How tax is applied on market trading and demat accounts
Tax payable 2021 |5 Earning sources|Equity Market & Debt/Mutual | Save tax
Now we are at the point of year ending as 31st march 2021. And that strikes our mind with payment of taxes for the year. Year was both good and bad at trade Like wise, With ongoing corona pandemics, and also the market fluctuations.
Tax payment
We are talking about saving tax from or source of market income. I'll try to make it easy to let you understand this so you can save your tax . Please try not to skip the parts because everything is linked.
Now in equity markets there are 5 types of earnings or trades we go with. And each varies with its benefits to tax payment.
1. Tax on dividend
If this year or any company gives you a dividend below 5000 Tax charges are no applicable. If the dividend is more then 5000 TDS charges are applicable that is 7.5℅ which company cuts off when given in shareholders hand. Tax is payable according to personal slab.
As per the current income tax slabs, taxation of income of resident individuals below 60 years is as follows: Income up to Rs 2.5 lakh is exempt from tax, 5 per cent tax on income between Rs 250,001 to Rs 5 lakh; 20 per cent tax on income between Rs 500,001 and Rs 10 lakh; and 30 per cent tax on income above Rs 10 lakh .
Due to corona government has reduced the charges from 10% to 7.5%. But from 1st April 2021 TDS will again be at 10%.
2. Tax payable on short term capital gains .
In short if you took a delivery of share & sold it in 1year span time they come under short term capital gains. Here 15% of tax is charges on your gains. There are tax benefits to other charges I am talking about tax relaxation here except the STT this is not applicable.
What's is STT ? In short Securities Transaction Tax is a tax payable in India on the value of securities transacted through a recognized stock exchange. As of 2016, it is 0.1% for delivery based equity trading. The tax is not applicable on off-market transactions or on commodity or currency transactions.
3. Tax payable on long term capital gains.
Again if you took delivery of share and hold it more then one year and sell comes under long term capital gain. Here is little relaxation for those who's capital gain is 1lkh or less no tax charges are applicable.
If more then 1lkh 10% of tax is changed. No STT tax benefit but you can get tax benefits on other charges like brokerage charges, turnover charges. Chapter 6 A Benefit (PPA, LIC etc)
Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc. Such deductions allow an assessee to considerably reduce the tax payable.
4. Tax applicable on Intraday trade.
5. Tax applicable on F&O trades (future & options)
Intraday & F&O are said to be or consider business income in F&O STT benefit debt are applicable here like on SEBI charges, Transaction charges, Spot charges etc.
Other is the fixed income (debt / Mutual fund ) Here the short term & long term duration is different. Short term is 3 years or less & long is more then 3years.
Here is you sell in short term tax is charged according to personal slab . seriously it's expensive & you have to pay more tax.
Here there are to ways of tax payment indexation way where 20% of tax is changed. And other is long term capital gain. Compare it with which ever is lowest and go according.
Now it's obvious we have to pay tax , but we are talking about saving tax. Not paying tax is a wrong move but tax savings in legal way is smart choice.
If you are earning from all the above sources income tax department will consider it as business income. So if you want to save your tax best way is to divide them up.
Use different Demat accountabout company's like create a portfolio for long term and hold it in A person account. For intraday use B persons account another account in sense. So that what this post was all about.
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