Did you know the rates of capital gain tax in the stock market got revised in #Budget2020? This article covers everything you should know about the latest updates. Learn about capital gain tax on the sale of shares and how can you save it. Get to know quick tricks on how you can avoid capital gain tax on stocks.
What is Capital Gain?
Capital gain can be described as the profit earned when the selling price of a capital asset like a bond, share, stock, etc. exceeds the purchase price of the same. In simpler terms, it is the difference between the selling price and purchase price of a particular capital asset.
Types of Capital Gain
First, let us understand what are the Types of Capital Gain
Short Term Capital Gain Tax in Stock Market
The short term capital gain is earned when the stock is purchased and sold within one year of purchase. It includes the following types of stock trading:
Intraday Trading: When the stock is purchased and sold on the same day without holding the position overnight, it is called intraday trading.
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Short Term Trading: When the stock is purchased and kept for more than one day but less than one year, it is called short term trading.
Long Term Capital Gain Tax in Stock Market
The long term capital gain is earned when the stock is purchased and sold after one year of purchase.
The tax treatment for short term capital gain and long term capital gain is different.
Long term V/s. Short term Capital Gain Tax Rates in Stock Market in India
| Type of Capital Gain | Taxation rates |
| Short Term Capital Gain Tax in stock market (STCG) | The short term capital gain is taxed at the normal slab rates of an individual’s income. It is added to the income earned by an individual during a particular financial year The short term capital gain from equity shares and equity mutual fund will be taxed at 15% |
| Long Term Capital Gain Tax in stock market (LTCG) | 10% on the capital gain from equity shares and mutual fund if gains are more than 1 Lakh |
Do you know Income tax slabs changed in Budget 2020? Here are the new Income tax slab rates for 2020-21
| Income (in Lakhs) | Tax Rate |
| 0-2.5 | Nil |
| 2.5-5 | 5% |
| 5-7.5 | 10% |
| 7.5-10 | 15% |
| 10 -12.5 | 20% |
| 12.5-15 | 25% |
| Above 15 | 30% |
After getting a basic understanding of taxation you might be wondering how capital gain tax is calculated on shares.
How to calculate tax on the long term and short term capital gain earned from the stock market
Long term Capital Gain Tax (LTCG) on shares
If you earned income of ₹2,50,000 and LTCG of ₹400000 then the tax amount would be:
| Income | ₹250000 |
| LTCG | ₹400000 |
| LTCG after the exemption of ₹100000 | ₹300000 |
| Taxation rate | 10% |
| Taxable Amount (300000*10%) | ₹30000 |
There will be no tax levied on the income of ₹2,50,000 as it is exempted. The tax amount would be ₹30,000.
Short Term Capital Gain Tax (STCG) on shares
Let us understand with example, Here we will consider two scenarios:
Situation 1
If you earned an income of ₹2,50,000 and STCG of ₹1,00,000 then the tax amount would be,
| Income | ₹250000 |
| STCG | ₹100000 |
| Taxation Rate | 15% |
| Taxable Amount (100000*15%) | ₹15000 |
Situation 2
If you earned income of ₹400000 and STCG of ₹100000 then the tax amount would be
| Income | ₹400000 |
| STCG | ₹100000 |
| Taxation Rate on Personal Income | 5% |
| Tax on Income after exemption[(400000-250000)*5%] | ₹7500 |
| Tax on STCG (100000*15%) | ₹15000 |
| Taxable Amount (100000*15%) | ₹22500 |
Here you should understand that the STCG is taxable at rate of 15% if it is not covered under exempted income.
How you can save capital gain tax in the stock market?
- Tax of LTCG up to ₹1,00,000 is exempted.
- If you have earned LTCG up to ₹2 lakh, split withdrawal in two financial years to keep the gains below ₹1 lakh in both years.
- The solution to your pain can be the Harvesting technique. Harvesting suggests that retain a part of profits and reinvest the proceeds. Suppose you have earned capital gain of ₹4,00,000 you can retain the amount of ₹1,00,000 and invest the remaining amount in the stock market again.
- You can invest LTCG proceeds in residential property.
Finally, we hope you like our article on Capital Gain Tax in Stock Market very helpful. Please subscribe to our newsletter and never miss the opportunity to get the article directly to your inbox. You may be wondering how you can make a profit in this type of market situation right? Don’t worry! We have it all covered! Learn from StoxMaster- India’s Top Stock Market Training Academy and join Profit making StoxMaster’s Technical Analysis Course and get trained to trade in any market condition. Check out Free calls on telegram here. You can also learn from our Free YouTube Videos for stock market tips and advice. If you are looking forward to opening new Demat account to save on your brokerage than click here to open upstox demat account
