Since July 23, 2024, the Indian government has changed how it taxes capital gains from the stock market, affecting both casual investors and active traders. Key changes include higher tax rates and stricter rules for filing returns.
New Tax Rates You Need to Know
- Short-Term Capital Gains (STCG): Profits from listed equities held for less than one year are now taxed at 20%. This rate applies under Section 111A.
- Long-Term Capital Gains (LTCG): Profits from listed equities held for more than a year are taxed at 12.5% on gains exceeding ₹1.25 lakh. This applies under Section 112A.
For investors, this means a significant increase in the tax on their market earnings, making smart tax planning even more crucial.
Investor vs. Trader: Why the Distinction Matters
Your tax situation depends heavily on whether you are classified as an investor or a trader.
- Investors buy and hold stocks or mutual funds for long-term growth. Their profits are reported under the “Capital Gains” head.
- Traders are active in the market, doing things like intraday equity or futures and options (F&O) trading. Their income is treated as “Business Income,” which comes with different rules and benefits.
This classification dictates which tax form you use, what expenses you can deduct, and how you handle losses.
Filing Your Taxes: Forms and Deadlines
Choosing the right ITR form is essential to avoid penalties.
- ITR-1: For individuals with total income up to ₹50 lakh and certain capital gains.
- ITR-2: For investors who only have capital gains and no business income.
- ITR-3: This form is mandatory for traders and anyone with income from a business, including F&O. If you both invest and trade, you must file ITR-3.
The deadline for filing your taxes for FY 2024–25 (AY 2025–26) is September 15, 2025 for non-audit cases and October 31, 2025 for audit cases. You must e-verify your return within 30 days of filing.
Managing Losses and Deductible Expenses
Filing your tax return on time is the only way to carry forward losses.
- Capital Losses: Short-term losses can be used to offset both STCG and LTCG. Long-term losses can only offset LTCG. Both can be carried forward for up to 8 years.
- Business Losses: Losses from F&O trading can be carried forward for 8 years, while speculative losses (like from intraday trading) can be carried forward for 4 years.
Traders can also claim business-related expenses like brokerage fees, internet charges, and even depreciation on a laptop. Remember to keep proper invoices to back up these claims.