Okay, so you are a beginner investor or a trader, and you have made some money over the past few months, or you might be expecting yourself to make a shit load of money when the next “DIP” comes ;)

But wait! I’m sure you might not have an idea about the taxes you have to pay as an investor or a trader, also if you make a loss, we will explain in the article, why?

So, In this article, you’ll get an idea of what kind of taxes you have to pay, as well as how you can lower your taxes, and much more.

So, let’s jump straight into it.

Long term capital gains (LTCG)

First of all, we have to understand what the long term is ~ So when you buy a stock, and you take delivery of it, and you hold that stock for more than a year, then it is considered to be a long-term investment in the case of equities.

So, how much LTCG do you have to pay?

It’s quite simple actually, you only have to pay 10% tax on any net profit exceeding 1 lakh Rs.

I.e If you made a Rs 1.5 lakh profit, you don’t have to pay any tax for the 1 lakh, you only have to pay 10% on the amount exceeding that 1 lakh, which in this case is Rs 50,000.

(Net profit = Total profit - Total loss)

So, in the above example, you only have to pay 10% of Rs 50,000, which is Rs 5,000.

Now, we talked about those who have made profits on their long-term investments, but what if you did not have that great of a year, and you made some losses in your long-term equity investments.

Well, we can’t magically turn those losses into profits for you, we wish we could, but yes we can help you to know that you can carry forward those losses and use them to lower your taxes in the upcoming years.

Say you made a loss of Rs 1,00,000 in your long-term investments, So you can carry forward this loss for 8 years.

So, now if you make any profit in the next 8 years in your long term investments, you can lower your taxes by adjusting the loss that you made, which in this case Rs 1,00,000

So, if you made Rs 2,00,000 in the next 1 year, normally you would have to pay 10,000 Rs as tax (10% of any amount exceeding Rs 1 lakh)

But, you can set off this gain with the loss that you have made last year, now your total profit for this year will be Rs 1,00,000 only and you won’t have to pay any taxes on that amount.

But, remember LTCG can only be set off against LTCG and not any other type of income.

2. Short term capital gains (STCG)

When you buy a stock, take delivery of it, and decide to sell it in less than a year, then it is considered to be a short-term investment.

These gains are taxed at a flat 15%. But there’s a bit more to it. It's different when it’s the only thing you do and when you are doing it as a side income, it’s different when you are doing less buying and selling activity vs when the frequency of trades is high.

Basically, if it’s the latter one in both cases, then you might have to consider it as business income, and pay taxes as per your income tax slabs.

So, if you made Rs 1 lakh as short-term gains, then you would have to pay 15% of that, which is Rs 15,000.

Short-term gains can be carried forward for the next 8 years, also you can set off LTCG with STCG, but not vice versa, i.e if you made Rs 1,00,000 loss in short term gains, you can adjust this loss in your long term investments.

3. Speculative income

Intraday trades are considered to be a speculative income, as they are speculative in nature because they are considered to be placed for the purpose of selling on the same day.

This income is considered to be business income and will be taxed under applicable tax slabs.

Let’s take an example to understand it in a better way.

Say your annual salary is Rs 10 lakh, you made 2 lakh rs from your intraday trades and 3 lakh rs from LTCG gains.

For LTCG you would have to pay 10% of any amount exceeding 1 lakh rs, so here you would have to pay Rs 20,000.

Total business income is = (annual salary + intraday trades) = Rs 12 lakh

Total tax liability = 12,500 + 1,00,000 + 90,000 = Rs 2,02,000

You can carry forward a speculative loss only for 4 years, also it can be set off only against speculative business income made during that period.

Futures & Options (Non speculative income)

Traders after seeing this section be like “Abhi maza aayega na bhidu”, Bad joke, I know. Let’s come back to the topic.

Any income or loss that arises from trading Futures and options has to be treated as a business income or loss, and as this is considered to be a business income you will be taxed under applicable tax slabs.

Also, you can carry forward any losses from F&O trading for up to 8 years.

Also, as it is considered to be a business income you can always adjust it for the profit that may come from different other heads such as rental income, interest income, except for salary income.

So, that’s it for today from our side, we hope that you learned something new, and if you did, then please do share it with your friends over social media.

Thanks for reading.