From dividends to F&O, how much income tax will have to be paid on stock market earnings? Learn complete mathematics here

The common man invests in the stock market to get better returns in a short time, but most of the investors do not know that they have to pay tax on the earnings from the stock market. If you also invest in the stock market, then you must know by which formula the income from the stock market is taxed. However, the tax rate depends on how long the investor held the shares and whether the income was earned through investment, trading or dividends. According to experts, income from stock market is mainly classified as capital gain, trading income and dividend income. Tax is imposed on all these under different rules.

Long term and short term capital gains rules

If an investor sells shares of a listed company after holding them for more than 12 months, the profit earned from it is called Long Term Capital Gain (LTCG).

Under the current rules, LTCG up to Rs 1.25 lakh in a financial year is completely tax free. If the profit exceeds Rs 1.25 lakh, then tax at the rate of 12.5 percent will have to be paid on the additional amount.

At the same time, if the shares are sold within 12 months of purchase, then the profit earned is considered short term capital gain (STCG). Tax is levied on this at a flat rate of 20 percent.

How is income from trading and F&O taxed?

Tax rules are different for regular trading investors. Income from intraday trading is considered speculative business income. This income is added to the total annual income of the person and is taxed as per the income tax slab.

Similarly, profit from Futures and Options (F&O) is considered non-speculative business income. Tax liability on this income is also decided according to the tax slab of the investor.

Tax has to be paid on dividends also

If an investor receives dividend from a company, then this amount is added to his total income. After this, dividend income is taxed according to the tax slab in which the investor falls.

Keep in mind surcharge and cess also

In addition to the tax on capital gains or trading income, a 4 percent health and education cess is also applicable on the total tax liability. Surcharge may also be imposed on high income taxpayers. In such a situation, those investing in the stock market should calculate the tax correctly by keeping all the rules in mind while filing returns.