Tax Saving Using Share Market Profit and Loss

Reports of the steady growth rate of Indian economy has started attracting more people to take part in India's financial growth and make profits from it. Demonetization of 1000 and 500 currency notes made traditional investment areas like Real Estate less attractive and Share Market has emerged as a new gold mine for average investors. It is true that many are taking profits from Share Market trading and investments but a large number of Share Market investors are unaware of the Income Tax laws related to Share market investments. Many don't know how to put losses or gains from Share Trading in Income Tax Return statements.

Some even don't know the income Tax liability with gains from Share Market investments. This article explains basic Income Tax calculations with losses and gains from Share Trading, how to carry forward loss from current financial year's share trading, how to reduce Tax burden from capital gain etc.

Profit from Share -> Under Business or Capital Gain?
Let us check whether we put profits from selling Share under the heading of business or capital gain while computing Tax for the assessment year. Under normal circumstances, gains from selling shares come under capital gain.

So while calculating total income Tax liability under Indian Income Tax Act 1961, we can adjust any loss incurred from selling shares ( Only Short Term capital loss is allowed) with other gains under the heading Capital Gain.

Important Tax Laws Related to Share Market Gains
  1. Gains from selling shares after holding 12 months is fully exempt from Tax
  2. Short Term Capital Gain from selling shares is taxable by 15% irrespective of the slab in which you are (selling Shares before 12 months period )
  3. If the total income (including all sources of income ) comes below the base slab (250000 Indian Rupees per year), there is no Tax for profits from Short Term Capital Gain
  4. You cannot adjust your capital gains with losses incurred from selling shares after holding 12 months. It is because any gain from selling share after 12 months period is exempt from Tax
  5. You can carry forward short term capital loss from selling the share for the period of 8 subsequent years.
  6. Dividend issued to shareholders is fully exempt from Tax since the company already paid the Dividend distribution Tax

Enjoying Tax Savings From Losses in Share Trading
Now, let us consider how to claim Tax relaxation from Short Term Capital losses incurred from selling the share. It is allowed to adjust the total gain under the heading Capital Gain with losses from selling Share if it is Short Term capital loss (any loss incurred by selling within 12 months after purchasing the share). Any surplus loss can be carried forward to the subsequent 8 years.

Should I Pay Tax for Dividend I have received ?
Shareholders have no burden of paying Tax for the dividend they received. It is because the companies must have paid the dividend distribution Tax before issuing a dividend to investors.

At present, the Dividend Distribution Tax for Corporates in India is 15%. So in investors point of view, zero Tax liability for the dividend they received.

Share Market Speculative Losses Carry Forward Rule
unlike Share Trading Short Term Capital Loss, you cannot carry forward the losses to set off Capital Gain for 8 years. You can only carry forward any Speculative loss for the period of 4 years.