Stock Market Taxation — Capital Gains, STT & TDS
Equity STCG/LTCG rates, intraday & F&O business income, dividend tax, loss set-off and carry-forward rules.
Taxes on stock market gains confuse most Indian investors. The rules differ based on what you trade and how long you hold. This guide covers every scenario clearly.
Equity Taxation — STCG and LTCG
| Type | Holding Period | Tax Rate | Exemption |
|---|---|---|---|
| LTCG (Long Term) | Above 12 months | 12.5% | First ₹1.25L per year exempt |
| STCG (Short Term) | Up to 12 months | 20% | No exemption |
Arjun buys shares worth ₹5,00,000 and sells after 14 months for ₹7,50,000. His gain is ₹2,50,000.
- Exempt: ₹1,25,000
- Taxable LTCG: ₹2,50,000 - ₹1,25,000 = ₹1,25,000
- Tax: ₹1,25,000 × 12.5% = ₹15,625
If he had sold within 12 months, STCG tax = ₹2,50,000 × 20% = ₹50,000. Holding longer saved ₹34,375.
Intraday Trading — Treated as Business Income
Intraday profits are added to your total income and taxed at your income tax slab rate. This means:
- If you are in the 30% slab, you pay 30% + cess on intraday profits
- You must file ITR-3 (not ITR-1 or ITR-2)
- Losses can only be set off against other speculative income
- You can carry forward speculative losses for 4 years
If the tax department considers you a "trader" (based on volume and frequency), even delivery-based trades can be classified as business income. Maintain clear records and consistent treatment.
F&O (Futures & Options) Taxation
F&O income is classified as non-speculative business income. Key rules:
- Taxed at your income tax slab rate (added to total income)
- Must file ITR-3
- Tax audit required if turnover exceeds ₹10 crore (₹2 crore if cash transactions > 5%)
- Turnover calculation: absolute sum of positive and negative differences from each trade
- F&O losses can be set off against any income except salary
- Carry forward for 8 years (if ITR filed on time)
Suresh earns ₹12L salary and makes ₹3L profit in F&O trading. His F&O turnover is ₹1.8 crore.
- Total income: ₹12L + ₹3L = ₹15L
- Tax slab: 30% on amount above ₹10L (new regime rates may differ)
- No tax audit needed (turnover below ₹2 crore threshold)
- Must file ITR-3 instead of ITR-1
Dividend Taxation
Since April 2020, dividends are taxable in the hands of shareholders:
- Added to your total income, taxed at slab rate
- TDS of 10% if dividend exceeds ₹5,000 in a financial year (from a single company)
- You can claim deduction for interest expense up to 20% of dividend income under Section 57
Loss Set-Off and Carry Forward Rules
Understanding loss set-off can save you significant tax:
| Loss Type | Set Off Against | Carry Forward |
|---|---|---|
| STCL (Short Term Capital Loss) | STCG and LTCG | 8 years |
| LTCL (Long Term Capital Loss) | Only LTCG | 8 years |
| Speculative Loss (Intraday) | Only speculative income | 4 years |
| Non-speculative Loss (F&O) | Any income except salary | 8 years |
If you have unrealised losses near March 31, consider selling and immediately repurchasing to book the loss. This reduces your tax liability while maintaining your position.
Important Deadlines and Filing Tips
- File ITR by July 31 (non-audit) or October 31 (if audit required)
- Advance tax: Pay quarterly if tax liability exceeds ₹10,000
- Keep broker P&L statements, contract notes, and demat statements for 6 years
- Use your broker's tax P&L report — most brokers (Zerodha, Groww) provide ready-made reports
Key Takeaways
- Equity LTCG above ₹1.25L is taxed at 12.5%; STCG at 20%
- Intraday = speculative business income, taxed at slab rate
- F&O = non-speculative business income, file ITR-3
- Dividends are taxed at your slab rate since 2020
- Book losses before March 31 to offset gains (tax loss harvesting)
Anita has ₹80,000 LTCG and ₹40,000 STCG from equity in a financial year. How much tax does she owe?
Use our Income Tax Calculator to estimate your total liability. Learn more at Tax Saving Hub.
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