How do taxes affect stock market gains? – Explore with Capitalinvestopedia

1. Capital Gains Tax:

A. Equity Investments:

Short-Term Capital Gains (STCG): If shares are held for a period of less than one year, any profit from selling them is considered short-term capital gains. As of my last knowledge update in January 2022, short-term capital gains on equity shares are taxed at a flat rate of 15%.

Long-Term Capital Gains (LTCG): If shares are held for one year or more, the profit from selling them is considered long-term capital gains. As of my last knowledge update, long-term capital gains on listed equity shares are exempt up to Rs 1 lakh, and any gains exceeding this limit are taxed at a rate of 10% without the benefit of indexation.

B. Debt Investments:

Short-Term Capital Gains (STCG): For debt mutual funds or debt-oriented hybrid funds held for less than three years, short-term capital gains are added to the investor's income and taxed according to their income tax slab.

Long-Term Capital Gains (LTCG): For debt mutual funds or debt-oriented hybrid funds held for three years or more, long-term capital gains are taxed at 20% with the benefit of indexation.

2. Securities Transaction Tax (STT):

STT is applicable on the purchase and sale of securities in recognized stock exchanges in India. It is levied at the time of the transaction and is borne by the investor. The rates vary for equity delivery, equity intraday, and equity derivatives.


3. Dividend Distribution Tax (DDT):

- As of my last knowledge update, dividends received from equity mutual funds are tax-free in the hands of the investor. However, dividends received from individual stocks are subject to dividend distribution tax paid by the company distributing the dividend.

4. Wealth Tax:

- As of my last knowledge update, India does not have a wealth tax. However, the government introduced a tax on high net worth individuals called the "Dividend Tax" in certain cases. This is separate from the traditional wealth tax.