Although demat account opening has become free, there’s usually a cost to maintaining accounts and making use of them actively to purchase or sell securities.
No opening fees may sound like a no-brainer in the beginning; however, maintaining a demat account is a monetary obligation. And just as you thought you were entering the investment game to make more money, the taxman comes in to get his slice.
We’ll examine various taxes related to purchasing and selling financial assets. Key questions include whether STT applies even if a loss is suffered while trading stocks and what is the limit on exemption on Long Term Capital Gains.
Capital Gains Taxes.
Capital gains tax is tax levied on earnings from the purchase of certain financial assets. This particular tax is based on the difference between the asset’s selling price and its initial price.
As an example, in case you purchased a stock for 100 and sold it for 200 (over your purchasing price), the profit on the purchase is a capital gain. The rate of the capital gains tax depends upon numerous elements, which include holding period and asset type.
Capital gains are classified into 2 main categories:
Short-term capital gains: These are gains on an asset sold within a year. In general, short-term capital gains are taxed at a greater rate compared to long-term capital gains.
Equity-oriented assets will be taxed on STCG for less than twelve months of sale. For instance, in case you sell equity shares after keeping them for nine months and realize an income of 20,000, the STCG tax would be applied to that gain of 15%.
Long-term capital gains: These are earnings coming from the sale of assets that took over a year to finish, and sometimes long-term capital gains enjoy reduced taxes or preferential tax treatment to motivate the long-term investment.
Capital gains over a longer time period up to 1 lakh for a financial 12 months are exempt; however, gains beyond this amount attract a flat 10% tax.
A number of investors use tax loss harvesting, holding assets longer for reduced taxes, or perhaps investing in tax-advantaged accounts to minimize their capital gains tax liabilities.
Security Transaction Tax.
STT is a tax imposed on the investment or sale of stocks (stocks, derivatives, and also equity-oriented mutual funds) on the Indian stock market. In 2004, STT was introduced in India. The government collects STT to regulate and get income from stock market transactions.
The Securities Transaction Tax is imposed on both the purchaser & seller of securities and is computed as a portion of the transaction value. STT rates vary by type of transaction and security class. For example, different rates apply to equity delivery trades, intraday trades, futures, and options.
Capital Loss.
Capital loss would be the loss produced through money whenever the selling price of a capital asset is below the price. Put simply, it signifies the loss of selling an asset for less than the amount paid. The capital assets might be shares, real estate, bonds, stocks, etc.
Capital loss might be because of a reduction in the value of an asset, an alteration of market conditions, or very poor investment choices. A loss on the sale of an asset could be used to offset capital gains from various other investments, decreasing the buyer’s total tax liability.
There are generally two kinds of capital losses:.
Short-term capital loss: This is where the asset is kept for a year or even less prior to being sold at a loss.
Long-term capital loss: This happens in case the asset is held longer than a single year prior to being sold at a loss.
You offset capital gains in the exact same tax year by capital losses. For instance, in case you sell a single asset at a loss and another at a gain in the same tax year, you offset gains by losses for a drop in overall tax liability.
Additionally, in many instances, excess losses may be carried forward to compensate for gains in coming years in case the entire capital losses surpass the capital gains in a tax year.
