Taxation on stock market

Securities Transaction Tax (STT) is a tax levied by the government on the buying and selling of securities (like stocks, equity mutual funds, and derivatives) on recognized stock exchanges in India. It is collected at the time of the transaction itself.

1️⃣ Identify Income Type:

• STCG (≤1 year): Taxed at 20%  → ITR-2
• LTCG (>1 year): Taxed at 12.5% (above ₹1L exemption) → ITR-2
• Intraday Trading: Taxed as business income (slab rate) → ITR-3
• F&O Trading: Taxed as business income (slab rate) → ITR-3

2️⃣ Steps to File:
✔ Download Form 26AS & AIS (Check stock transactions)
✔ Enter gains under ‘Capital Gains’ (ITR-2) or Business Income (ITR-3)
✔ Claim deductions (LTCG exemption, expenses for F&O)
✔ E-Verify & Submit

3️⃣ Other Points:
✔ Dividends → Report under "Income from Other Sources"
✔ Losses? Carry forward for 8 years
✔ F&O Turnover > ₹10 Cr? Audit required

🔹 STCL (Short-Term Loss) → Can offset STCG & LTCG, carry forward 8 years
🔹 LTCL (Long-Term Loss) → Can offset only LTCG, carry forward 8 years

Example:

• STCG = ₹50,000, LTCG = ₹1,00,000
• STCL = ₹30,000, LTCL = ₹40,000
  ✔ STCL offsets STCG → ₹50,000 - ₹30,000 = ₹20,000 taxable
  ✔ LTCL offsets LTCG → ₹1,00,000 - ₹40,000 = ₹60,000 taxable

💡 File ITR before the due date to carry forward losses!

1️⃣ Capital Gains Tax (For Foreign Stocks, Mutual Funds, ETFs, etc.)

• STCG (≤24 months): Taxed as per slab rate
• LTCG (>24 months): Taxed at 20% with indexation

2️⃣ Dividend Income

• Taxed at slab rate
• Foreign TDS deducted? Claim foreign tax credit (FTC) under DTAA

3️⃣ Interest from Foreign Bonds/Deposits

• Taxed at slab rate

4️⃣ Reporting in ITR
✔ Declare foreign assets & income in ITR-2/ITR-3
✔ Use Schedule FA (Foreign Assets) for holdings outside India

5️⃣ Double Taxation Avoidance (DTAA)
✔ Avoid double tax by claiming FTC in Form 67

A Double Taxation Agreement (DTA) or Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries to prevent individuals and businesses from being taxed twice on the same income in both countries.

✅ Avoids Double Taxation – Ensures income isn’t taxed in both countries
✅ Reduces Tax Rates – Provides concessional tax rates on dividends, interest, and royalties
✅ Allows Tax Credits – Claim Foreign Tax Credit (FTC) for taxes paid abroad
✅ Boosts Cross-Border Investments – Encourages trade and investments between countries

Methods to Avoid Double Taxation

1️⃣ Exemption Method – Income is taxed only in one country
2️⃣ Tax Credit Method – Pay tax in both countries but claim a credit for foreign tax paid

✅ 1. Trading & Investment Proofs

• Contract Notes (Buy/Sell details from broker)
• Profit & Loss (P&L) Statement (Annual & Quarterly)
• Demat Holding Statement (For LTCG/STCG tracking)

✅ 2. Capital Gains & Tax Documents

• Capital Gains Statement (From broker/mutual fund house)
• Form 26AS & AIS (Verify TDS on dividends & transactions)
• Brokerage Charges & STT Details (For tax calculation)

✅ 3. Foreign Investments (If Applicable)

• Schedule FA (Foreign Assets in ITR)
• Dividend/Capital Gains Tax Paid Abroad
• Form 67 (For DTAA Claim)

✅ 4. F&O & Intraday Trading (Business Income)

• Ledger Statements & Turnover Report
• Audit Report (If F&O turnover > ₹10 Cr)
• Expenses Proofs (Brokerage, advisory fees, internet, etc.)

✅ 5. Dividend Income

• Dividend Statements (Taxed as per slab)
• TDS Certificates (If dividend exceeds ₹10,000)

❌ 1. Penalty for Underreporting Income

• 50% of the tax due (if income is underreported)
• 200% of the tax due (if intentional tax evasion)

❌ 2. Interest on Unpaid Tax (Section 234A, 234B, 234C)

• 1% per month for late tax payments or incorrect reporting

❌ 3. Late Filing Penalty (Section 234F)

• ₹5,000 (if filed after due date but before Dec 31)
• ₹10,000 (if filed after Dec 31)

❌ 4. Prosecution for Wilful Tax Evasion

• Jail up to 7 years + fine (for deliberate concealment of income)

💡 Tip: Cross-check Form 26AS & AIS before filing to avoid mistakes!

✅ Yes, if you have:
✔ High-value stock market transactions (LTCG, STCG, F&O, Intraday)
✔ Foreign Investments (US stocks, ETFs, Crypto, DTAA claims)
✔ Complex Tax Situations (Multiple income sources, business income)
✔ Capital Gains & Losses Carry Forward (For tax optimization)
✔ Large F&O Trading Turnover (Audit required if > ₹10 Cr)

❌ Not necessary if:

• You have simple investments in stocks/mutual funds
• Only earning dividends & small capital gains