How To Calculate Tax on Share & Stocks Income ?

Steps to Calculate Tax on Share Income – There are lot of individual who are confused about the taxation on income generated from investment in share and stocks of any companies. Check out the discussion below on capital gains on sale of shares or dividends received. If you are trading in share and stock market and think that any income received in respect of shares is exempt from tax, they are doing mistake and may punished by tax authority.

There are many aspects for taxation of shares & stocks in India. Kindly go through the provision for computing capital gains and tax rates on capital gains on sale of shares.

There are two type of taxation available in India for share and stocks trading. They are :

  1. Long Term Capital gain
  2. Short Term Capital Gain

Long term Capital Gain Taxation :  These type of taxation are levied on the profits arising on sale of any capital assets are treated as long-term if the same have been held for 36 months or more on the date of sale. Whereas in case of  shares in any Company, the holding period requirement is only 12 months or more in order to make such profits as long-term capital gain. It is to be noted that the company defined as any company and not necessarily an Indian Company.  

Read : How To Calculate Transaction costs in Buying or Selling shares or stocks?

Moreover even shares held in a private limited company will become long- term if held for 12 months or more on the date of sale of such shares.

The existing provisions of income-tax laws states that any long-term capital gains arising on sale of equity shares listed on Indian stock exchange and sold through a stock-broker are fully exempt from income tax.  Exception for listed shares which are sold outside the stock exchange platform or cases where the shares have been tendered under buyback scheme or under any open offer. It means exemption available to only such shares where  Security Transaction Tax (STT) has been paid.

Short Term Capital Gain : Shares and stocks which are sold within 12 month of purchasing. Profit on equity shares sold on stock exchanges in India within 12 months are taxed at a flat rate of 15 percent irrespective of any tax slab. It means if you fall under tax bracket of 10%, still you need to pay the tax of 15 percent on such short- term capital gains. Similarly, incase of higher tax slab rate of 30%.

Note : In case your other income excluding this short- term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability.

ReadHow Do I Know if I Should Buy, Sell or Hold Stocks ?

Taxation of Dividends received on shares:

Any dividend received on shares held in Indian company is fully exempt from payment of Income tax. However the company is required to pay a tax called Dividend Distribution Tax on such dividend at the rate of 15 percent on such dividend.


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