Most of the people are making huge money from the share market. However people are generally not aware about the taxability of the income share market and come to Chartered Accountants and Tax Consultants with a very common question- Is Share Market Income Taxable or Tax Free ?
People also want to know about the following questions related to income from the share market :
- How much tax do I pay on shares income?
- Is there any Income Tax on share trading profit in india?
- How to calculate tax on share trading income ?
- How are stocks taxed?
- When do you pay taxes on stocks?
- If you sell shares do you pay tax?
- Is Share Market Income Taxable or Tax Free?
In this article we will discuss about the taxability of the profit on the share market trading and investment.
Under the Income Tax Act, tax on the income from share trading or investment is calculated in the following manner :
- If the shares of listed companies are sold after a period of more than 12 months, then the entire profit on sale of these shares is tax exempt under section 112A of the Income Tax up to the limit of Rs.1,00,000. For example, you have purchased shares of XYZ Limited for Rs.2,00,000 on 1st January 2022 and sold these shares for Rs.3,00,000 on 5th January 2023. In this case, the entire profit of Rs.1,00,000 on sale of these shares is exempt from the income tax.
- If there is profit from the shares held for a period of more than 12 months exceeding Rs.1,00,000, then the profit in excess of Rs.1,00,000 shall be taxed at a concessional rate of 10%. For example, if in the above example, you have purchased shares of XYZ Limited for Rs.2,00,000 on 1st January 2022 and sold these shares for Rs.4,00,000 on 5th January 2023. In this case, there is a profit of Rs.2,00,000. Out of this total profit of Rs.2,00,000, you will not be required to pay any income tax on first Rs.1,00,000. However, on the balance Rs.1,00,000 profit, you will have to pay tax @ 10%. So, you will have to pay a tax of Rs.10,000 on total profit of Rs.2,00,000.
- Profit or Income from sale of shares, which are held for a period of less than 12 months are treated as normal profit and tax on the same is levied on the normal slab rates. For example, if you have purchased shares of ABC Limited on 1st January 2022 for Rs.1,00,000 and sold these shares for Rs.3,50,000 on 31st March 2022. In this case, you have made a profit of Rs.2,50,000 in just 3 months. But still you may not have to pay any income tax on it if you have no other income during the financial year 2021-22 because income upto Rs.2,50,000 is already exempt under the Income Tax Act. However, if you have income from other sources also, then this income shall be added to your total income and the tax shall be calculated on your total income according to the income slab applicable in your case.
- Similarly, profit or income from intra-day stock trading is also treated as normal profit and tax on the same is levied on the normal slab rates.
- It may also be noted that till 31.3.2018, income from shares which were held for more than 12 months was completely tax free without any limit, under section 10(38) of the Income Tax Act. However, this exemption was withdrawn by the Government by Finance Act 2018 with effect from 1.4.2018 as people were found misusing this provision of the Income Tax Act.
Disclaimer : This article has explained the taxability of short term and long term gains/income from the sale of listed shares by giving the suitable examples. This article is based on the current provisions of the Income Tax Act,1961
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