Pranav R Begadi
Quick Summary
How are Trading Income and Capital gains taxed in Income Tax Act, 1961? STCG (Short-Term Capital Gain) from listed Security Trading: When a listed security is held for less than 1 year, shall be treated as short term capital asset. Gain/Loss arising out of it is Short Term Capital Gain/Loss. STCG
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FAQ :
STCG from listed securities held for less than one year is taxed at a flat rate of 15%, regardless of your income slab. Stamp Duty (STT) paid cannot be claimed as an expense.
LTCG from listed securities held for over a year is taxed at a flat rate of 10% after an initial exemption of up to Rs. 1 lakh. STT paid can be claimed as an expense.
Yes, profits from trading securities can be treated as business income. In this case, all incidental expenses, including STT, are deductible, and income is taxed at your slab rate.
Tax authorities consider factors like the volume of transactions, holding period, hedging strategies, regularity of trading, intention behind purchases, and how the activity is treated in your books of accounts.
It's often better to declare income as LTCG when you sell listed stocks held for over a year, as the 10% tax rate above the Rs. 1 lakh exemption is usually lower than your slab rate.
Treating trading income as business income can be beneficial if your effective tax rate is below 15%, especially if trading costs like STT significantly reduce your profit, or if your trading turnover is substantial and forms a major part of your income.
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