How are Stock Market Investments Taxed?

Whether you are a person who has already invested in the stock market or whether you are a person looking to invest in the stock market, you need to know about taxes on stock investments. People invest their money in the stock market to make a profit. As of the latter part of 2018, these profits or gains are taxable. It is important to know what is meant by the term capital gains.

What are capital gains?

When you invest a certain amount of money in a stock, the amount that you have invested is known as the capital. When you sell that stock at a profit, then the profit that you have made is your capital gain. To understand whether or not you have made a profit, you need to use the following method. Take the sale price and subtract the purchase price and the price you have to pay for the transaction. If the final difference is a positive number, you have made a profit. If the difference is zero, you have achieved a break-even point. If the difference is negative, then you have made a loss. The transaction fee that you were levied can be a minimal amount or a higher amount, typically a percentage of the total transaction amount, depending on the medium you used for the transaction. For instance, brokerage firms typically charge a small percentage of the amount that you obtain from selling your stock. This fee is sometimes applicable whether or not you have made a profit. Even if you break even or make a loss, you will have to pay the fee.

What are the different types of capital gains?

There are two types of capital gains—short-term capital gain and long-term capital gain. The gains are related to how long you hold the capital asset before selling. If you profit from the sale of a capital asset after holding it for one year or maybe for a lesser period of time, then the profit you have made is referred to as short-term capital gain. If you profit from the sale of a capital asset after holding it for a period of more than one year, then that profit is referred to as long-term capital gain.

Tax rules applicable in India for long-term capital gain (LTCG)

Until the financial budget of 2018, LTCG was not taxed. There was a provision which allowed one to declare the profits and under Section 10(38), the tax was waived. In the financial budget of 2018, some rules were set regarding taxation of long-term capital gains. According to these rules, if the profit made is more than Rs.1 lakh on a long-term capital sale of shares or mutual funds whose units comprise shares, a 10% tax is levied. According to the terms set down in the budget, this tax is applicable only from 1 April 2018. It is to be noted that capital gains from shares listed on a stock exchange are not taxed.

Tax rules applicable in India for short-term capital gain (STCG)

If an investor wants to sell shares in the short term, then the gains from that transaction will be taxed at a rate of 15%. This rate is applicable no matter what your tax slab is. If you earn less than the minimum amount that is taxable, then you can use your short-term gains to offset that. If there are any gains left after adjustment, the 15% tax rate is once again applicable.

Tax rules in India regarding losses from capital investments

If a person makes a loss on their capital investment through the sale of equity shares or mutual funds linked to equity shares, then he or she can offset their loss from some other capital gain. Sometimes this is not the case and the person is unable to make again on any other capital investment. In such cases, the losses can be carried forward up to a maximum of eight years. This carry-forward option is available only to people who file their income tax return, even if their income is less than the minimum taxable income.

Securities Transaction Tax in India

The securities transaction tax or STT is applicable to all trades made on a stock exchange. This tax is levied on all transactions on a stock exchange. This tax legitimizes a purchase or sale of equity which is then taxed according to the conditions set forth by the long-term capital gains tax scheme.


As an investor, you should be aware of the different types of taxes that you will attract when you invest in the stock market. The more you know about it, the better you can plan your investments. It is important to remember that to make a profit it is not enough to sell at a price over the purchase price. It is important to make a profit after deducting purchase price, securities transaction tax, long- or short-term capital gains tax, and any applicable transaction fee from the sale price. Thus, minimal increases in the price of a share may not help one with huge returns unless there is a high volume of that particular stock. This also indicates that it might be best to invest in slightly higher-priced stocks for the longer term in order to ensure that the returns are high enough to warrant the risk in investment. Check-in website like to know more about top trending stocks in the market. Going through will help investor a great deal.