Every country has a proper taxation system. The tax collected by citizens is used to fund various public infrastructure and development projects. In India, the Central Board of Direct Taxes is the sole authority that looks after taxation in India. The easiest way to pay your taxes is by filling in Income Tax Returns at the end of every financial year. Note, that all income is taxable. If you fail to pay your taxes, you find yourself in financial trouble.
Earnings from online trading are also taxable. However, most people are unaware of the tax implications their Equity earnings draw. Firstly, know that earnings from trading are called capital gains. Various taxes apply to your investment capital gains and they are as follows:
Capital gains taxation
Since your trade earnings are considered capital gains, their taxation norms apply. There are two types of capital gains: Short-Term and Long-Term Capital Gains tax. The type of tax applicable depends on your holding period.
- If the holding period is less than 12 months, Short-Term Capital Gains apply. Your earnings get taxed at a flat rate of 15%, irrespective of the tax bracket you fall under.
- If your holding period is more than 12 months, Long-Term Capital Gains are applicable to you. Your earnings above Rs. 1 lakh get taxed at 10% plus the CESS.
Securities Transaction Tax
This applies to every trade you make, whether you buy or sell stocks. The tax applies to Direct Equity investments or Equity-linked investments like Mutual Funds. The taxes are typically a small percentage of your share value. For instance, if you have invested in Equities of ‘X company’ you need to pay 0.1% of its share value as STT.
Options to pay taxes beforehand
If you do not want to make a single large tax payment at the end of the financial year you can opt for advance tax. You can say you are paying taxes as you earn. It ensures that you do not feel burdened with high tax liability all at once. Note, that you can only opt to pay taxes beforehand if your yearly taxation amount is more than Rs. 10,000. The percentage of tax liability you pay differs with every instalment.
You need to pay these advance taxes before the given cut-off date. Any advance tax payment made after the cut-off date may be unacceptable. Miscalculating your tax liability is common. If you end up paying more as advance tax payments or forget to apply for tax deductions, you can always claim a refund. This is possible by visiting the Income tax e-filing portal. You can check your tax refund status on the same website.
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