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Tax structure on income from equity investment

Dividends received are tax free. Equity investments are subject to short term capital gains (STCG) and long term capital gain (LTCG) also, as the case may be

04 Dec 2008

Dividend received on stock is free from tax for the investor. This is the good news. However, you do have to pay short-term capital gains tax on any capital gains you might make in the short term ('short term defined as any period less that one year)

Thus gains from selling equity shares that have been purchased and sold within a year are taxed at 11.22% (10 per cent tax + 2 per cent education cess + 10 per cent surcharge, if applicable). There is no tax on long-term capital gains.


All this is over and above the 12.24% service tax you pay on brokerage charges every time you transact business in equity, i.e., buy and sell shares. In addition, you have to pay Securities Transaction Tax (STT) on sale and purchase transactions of shares.


The STT rate for delivery-based transactions is 0.125% of the transaction value for both buyers and sellers. For non-delivery based transactions, the STT is 0.025% of the transaction value.

Market risks: The risk of market collapse; or that you have invested at the peak of a particular stock. Which means chances are returns on that investment could be minimal at best or worse, will run at a loss.

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