Income Tax for Salaried Individuals Earning from Stock Market: A Complete Guide
Salaried individuals increasingly participate in the stock market, generating income from capital gains, dividends, and trading alongside their salary. Understanding the tax implications under current rules (post-Budget 2024 changes) is crucial for accurate ITR filing and compliance.[1][3][4]
1. Understanding Key Types of Stock Market Income
Stock market income for salaried persons falls into salary (taxed at slab rates), capital gains from shares/mutual funds, dividends, and business income from trading.[1]
- Salary Income: Taxed as per individual income tax slabs under the old or new regime.[1][9]
- Dividend Income: Taxed at slab rates after TDS deduction by the company.[1]
- Capital Gains: Classified as Short-Term (STCG) or Long-Term (LTCG) based on holding period.[1][2][4]
- Trading Income: Intraday as speculative business income; F&O as non-speculative, both at slab rates.[1]
Capital Gains Classification for Equity Shares & Equity Mutual Funds
For listed equity shares and equity-oriented mutual funds, holding up to 12 months is STCG; over 12 months is LTCG.[1][2][6]
2. Tax Rates on Capital Gains and Trading
Post-Budget 2024 (effective from July 23, 2024), tax rates have been revised for equity investments where STT is paid.[3][4][8]
- STCG (Section 111A): 20% tax rate (previously 15%). Example: Sell shares bought for Rs 50,000 at Rs 75,000 after 8 months; gain Rs 25,000 taxed at 20% = Rs 5,000.[2][4][8]
- LTCG (Section 112A): Exempt up to Rs 1.25 lakh; 12.5% without indexation above that (previously 10% up to Rs 1 lakh).[3][4][6]
Example: LTCG of Rs 2.25 lakh – exempt Rs 1.25 lakh, tax on Rs 1 lakh at 12.5% = Rs 12,500 plus cess.[3][4]
Trading Income Taxation
- Intraday Trading: Speculative business income at slab rates; losses carry forward 4 years.[1]
- F&O Trading: Non-speculative business income at slab rates; losses carry forward 8 years.[1]
Capital gain formula: Selling Price – (Purchase Price + Transfer Costs + Improvements).[2]
3. ITR Filing, Deductions, and Practical Example
Choose the right ITR form based on income sources. Deductions under Chapter VI-A (e.g., 80C, 80D) apply to salary and dividends but not STCG/LTCG.[1]
- ITR-2: For salary + capital gains (no business income).[1]
- ITR-3: For salary + trading/business income.[1]
Practical Tax Example for Salaried Individual
Assume annual salary Rs 10 lakh (tax at slabs), STCG Rs 1.2 lakh (tax 20% = Rs 24,000), LTCG Rs 2 lakh (exempt Rs 1.25 lakh, tax 12.5% on Rs 75,000 = Rs 9,375), dividends Rs 30,000 (slab rate).[1][3][4]
- Total tax on salary + dividends at slabs.
- STCG/LTCG taxed separately at flat rates.
- Deductions only against salary/dividends.[1]
Budget 2026 expectations include potential STCG/LTCG relief, higher LTCG exemption, or STT reduction, but current rules apply for FY 2025-26.[3][5][13]
Always compute gains accurately, claim eligible expenses like brokerage, and file on time to avoid penalties. Consult a CA for personalized advice.[1][2]