Investing in the stock market can be highly rewarding, but understanding the tax implications on your gains is crucial. In India, the profits you earn from buying and selling shares are subject to taxation under different rules depending on the holding period and type of investment. This guide will explain how share market profits are taxed in India so you can plan your investments efficiently.
Types of Share Market Profits
Before diving into taxes, it’s important to understand the two main types of gains:
- Short-Term Capital Gains (STCG)
- Gains from shares held for less than 12 months
- Taxed at 15% on the profit
- Applicable only for equity shares listed on a recognized stock exchange
- Long-Term Capital Gains (LTCG)
- Gains from shares held for more than 12 months
- Gains above ₹1 lakh in a financial year are taxed at 10% without indexation
- Encourages long-term investing
Tax on Dividends
- Dividends received from Indian companies were earlier taxed at Dividend Distribution Tax (DDT), but now they are taxable in the hands of the investor
- Dividends are added to your total income and taxed according to your income tax slab
- Make sure to declare dividend income while filing taxes
Tax on Derivatives and Futures & Options (F&O)
Profits from intraday trading, F&O trading, and derivatives are treated differently:
- Intraday Trading → Treated as business income, taxed as per your income tax slab
- Futures & Options (F&O) → Also treated as business income; losses can be set off against future F&O gains
How to Reduce Tax Liability Legally
- Hold shares for more than 12 months to benefit from LTCG exemptions
- Invest in tax-saving instruments like ELSS alongside your portfolio
- Set off losses: Short-term losses can be set off against short-term gains or long-term gains
- Maintain proper records of all trades and dividend receipts
Important Points to Remember
- STCG on equity shares = 15%
- LTCG above ₹1 lakh = 10%
- Dividends are taxable as per your income slab
- F&O and intraday gains = taxed as business income
- Proper documentation is essential for filing taxes correctly
Conclusion
Understanding taxation on share market profits in India is critical for making informed investment decisions. Whether you are a long-term investor or a trader, knowing how gains are taxed helps you plan better and maximize returns legally.
By holding shares long-term, offsetting losses, and tracking dividends, you can reduce your tax liability and make smarter investment choices.