Stock Market Taxation in India: Complete Guide for FY 2024-25

Arun’s Unexpected Tax Bill

Arun made ₹8 lakhs profit from stocks in FY 2023-24. He was thrilled – until he calculated his tax:

• ₹5 lakhs LTCG (held >1 year) = ₹40,000 tax
• ₹3 lakhs STCG (held <1 year) = ₹45,000 tax
• Dividends received: ₹50,000 = ₹15,000 tax (30% slab)
• Total Tax: ₹1,00,000

He had assumed only 10% tax on everything. He was wrong by ₹50,000.

Don’t make Arun’s mistake. Understand stock market taxation thoroughly.

The Big Picture: Types of Stock Market Income

Capital Gains: STCG vs LTCG

What Determines Short-Term vs Long-Term?

For listed equity shares and equity mutual funds:

Short-Term Capital Gains (STCG)

Tax Rate: Flat 15% + surcharge + cess

Calculation:

STCG = Selling Price - Buying Price - Expenses
Tax = STCG × 15.6% (including cess)

Example:

Bought: 100 shares of Reliance at ₹2,400 on June 1, 2024
Sold: 100 shares at ₹2,800 on November 1, 2024
Holding: 5 months (Short-term)

STCG = (₹2,800 - ₹2,400) × 100 = ₹40,000
Tax = ₹40,000 × 15.6% = ₹6,240

Long-Term Capital Gains (LTCG)

Tax Rate: 10% on gains exceeding ₹1 lakh per year (no indexation)

Key Points:

• First ₹1 lakh LTCG is TAX-FREE
• Only gains above ₹1 lakh taxed at 10%
• Grandfathering applies for pre-2018 holdings

Example:

LTCG in FY 2024-25:

Stock A (sold after 14 months): ₹80,000 profit
Stock B (sold after 18 months): ₹70,000 profit
Total LTCG: ₹1,50,000

Tax-free: ₹1,00,000
Taxable LTCG: ₹50,000
Tax = ₹50,000 × 10.4% = ₹5,200

The Grandfathering Clause (Pre-January 31, 2018)

If you bought shares before February 1, 2018, your cost of acquisition is the higher of:

1. Actual purchase price
2. Fair market value on January 31, 2018

Example:

Bought: 100 Infosys shares at ₹500 in 2015
FMV on Jan 31, 2018: ₹550
Sold in 2024 at: ₹1,600

Cost of Acquisition: ₹550 (higher of ₹500 and ₹550)
LTCG = ₹1,600 - ₹550 = ₹1,050 per share
Total LTCG: ₹1,05,000
Taxable: ₹5,000 (above ₹1 lakh limit)
Tax: ₹520

Dividend Taxation

Current Rules (Post-April 2020)

Dividends are taxable at your income tax slab rate.

TDS on Dividends

If dividend from a company exceeds ₹5,000 in a financial year:

• TDS: 10% deducted at source
• Claim credit while filing ITR

Dividend from Mutual Funds

Same treatment as stock dividends – taxed at slab rate.

Intraday Trading Taxation

Classification

Intraday trading is treated as Speculative Business Income.

Tax Treatment

• No separate tax rate
• Added to your total income
• Taxed at your slab rate

Speculative Loss Rules

• Can only offset against speculative gains
• Cannot offset against salary/other income
• Can carry forward for 4 years

Example:

FY 2024-25:
Intraday profit: ₹1,00,000
Your other income: ₹8,00,000
Total income: ₹9,00,000

Tax on ₹9 lakhs = As per slab (about ₹65,000)

Important: Books of Accounts

If intraday turnover exceeds ₹2 crore:

• Maintain proper books of accounts
• Tax audit may be required

F&O (Futures & Options) Taxation

Classification

F&O is treated as Non-Speculative Business Income.

Tax Treatment

Turnover Calculation for F&O

Turnover = Absolute Profit + Absolute Loss + Premium Received (Options)

Example:
Futures profit: ₹50,000
Futures loss: ₹30,000
Options premium: ₹40,000

Turnover = 50,000 + 30,000 + 40,000 = ₹1,20,000

Audit Requirement

Presumptive Taxation (Section 44AD)

If turnover < ₹2 crore and profit < 6%:

• Can declare 6% of turnover as profit
• No books required
• Simplified compliance

Tax on Different Instruments

Tax-Loss Harvesting

What It Is

Selling losing stocks to book losses, which offset your gains.

How It Works

FY 2024-25:
Stock A profit: ₹1,50,000 (LTCG)
Stock B loss: ₹60,000 (LTCG)

Without harvesting:
Taxable LTCG: ₹1,50,000 - ₹1,00,000 = ₹50,000
Tax: ₹5,200

With tax-loss harvesting (sell Stock B):
Net LTCG: ₹1,50,000 - ₹60,000 = ₹90,000
Taxable: ₹0 (below ₹1 lakh limit)
Tax: ₹0

Savings: ₹5,200

Rules for Set-Off

Carry Forward

ITR Filing for Stock Market Income

Which ITR Form?

Documents Required

1. From Broker:

   • Annual consolidated statement
   • P&L statement
   • Contract notes (for audit)

2. For Capital Gains:

   • Buy/sell dates
   • Quantity
   • Buy price, sell price
   • Holding period

3. For F&O:

   • Profit/loss statement
   • Turnover calculation

Where to Report

Capital Gains: Schedule CG in ITR

• Short-term gains: Section 111A
• Long-term gains: Section 112A

Business Income: Schedule BP

• Speculative income
• Non-speculative income (F&O)

Securities Transaction Tax (STT)

What is STT?

Tax paid at the time of buying/selling on stock exchange. It’s not refundable.

STT Rates (2024-25)

STT Benefit for Capital Gains

If STT is paid, you get concessional LTCG rate (10%).

If no STT (off-market, unlisted), LTCG is 20% with indexation.

Tax Planning Strategies

Strategy 1: Harvest the ₹1 Lakh Exemption

Every year, book LTCG up to ₹1 lakh – it’s tax-free!

Portfolio: ₹10 lakhs with ₹1.5 lakh unrealized LTCG

Action: Sell stocks worth ₹1 lakh LTCG, immediately buy back

Result: ₹1 lakh gains realized (tax-free)
New cost basis: Higher (reduces future tax)

Strategy 2: Timing Your Sales

Stock bought: March 15, 2024
Want to sell: March 2025

If sold March 10, 2025: STCG (15% tax)
If sold March 20, 2025: LTCG (10% tax above ₹1L)

Waiting 10 days saves 5% tax!

Strategy 3: Offset Losses

Before March 31, review portfolio:

• Any stocks at loss?
• Any unrealized gains to offset?
• Book losses strategically

Strategy 4: Split Between Family Members

Gifts to family members in lower tax brackets can save dividend tax.

Caution: Clubbing provisions may apply for spouse/minor children.

Strategy 5: Use ELSS for Tax Saving

ELSS mutual funds:

• ₹1.5 lakh deduction under 80C
• 3-year lock-in
• Equity taxation applies

Common Tax Mistakes

Mistake 1: Not Reporting All Sales

Even if net gain is zero or negative, all transactions must be reported.

Mistake 2: Wrong Holding Period Calculation

Holding period starts from date of purchase (T+1 for delivery). Ends on date of sale (not settlement).

Mistake 3: Ignoring Dividend TDS

TDS is deducted. Claim credit in ITR to avoid double payment.

Mistake 4: Treating F&O as Capital Gains

F&O is business income, not capital gains. Different ITR, different treatment.

Mistake 5: Not Maintaining Records

Keep records for 6 years after the relevant assessment year.

Practical Calculation Example

Full Year Tax Calculation

Arun’s FY 2024-25 Stock Market Activity:

Tax Calculation:

STCG: ₹50,000 - ₹10,000 (STCL offset) = ₹40,000
STCG Tax: ₹40,000 × 15.6% = ₹6,240

LTCG: ₹50,000 + ₹20,000 = ₹70,000
LTCG Tax: ₹0 (below ₹1 lakh exemption)

Intraday (Speculative): ₹30,000
Tax: At slab rate (assume 30%): ₹9,360

F&O (Business Loss): -₹20,000
Can offset against intraday: Net ₹10,000 taxable
Revised tax: ₹3,120

Dividend: ₹40,000
Tax (30% slab): ₹12,480

TOTAL TAX: ₹6,240 + ₹0 + ₹3,120 + ₹12,480 = ₹21,840

Useful Resources

Risk Disclaimer

Tax laws change frequently. This guide reflects rules as of FY 2024-25. Always verify with the latest Income Tax Act or consult a qualified Chartered Accountant for your specific situation. The author is not responsible for any tax filing errors.

Summary

Tax planning is as important as investment planning. Don’t let taxes eat your returns unnecessarily.

Social Media Posts

LinkedIn: “Made ₹2 lakhs in stocks this year. My tax? Just ₹5,200. How? ₹1 lakh LTCG exemption + proper planning. Many investors pay more tax than needed simply because they don’t know the rules. Knowledge = Savings. #TaxPlanning #StockMarket”

Twitter/X: “Stock market tax cheat sheet: • STCG (<1 year): 15% • LTCG (>1 year): 10% above ₹1L • Dividends: Your slab rate • Intraday: Speculative income • F&O: Business income

File ITR-2 for stocks, ITR-3 for F&O. #TaxTips”

Instagram: “Me: Made ₹1.5L profit in stocks! 🎉 Tax dept: That’ll be ₹21,000 please. Me: Wait, what? 😳

The breakdown: ₹50K STCG × 15% = ₹7,500 ₹50K LTCG × 10% = ₹5,000 ₹30K dividends × 30% = ₹9,000

Always calculate tax BEFORE celebrating gains! 📊 #StockMarketTax”