Taxation of Equity shares in India

In India, taxation on equity shares is determined based on the holding period of the investment, and it is categorized into Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) tax.

Long Term Capital Gains (LTCG) on Equity Shares:

  1. Holding Period: For equity shares, the investment is considered long-term if the holding period is more than 12 months.
  2. Tax Rate: As of my last update in April 2023, LTCG on equity shares is taxed at 10% without the benefit of indexation.
  3. Exemption Limit: Gains up to ₹1 lakh in a financial year are exempt from LTCG tax. The 10% tax rate applies only to gains exceeding ₹1 lakh.
  4. Applicability: This tax is applicable when the shares are sold through a recognized stock exchange and Securities Transaction Tax (STT) is paid at the time of sale.

Short Term Capital Gains (STCG) on Equity Shares:

  1. Holding Period: If equity shares are held for 12 months or less, any gains from their sale are considered short-term capital gains.
  2. Tax Rate: The STCG on equity shares is taxed at 15%, provided STT is paid. This rate is flat and does not change with the income slab of the taxpayer.
  3. No Exemption Limit: Unlike LTCG, there is no exemption limit for STCG. All gains, regardless of the amount, are taxed at the flat rate.

Additional Points:

  • Securities Transaction Tax (STT): STT is a tax levied on every purchase and sale of securities listed on the stock exchanges in India. The rates vary based on the type of security and the transaction (purchase or sale).
  • Advance Tax: If your tax liability exceeds ₹10,000 in a financial year due to capital gains, you may be required to pay advance tax in installments.
  • Tax Filing: Capital gains from equity shares must be reported in your income tax return, and taxes should be paid accordingly.
  • Grandfathering Clause for LTCG: For shares acquired before January 31, 2018, the government provided a grandfathering benefit, where gains till January 31, 2018, are exempt from LTCG tax. The purchase price for the calculation of LTCG is deemed to be the higher of the actual purchase price or the market price as on January 31, 2018.

Please note that tax laws are subject to change, and it is advisable to consult a tax professional or refer to the latest guidelines from the Income Tax Department of India for the most current information.