is also applicable. The surcharge rates are different for different income levels.

Income level Surcharge Rate
Less than Rs 50 lakhs Nil
More than Rs 50 lakhs ≤ Rs 1 Crore 10%
More than Rs 1 Crore ≤ Rs 2 Crore 15%
More than Rs 2 Crore ≤ Rs 5 Crore 25%
More than Rs 5 Crore 37%

Hope this helps

12

Direct tax has always been cut but when and how to pay indirect tax and is there any bank account of the government in which I have to transfer the tax money?

13

Hey @GoGuide_Map,

On the capital gains from equity shares, the taxes you pay are considered direct taxes only. The payment of taxes can be made on the Income Tax Portal. Here’s a guide:

14

can we settle the financing cost of the BHNI application for IPOs with STCG?

15

Hey @gourav_dudani,

No, in the case of short-term capital gains, you will not be able to claim the same as an expense.

Hope this helps!

16

I am Babli Hansda Basari. I am pro subscriber of Quicko. As part of our financial arrangement, my husband provides me with a monthly allowance to cover our household expenses. However, I have been prudent with our finances and have managed to save a portion of this money. I have taken the initiative to invest these savings in the stock market with the aim of generating additional income for our family.

Now, I am faced with the
task of accurately reporting this additional income on my tax return. As the money used for investment originates from the allowance provided by my husband, I want to ensure that I fulfill my tax obligations correctly while reflecting the true nature of the income.

Could you please advise me on the appropriate steps to take to include this investment income in my tax return? I am particularly interested in understanding how to categorize it and any documentation I may need to provide to support my declaration.

17

Hi @Kalyan_Hansda,

Thank you for using Quicko.

You can show the amount received from your husband as ‘exempt income’ while filing the ITR.

Moreover, the investment needs to be reported when you sell the stocks and book profits/losses on them.

18

My mother is a home maker,. If i am transferring part of my salary to my mother’s account and investing in stock market. does she need to pay any Tax?

19

Hey @NaveenPrasanth,

There will be no tax liability when you transfer the salary amount and your mother invests the same in stocks.

The tax liability will arise only when she sells the stocks. In that case, tax will be applicable based on whether the gains are short-term or long-term.

Hope this clarifies!

20

Hello,

Section 111A/112A for short/long term capital gain for listed equity shares apply, when STT is paid. But if any one leg of the transaction (buy/sell) is done via off-market transaction and STT is not paid, while the other leg (sell/buy) is done on exchange and STT is paid, what tax provisions will apply for short term and long term capital gain?

Thanks,

Deepak

21

Hey @deepakm007,

The applicability of section 111A depends on whether STT was paid during the sell transaction. Hence, even if the securities were bought in an off-market transaction, if they were sold on the exchanges, and STT was paid, 111A will be applicable.

In case of section 112A which is for LTCG, STT needs to be paid during both the transactions, buy as well as sell transaction.

Hope this clarifies!