Investing in share market? These are the charges and taxes on stock trading, equity investments you should know about

Investing in stock markets is a lucrative but a risky option. Not just this, the investors are often confused about different taxes, charges, calculations, tax exemptions, services based charge, government duties etc. This at times keeps new investors away from stepping into the world of equity investments. Right from placing a trade to realising profits after years, one is charged or taxed under different categories. Charges are applicable on not only the profits, but in case of losses too. "An investor should not worry about taxes or charges, if he\she is earning from investments, there is no problem giving a bit on taxes." Executive Director, Sumeet Bagadia, Choice Broking told Zee Business Online.

No more confusion, only safe investing!

Here are the details of charges and taxes applied on your stock investments:

1. Brokerage charges:

There are two types of brokerage charges on stock orders: One is on the delivery based order, while other is on the trade based order. The delivery order is considered as a buying of share(s) anytime during trading session, but selling it on some other day. While trade based order is buying or selling share(s) during the same day, i.e from morning opening to evening closing on the given day. 

Similarly, there are different brokerages charged on each kind of order placed. In general, a full-service broker (HDFC Securities, ICICI direct, Axis Direct etc.) charges between 0.01% – 0.50% brokerage charge on intraday and delivery.

While the discount brokers (Zerodha, Sharekhan, Upstox, 5paisa, Angel Broking etc.) charge a flat fee (fixed charge of Rs 10 or Rs 20 per trade) on intraday and delivery trading. There are also some discount brokers who do not charge any fee on delivery trading.

2. Transaction Charges:

(a) Security Transaction Tax: STT is the second biggest charge after the brokerage. For a delivery trade, STT is charged on both sides (buy & sell) of trading. While for intraday trading, STT is charged only when you sell the stock. The STT charge is around 0.1% of total transaction, for a delivery trading (on each side of trading), while for intraday, the STT charge is around 0.025% of the total transaction (while only selling).

(b) Stamp duty: This is charged by the state government and different states have different stamp duty. For example, in Delhi, Stamp duty levied on transactions is 0.0025% for both intraday and delivery trading, While in Mumbai, the duty is 0.002% and 0.01% for intraday and delivery, respectively. Stamp duty is also charged on both sides of trading (buying & selling) and are charged on the total amount (turnover).

(c) Exchange charges: This charge is levied by the stock exchanges of India. Transaction charges are levied on both sides of the trading and are same for both intraday & delivery. The National stock exchange (NSE) charges a transaction fee of 0.00325% of the total amount. While, Bombay stock exchange (BSE) charges a transaction fee of 0.00275% on total amount.

(d) SEBI Turnover Charges: Securities exchange board of India is the security market regulator, which forms rules and regulations for the stock exchanges. This charge is levied on both sides of transaction i.e. while buying and selling. The SEBI turnover charge is 0.0002% of the total amount of transaction and is same for both intraday and delivery trading.

(e) Depository Participant (DP) Charges: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are two stock depositories in India. Whenever someone places a buy order, a share is kept in the digital form with depository. For the service, the depositories charge some fixed charges only on delivery trades, with Rs 10 to Rs 35. DP acts as a bridge between the depository and the investor, so the depository charges the depository participant and then the depository participant (DP) charges the investors.

"Overall a 10 to 15 paise charge is levied additionally on transactions in the form of taxes, duties and turnover fee, other than brokerages of different brokers" Bagadia added.

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3. Capital Gain Tax: 

It is the most complex and essential tax to understand for an investor. There are two types of Capital gain taxes – Short-term capital gain tax and Long-term capital gain tax.

Short-term capital gain tax - 15 per cent fixed STCGT is levied, when you sell a stock with profits before 12 months of purchase, doesn’t matter what tax slab they are in. While an intraday profit is taxed on the basis of Income tax slab.

Long-term capital gain tax - 10 per cent fixed LTCGT is levied, when you sell a stock with profits after 12 months of purchase, doesn’t matter what tax slab they are in.

"Someone who has just started pouring his\her money in market, should eye on a long term holding, as equity markets do return handsome in longer duration." Bagadia explained.

According to the new reform, all the capital gains that are more than Rs.1 lakh in amount will be charged at 10% tax rate without any inflation indexation benefit. However, the gains made on and before 31st January 2018 will be exempted from this new rule.

However, the big investors try to get maximum profits by holding investments for long term.