ITR Filing For Stock Market Investors: Taxation Of Income Earne…

ITR Filing for Stock Market Investors, Image: Republic

The world of stock trading is exciting and ocean-deep, and the way to financial success often comes hand-in-hand with tax responsibilities. The deadline for filing Income Tax Return (ITR) for the financial year 2022-23 is on the way. It’s significant to calculate your taxability and file ITR before the deadline of July 31 to avoid the last-minute rush. If you are an investor in the stock market, it’s essential to perceive the different tax implications associated with equity share gains. From Short-Term Capital Gains (STCG) to Long-Term Capital Gains (LTCG), taxation on dividends, Securities Transaction Tax (STT), and even intraday trading in cash segment and futures and options (F&O), knowing the tax rules is vital. Stay informed and ensure a smooth tax filing process for your stock market investments.

Equity share gains are taxed uniquely based on the time duration of holding the shares and the type of trading actions involved. Selling listed equity shares within 12 months of purchase is considered a short-term capital gain (STCG) or loss (STCL). The tax applies on STCG at the flat rate of 15% under section 111A, irrespective of your tax slab, along with applicable surcharge and cess.

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On the other hand, selling listed shares after 12 months is classified as a long-term capital gain or loss. LTCG exceeding Rs. 1 lakh is taxable at 10% without indexation benefit, along with applicable cess.

Intraday trading income is treated as business income rather than capital gains. It is added to your total income, and applicable tax slab rates are based on your income tax bracket.

Securities Transaction Tax (STT) is charged on the purchase or sale of securities listed on Indian stock exchanges. Although STT cannot be directly claimed as an income tax deduction, it can be recognized as a business expense under Section 36 of the Income Tax Act of 1961 if the share income is classified under the heading "Profits/Gains from Business and Profession." Consulting a tax professional or referring to the latest tax regulations is recommended for accurate guidance on claiming deductions related to STT.

Regarding income from stock trading, individuals are required to disclose this income in their ITR Forms. Two types of income can arise from stock trading: income from trading stocks and intraday trading held for more than a day. Traders are advised to be attentive with the Income Tax Return filing since the trading activity is considered business income and must be reported accordingly.

Income from intraday trading is treated as income or loss from speculative business. After deducting the Security Transaction Tax (STT) paid on such transactions, it should be reported in the ITR-3 form as income from speculative business.

On the other hand, income from stocks/equity held for more than one day is categorized as gains or losses from capital asset transactions. This should be reported in the ITR-2 form under the head of capital gains. The holding period of the stocks determines whether the capital gains are classified as short-term or long-term capital gains.

The holding period should be more than 12 months for long-term capital gains. In all other cases, the gains are considered short-term capital gains. Short-term capital gains from stock trading are taxable at a rate of 15 percent. Long-term capital gains are taxable at a rate of 10 percent after deducting the threshold limit of ₹1 lakh, without indexation benefit.

Understanding and correctly reporting capital gains in the appropriate tax return form is essential to ensure compliance with tax regulations. Consulting a tax professional or referring to the latest tax guidelines can provide further clarity on reporting capital gains in your Income Tax Return (ITR). You can also hire tax experts and get CA Assisted ITR filing for maximum refunds.