Elearnmarkets - Financial Market Learning
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Learn On Elearnmarkets
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Learn On Elearnmarkets
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Basic Finance
778_ELM_Blog Image_800 x 400

Evaluation of Charges and Taxes in Equity transaction

Elearnmarkets by Elearnmarkets
November 18, 2020
in Basic Finance
Reading Time: 6 mins read
7
4.6k
VIEWS
Share on FacebookShare on TwitterShare on WhatsApp

Lot of blogs have been written on the expenses attached to the equity transactions. However, many have missed to explain properly the composition of this expense.

In this blog we have categorized the expense into 2 parts:

Part A: Charges

Part B: Taxes

Apart from purchase and sales transaction, it is extremely important to understand the elements of taxation on investment products.

Now, let us first understand that in stock market, the trades done by traders or investors can be classified into two broad categories, based on time period, as mentioned below:

  • Intraday– buy and sell shares within the same trading session.
  • Delivery based trade – if the stock is not squared off and held for more than one trading session, it is a delivery-based trade.

Before understanding the charges and taxation part, we must know the two types of brokers in India:

  1. Full Service Brokers – Stock brokers who provide additional services like research and advice, tax tips, retirement planning, etc. other than transaction services. Eg- Kotak Securities, ICICI Direct, Angel Broking, Sharekhan, Edelweiss.
  2. Discount Brokers – Stock brokers who provide buy and sell transaction services. They offer cheaper brokerages. Eg- Zerodha, 5paisa, Upstox.

PART A – Charges

What are the charges levied in equity transaction?

In any equity trade, we have to pay the following charges.

Charges Name

Based on the type of broker, rates vary for different brokerage firms.

For instance, charges by discount broker Zerodha has been shown as an illustrative example.

Zerodha Charges_green

rates source: zerodha.com/charges

Here is an illustration of charges paid on trades done in intraday equity and delivery equity in Zerodha account.

Example of Rates-Equity

Part B – TAXES

In this section, we will discuss the taxation structure based on the following two categories:

  1. Intraday equity trading
  2. Delivery based equity trading/investingIntraday Smartart

1. Intraday equity trading

If you are involved in intraday equity trading, the income earned is considered as speculative business income as delivery is not taken in such trades.

Income from intraday trading is a business income and taxed as per the tax slab of the individual.

Futures & Options (F&O) Trading

Income from F&O trading is considered non-speculative business income. F&O is considered non-speculative as these instruments are used for hedging purpose and they are defined as non-speculative.

2. Delivery based equity trading/investing

If you hold equity investment for more than 1 trading session, then it is considered delivery based. You are actually taking delivery of the contract in your demat account.

Equity Delivery smartart 

With reference to the above discussion, there was an important circular released by the he Income Tax Department which allows an individual to decide whether his income from equity investments will be treated as “business income” or “capital gains”.

NOTE: The investor has to follow the chosen method consistently for all future years.

This section is the most interesting section of the entire blog as we have categorized the above circular with examples :

Income from equity investment :

  • When treated as Business Income

If you choose to consider income from equity investment as “business income”, then it will be taxed as per the individual’s tax slab along with any other income such as salary, house rent, capital gain.

Carry forward and set-off
  • Speculative losses can be carried forward for next 4 years and can only be set off against speculative gains you make in that period.
  • Non-speculative losses can be set off against any other income except salary income in the same year. It means they can be set off against interest income, rental income, capital gains in the same year.
  • Non-speculative losses can be set off against speculative gains.
  • Non- speculative losses can be carried forward for the next 8 years. Carried forward non-speculative losses can be set off only against non-speculative gains and speculative gains made in that period.

Eg 1:

My salary -Rs. 10,00,000

My interest income – Rs. 2,00,000.

Non-speculative business loss – Rs. 4,50,000.

Speculative loss (intraday) – Rs. 3,00,000.

Non-speculative business loss can be set off against “interest income”. Remaining 2,50,000 (4,50,000 – 2,00,000) can be carried forward for next 8 years.

Speculative loss of 3,00,000 can be carried forward for next 4 years and can be set off against future speculative gains.

Eg 2:

My salary – Rs. 10,00,000

My other income- Rs. 2,50,000

Non-speculative business loss- Rs. 3,00,000

Speculative income (intraday) = Rs. 500,000

Non-speculative business loss of Rs. 3,00,000 will be set off against speculative income.

Total Income:

Salary- Rs. 10,00,000

Other Income – Rs. 2,50,000

Speculative business income – Rs. 2,00,000 (3 lakhs set off)

Total Income= Rs. 14,50,000.

  • When treated as Capital Gains

If you choose to consider income from equity investment as capital gains, then further bifurcation in terms of short-term and long-term capital gains should be made.

Short-Term Capital Gain (STCG)

If the stock is held for less than 365 days, income/loss from it is Short-Term Capital Gain or Loss (STCG/ STCL)

Tax on STCG

Short term capital gain from equities is taxed at 15%. If the income of the individual is below the taxable limit of Rs. 2,50,000, the deficit amount can be adjusted from short term capital gain.

Eg:

My Total Income- Rs. 1,80,000 (below Rs. 2,50,000)

STCG from equity – Rs. 1,00,000

Deficit amount = (2,50,000 – 1,80,000) = 70,000

Adjusted from STCG = 70,000

Remaining STCG = (1,00,000 – 70,000) = 30,000

Tax on STCG = 15% of 30,000 = Rs. 4,500

Carry Forward and Set Off of STCG

Short-term capital losses can be carried forward for next 8 years and can be set off against any short-term capital gains.

Eg:

If STCL for present year is Rs. 50,000. This can be carried forward to next year. Suppose, in the next year the STCG is Rs. 80,000. Tax on STCG @ 15% will have to be paid on Rs. 30,000 (80,000- 50,000)

Long Term Capital Gain (LTCG)

If the stock is held for more than 365 days, income/loss from it is Long-Term Capital Gain or Loss (LTCG/LTCL)

Tax on LTCG

LTCG above and over Rs. 1 lakh is taxed at the rate of 10%.

Eg:

My Salary – Rs. 10,00,000

My other income- Rs. 1,20,000

LTCG on equity investing- Rs. 2,25,000

Taxes:

LTCG Tax on equity = 10% of 1,25,000 (2,25,000- 1,00,000) = Rs. 12,500

Total Income:

Salary- Rs. 10,00,000

Other Income- Rs. 1,20,000

Total= Rs. 11,20,000 will be taxed as per normal tax slab rate.

Carry forward and set off of LTCG

Long term capital loss can be carried forward for next 8 years and can be set off against long term capital gain.

Key Takeaways

  • Charges paid for equity trading and investing
  • Speculative (Intraday) and non-speculative business income
  • Tax treatment of business income and capital gains from equity transaction
  • Set off and carry forward of losses.
Tags: englishequity investmentintermediateinvestment planningtax planning
Share10TweetSend
Previous Post

Chinese Counterparts inability a boon for Specialty Chemical Sector

Next Post

New Banking Resolutions after PNB Crisis

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

What to Expect from RBI Policy Meeting? 1
Basic Finance

What to Expect from RBI Policy Meeting?

June 7, 2023
417
5 Best Practices in Your First Year of Stock Market Trading 2
Basic Finance

5 Best Practices in Your First Year of Stock Market Trading

May 15, 2023
1.5k
Understand the MSCI Index and its Rebalancing Impact on the Indian Stock Market 3
Basic Finance

Understand the MSCI Index and its Rebalancing Impact on the Indian Stock Market

May 12, 2023
2.3k
Tax Planning - 7 Changes in the Indian Financial Environment that you need to know this Financial Year! 4
Basic Finance

Tax Planning – 7 Changes in the Indian Financial Environment that you need to know this Financial Year!

April 18, 2023
1.3k

Comments 7

  1. froleprotrem says:
    3 years ago

    My brother suggested I might like this blog. He was totally right. This post actually made my day. You can not imagine just how much time I had spent for this information! Thanks!

    Reply
    • Satish Arabhave says:
      2 years ago

      Every person should be this type of knowledge is important. Thanks sir ji

      Reply
      • Sakshi Agarwal says:
        2 years ago

        Hi,

        We really appreciated that you liked our blog.

        Keep Reading!

        Reply
  2. MUNIBABU B says:
    2 years ago

    WONDERFUL INFORMATION

    Reply
    • Sakshi Agarwal says:
      2 years ago

      Hi,

      We really appreciated that you liked our blog.

      Keep Reading!

      Reply
  3. Karan Gupta says:
    2 years ago

    Much needed information in simplest manner

    Reply
    • Sakshi Agarwal says:
      2 years ago

      Hi,

      We really appreciated that you liked our blog.

      Keep Reading!

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Facebook-f Twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Marketshala
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Vishal Malkan
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Vishal Malkan
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Stock Market for Beginners
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Stock Market for Beginners
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Relative Strength Index
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Relative Strength Index
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2023 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Get Elearnmarkets App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars

© 2020 Elearnmarkets All Rights Reserved