How to calculate income tax on stock market earnings along with your salary?

The Income Tax Return (ITR) filing deadline for income received during the fiscal year 2022–2023 is July 31. To avoid a last-minute rush, taxpayers should estimate their tax liabilities and file their forms as soon as possible, especially traders and stock market participants. A stock market investor should be aware that equity share gains are taxed in a variety of ways, including Securities Transaction Tax (STT), dividend taxation, Short-Term Capital Gains (STCG), Long-Term Capital Gains (LTCG), intraday in the cash segment, and futures and options (F&O).

How equity share gains are taxed?

Earnings from the purchase or sale of shares fall under the business head or category of capital gains. earnings from intraday trading are subject to "Business Income" taxation, whereas earnings from long- or short-term investments are subject to "Capital Gain" taxation. Your capital assets are divided into short-term and long-term categories based on the length of time you have owned the shares. The buyer is reported to have either short term capital gains (STCG) or short term capital losses (STCL) if listed equity shares are sold within a year of purchase. Regardless of your tax bracket, Section 111A taxes short-term capital gains at a rate of 15%, plus any relevant surcharges and cess.

If shares of a publicly traded company are sold more than a year after purchase, the seller is said to have either realised a long-term capital gain (LTCG) or lost a long-term capital loss (LTCL). If a seller makes a long-term capital gain on the sale of equity shares or equity-oriented mutual fund units of more than Rs. 1 lakh, the gain is taxed at 10% plus any applicable cess, although indexation is not a benefit.

If you earned money from intraday trading, your income is categorised as business income as opposed to capital gain; earnings are added to your net income and subject to slab rate taxation. As a result, income tax will be assessed in accordance with the following on speculative and non-speculative business income:

The purchase or sale of stocks listed on Indian stock exchanges is subject to the stocks Transaction Tax (STT), which is a taxable sum. If the STT amount paid is recognised as a business expense and share income has been categorised under the heading "Profits/Gains from Business and Profession" in accordance with Section 36 of the Income Tax Act of 1961, STT may be claimed under income tax.

How to calculate STCG and LTCG along with your salary?

Here, we'll look at an example of how to calculate income tax on short-term capital gains (STCG) and long-term capital gains (LTCG) for salaried workers.

If you invested Rs. 10 lakh in a company today and realised an LTCG of Rs. 3 lakh after two years, your net gain would be Rs. 13 lakh. When equity shares and equity mutual funds (MFs) are sold after being held for a period of one year or more, long-term capital gains (LTCG) of up to Rs 1 lakh are exempt from income tax for the fiscal year. After exemption, your LTCG total is now Rs 2 lakh. At a 10% tax rate, you will now pay Rs 20,000 in tax on your long-term capital gain.

But it's not over yet; in this instance, tax harvesting will be used to reduce the taxable amount. Assume that after a year, your total cost of shares increased to Rs. 11 lakh from Rs. 10 lakh when you first purchased them. Although there was a gain of Rs. 1 lakh in this case, the LTCG tax exemption meant that you would pay no tax at all. However, if your goal is to reach Rs. 13 lakh in two years, you will need to sell all of your shares and instantly purchase new ones in order to meet this goal. In this instance, the tax harvesting regulation will be put into practise, and you will get the same total number of shares in your demat account, but your new cost price will be Rs 11 lakh.

Assume that after one year from now, you reached your 13 lakh rupee goal. In two years, your net profit is Rs 2 lakh and your new cost price is Rs 11 lakh. Your net gain is Rs 1 lakh after deducting the Rs 1 lakh LTCG exempt amount. As a result, using the tax harvesting strategy, you must pay a 10% tax on a $10,000 tax. Residents should be informed that a fundamental exemption ceiling of Rs 2.5 lakh lowers their taxes on capital gains. Therefore, you can benefit from adjusting income tax against the basic exemption maximum of Rs. 3 lakh if you made an LTCG of such an amount of 2.5 lakh. Your final LTCG would now be Rs 50,000, and you will only have to pay a tax of Rs 5000 at a rate of 10%.

You would have a net gain of Rs. 13 lakh if you invested Rs. 10 lakh in a stock today and realised an STCG of Rs. 3 lakh after holding it for a year. Your 15% short-term capital gains tax will be charged at a rate of Rs 45,000. Nevertheless, the net taxable STCG will be Rs 50,000, resulting in a taxable sum of Rs 7,500 at a rate of 15%, after adjusting income tax against the basic exemption ceiling of Rs 2.5 lakh. Salaried taxpayers should be aware that the ITR Forms ITR-2 and ITR-3 are used to declare income from capital gains.

Regardless of the holding term, the revenue Tax Department has indicated that revenue from the sale or transfer of unlisted shares will be taxed as "Capital Gains." When it comes to dividend income, the tax rate is 10%, and TDS must be withheld if the shareholder receives or is given a dividend that exceeds Rs. 5,000.

Any transactions that take place during Futures and Options trading are non-speculative and are handled as business income or loss, according to Section 43(5) of the Income Tax Act. According to Section 44AB of the Income Tax Act, if a trader's total turnover for the duration of a fiscal year exceeds Rs 10 crore, the trader must submit to a tax audit in accordance with the rules outlined in this section.