Understand the impact of stock market transactions on your income tax return. Learn about capital gains tax, dividends, reporting requirements, and how to choose the right ITR form. Get answers to FAQs regarding share market taxation.
Dear friends, Income tax return Filing has been started for A.Y. 2023-24. After 2020 Stock market crash and rally done by Stocks after recovering from that crash has attracted many new traders/ investors in the market. With the ease of opening Demat account many people have opened Demat account and also has invested in stock market in the form of Trading, Short term/ Long Term Investment, Mutual fund investment etc. But many of them are still ignoring the fact that, they have to report all these stock market transactions in their Income Tax return. In this article, we will cover all these topics:
The share market, also known as the stock market, is a platform where individuals buy and sell shares of publicly listed companies. These transactions can include buying and selling of stocks, mutual funds, derivatives, initial public offerings (IPOs), and more. Each transaction has its own tax implications, which individuals must understand to fulfill their tax obligations properly.
Tax Implications of Share Market Transactions
Tax on Capital Gains
One of the primary tax implications of share market transactions is the tax on capital gains. Capital gains are the profits earned from selling shares or other financial instruments. The tax on capital gains is categorized into two types: short-term capital gains (STCG) and long-term capital gains (LTCG). Both types of capital gains are taxed at difference rates. Proper classification of capital gains helps you to save taxes and to avoid notices from income tax department
Holding Period and Tax Rates
The holding period of shares determines whether the gains will be treated as short-term or long-term capital gains. If shares are held for less than 12 months, the gains are considered short-term and are taxed at a higher rate. If shares are held for more than 12 months, the gains are treated as long-term and taxed at a lower rate.
Tax Deductions and Exemptions
While calculating the tax on capital gains, individuals can claim certain deductions and exemptions to reduce their tax liability. Deductions under Section 80C, such as investments in specified instruments like Equity-Linked Savings Schemes (ELSS), can be considered to lower the taxable amount. Exemptions like the benefit of indexation can also be availed to adjust the cost of acquisition.
Tax on Dividends
Apart from capital gains, individuals who receive dividends from their share market investments are also subject to tax. Dividends are a share in the profits distributed by companies to their shareholders. In India, dividends are taxable in the hands of the recipient under the head income from other sources and taxed based on their applicable income tax slab rates.
Tax on Intraday Trading
Intraday trading, which involves buying and selling shares within the same trading day, also has tax implications. Profits earned from intraday trading are treated as business income and taxed according to the individual’s income tax slab rates. It is important to maintain proper records of intraday transactions and report them accurately in the income tax return. Please note that, if you have done lot of trading activities then you should disclose all things to your Chartered Accountant, so that they can calculate whether Income Tax Audit will be applicable in your case or not.
Reporting Share Market Transactions in Income Tax Returns
After the introduction of AIS/ TIS Reports now you can check that even a single transaction done by you routed through Central Depositories are showing in AIS/TIS Report. So you must take care to that while filing income tax returns. Individuals must report their share market transactions correctly to ensure compliance with tax laws. Here are some key aspects to consider:
Types of Income Tax Returns
The type of income tax return to be filed depends on the nature and amount of income earned during the financial year. Individuals engaged in share market transactions need to choose the appropriate ITR form, such as ITR-2 or ITR-3, which cater to income from capital gains and business/profession.
Disclosure Requirements
It is crucial to disclose all share market transactions in the income tax return. This includes providing details such as the purchase and sale value of shares, date of acquisition and sale, and the type of transaction (i.e., delivery-based or intraday). Failure to disclose transactions accurately may lead to penalties and legal consequences.
FAQs on Impact of Stock Market Transactions in Our Income Tax Return
Q.1 Are losses from share market transactions allowed as deductions?
Ans. Yes, losses from share market transactions can be set off against capital gains or carried forward to subsequent years for set-off against future gains. But, filing of Income Tax Return and disclosing that loss in Income Tax return is mandatory to carry forward that loss to next year and adjust them with future profits.
Q.2 Is tax deducted at source for share market transactions?
Ans. Tax is not usually deducted at source for share market transactions. However, tax may be deducted at source on dividends if the amount exceeds a specified threshold. This deducted TDS amount will be reflected in your Form 26AS and you can get credit of this TDS amount while Filing Income Tax Return.
Q.3 How can I calculate capital gains tax on share market transactions?
Ans. Capital gains tax on share market transactions is calculated based on the type of transaction (short-term or long-term) and the applicable tax rates. It involves determining the cost of acquisition, including transaction charges, and applying the relevant tax rules.
Q.4 Can I carry forward losses from share market transactions to subsequent years?
Ans. Yes, losses from share market transactions can be carried forward for up to eight years and set off against future capital gains.
Q.5 Is it necessary to report every share market transaction in my income tax return?
Ans. Yes, it is necessary to report all share market transactions in your income tax return. Accurate reporting ensures compliance with tax laws and helps in avoiding penalties or legal consequences.
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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA. Shiv Kumar Sharma” can be reached at mail –[email protected] and Mobile/WhatsApp–9911303737
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