Master TDS & TCS Provisions with Critical Issues. Register Now!

Some basic question related to stock trading and tax

Sakitram (NA) (189 Points)

04 November 2011

Hi,

I have some questions (probably silly) related to investment in stocks and the corresponding tax.

1. I am doing Stock trading now through ICICIDirect demat account. For each trading they charge some amount as Brokerage incl. taxes (for both Buy/Sell). What type of tax it is and the reason for it?
2. Does it mean that a stock purchased on March 12th and sold on April 12th, is a Short term profit?
3. Does it mean that the short term means holding a stock for less than a year and long term means holding a stock for more than a year?
4. Do I need to pay any amount as tax if I earn something for the short term and long term gain?
5. Which forms need to be used for short term and long term gain in Tax returning? Please help me by answering the above queries.

Thanks,
Sakitram

Reply
Follow
Share

10 Replies

Piyush (Chief Financial Officer) (38 Points)
Replied 05 November 2011

1. Brokerage is the amount charged by your stock broker (service provider) and the tax paid on it is known as SERVICE TAX which is collected from you (customer) for providing services to you.

2. Yes, stock purchased and sold within a time span of 1 year will attract capital gain/loss as the case may be.

3. Yes, indeed short term means holding a share/security/stock for less than a year and long term means holding it for more than 1 year.

4. If you make any long term gain by selling your shares through stock exchange, then you need not pay any tax (under section 10(38)). But if you make any short term capital gain, then you need to pay tax @ 15% (under section 111A)

5. You need to file return in ITR 2.

Upgrade to CAclubindia Pro. Subscribe Now!

Piyush (Chief Financial Officer) (38 Points)
Replied 05 November 2011

1. Brokerage is the amount charged by your stock broker (service provider) and the tax paid on it is known as SERVICE TAX which is collected from you (customer) for providing services to you.

2. Yes, stock purchased and sold within a time span of 1 year will attract short term capital gain or loss as the case may be.

3. Yes, indeed short term means holding a share/security/stock for less than a year and long term means holding it for more than 1 year.

5. You need to file return in ITR 2.

1 Like

Sakitram (NA) (189 Points)
Replied 06 November 2011

Originally posted by : Piyush
	4. If you make any long term gain by selling your shares through stock exchange, then you need not pay any tax (under section 10(38)). But if you make any short term capital gain, then you need to pay tax @ 15% (under section 111A)

I am confused here. It is said that long term gain (ie LTCG) is tax free. But in some other thread I seen that LTCG will attract 20% tax. I do not understand what is in section 10(38).

Please clarify my doubt.

Thanks

Piyush (Chief Financial Officer) (38 Points)
Replied 06 November 2011

As per section 10(38), if equity shares or equity oriented mutual funds are transferred and such transfer has been through stock exchange and also STT has been paid on it, then long term capital gains on such transfer shall be exempt from tax.

Just for your knowledge, STT is paid on every transaction whether it is a sale or purchase transaction and whenever you transact through a broker, it is automatically paid by you. Just see the broker note you will get to know about it.

1 Like

Piyush (Chief Financial Officer) (38 Points)
Replied 06 November 2011

LTCG is taxed at 20% if the equity shares are transferred otherwise than through stock exchange or if STT has not been paid or if it is some other asset.

Upgrade to CAclubindia Pro. Subscribe Now!

Sakitram (NA) (189 Points)
Replied 06 November 2011

Still things not clear. Because actually all the transfer (buy/sell) of equity shares are done only through stock exchange. Is it possible to transfer without stock exchange interface?

Well, I think for my case, as I am doing transaction through demat account with a company, and for all the transfaction (ie transfer I think) they charge me and pay STT as well. So if I suppose earn something through LTCG, that seems to be exempt from tax.

Another question, I missed to pay the tax for the STCG (with equity share) for the previous financial year. Could you please guide me how to pay tax for that and how much penality will be there for that?

Thanks

Piyush (Chief Financial Officer) (38 Points)
Replied 06 November 2011

By transferring through a stock exchange, I mean to say to sell shares through NSE/BSE. If you directly transfer your shares to some other person directly by transferring your shares directly toh his demat a/c then it wont be taken as a sale through stock exchange.

Just revise your return of previous financial year (section 139(5)) and pay the tax and yes penalty for concealment of income and interest thereon will be levied (section 220 and section 221).

Sakitram (NA) (189 Points)
Replied 06 November 2011

I had the following STCG that I missed in previous years.

FY: 2008-2009: Rs. 1000
FY: 2009-2010: Rs. 9782

Please guide me by answering precisely for the following questions
1. What is the total penality amount and the interest amount for this?
2. Which form had to used to pay this?
3. Is it possible to file this and pay the amount through online?

Thanks for your guidance.