Tax on Shares and Trades

A rise in a share's price is a gain on paper only. India taxes it when the share is sold (the law's word is "transfer"), and the US does the same, taxing a gain in the year it is realised, that is, sold. The sale is what counts: the gain is taxed even if the money stays with the broker or buys another share. One kind of income arrives while you hold: a dividend, part of the company's profit paid out for each share, is income when it is paid (chapter 4).

One share can give four kinds of income. Held as an investment and later sold, it gives a capital gain, the profit when a share sells for more than it cost (or a capital loss when it sells for less): long term or short term, by how long it was held. Bought and sold the same day without taking delivery (intraday), it gives speculative business income; "speculative" is the law's label for a trade settled without delivery, not a judgement. Futures and options on an exchange (What You Can Buy introduced them) give non-speculative business income. A dividend is income from other sources.

What decides it is what you did, shown by your records, not the share's name. Taking delivery does not by itself make a share an investment: someone who buys and sells all the time may be running a trading business. India's tax board, the CBDT, said in Circular 6/2016 of 29 February 2016 that listed shares held more than 12 months may be treated as investments if the taxpayer chooses, and the choice must then be kept year after year. Maya would buy to own, so her sales would give capital gains.

Since 1 April 2026 India's rules are in the Income-tax Act, 2025, which counts income by tax year: show the note on Tax year, 1 April to 31 March; 2026-27 is the first. Income up to March 2026 is still reported under the Act of 1961, which is why older statements say "assessment year 2026-27" and "section 112A: show the note on Old and new section numbers".

In plain words, the gain is what the sale brought in, less the costs of selling, less what you paid and the costs of buying. The law calls these the full value of the consideration, the expenditure in connection with the transfer, and the cost of acquisition: show the note on Cost of acquisition (section 72(1) of the Income-tax Act, 2025).

Every charge printed on the contract notes counts: brokerage, the exchange's charge, SEBI's fee, stamp duty on the buy and the GST on those services. One does not, on either side: STT, the securities transaction tax charged on both sides of a delivery trade (Brokerage Charges showed every line). Section 72(3)(b) bars it from the sum.

Take Maya's what-if on real prices. Say she had bought 2 Titan shares at NSE's closing price on Friday 17 October 2025, ₹3674.80 each: ₹7349.60. Worked as the last lesson worked its Tata Steel trade, on Sahi's tariff and the official rates, the buy note adds ₹5.71 of charges that count and ₹7.35 of STT that does not, so her cost is ₹7355.31. Say she sold both at the close on Monday 19 October 2026, ₹4424.20 each: ₹8848.40. The selling charges that count are ₹5.55 (STT of ₹8.85 does not), so the sale brought in ₹8842.85. ₹8842.85 − ₹7355.31 = ₹1487.54: show the note on Maya's what-if gain, 2 Titan, a capital gain. The price added ₹1498.80; the charges took ₹11.26.

Two amounts stay out of that sum. The STT on the two notes, ₹16.20, is barred by law. Sahi's DP charge for moving the shares out of her demat account, ₹15.93, is billed to her ledger, not printed on the note; whether it counts as a cost of selling is for her accountant to confirm, and the broker's tax statement shows whether it was counted.

Bought the same share twice, at different prices? For shares in a demat account, the first bought are treated as the first sold ("first in, first out"), so a sale takes the oldest purchase's price and date (section 67(7)(c) of the 2025 Act).

Keep the buy note for as long as you own the share: it holds the cost the gain will be measured against, perhaps years later. Corporate actions such as bonus shares and splits change that cost (Corporate Actions shows how).

A listed share, or a unit of an equity fund (one that keeps at least 65% of its money in Indian listed shares; Mutual Funds, Index Funds and ETFs explains funds), held for twelve months or less before the sale gives a short-term gain; held for more than twelve months, a long-term gain. Exactly twelve months is still short term: show the note on The dated change.

On Maya's dates: bought on Friday 17 October 2025, exactly twelve months falls on Saturday 17 October 2026, so a sale up to that day is short term, and from Sunday 18 October it is long term. The market was shut that weekend: Friday 16 October was her last session of short term, Monday 19 October her first of long term. The clock starts on the trade date printed on the contract note, not on the day the shares reached her demat account (CBDT Circular 704 of 28 April 1995: the holding period "shall be reckoned from the date of the broker's note"). The US draws the line in the same place: more than one year, counted from the day after the trade date.

The rates for 2026-27: short-term gains, 20% (section 196); long-term gains, 12.5% on the year's total above ₹125000 (section 198). Both apply to shares sold on an exchange, where STT is paid. A 4% Health and Education Cess is added to the tax, and very high incomes also pay a surcharge, an extra percentage of the tax.

The ₹1.25 lakh is counted once a year, per person, across every broker and equity fund together, and for long-term gains only; what is unused that year does not roll on.

On Titan's real closes: sold on Monday 19 October 2026, Maya's ₹1487.54 is a long-term gain, and if it is her only one that year it sits inside the ₹1.25 lakh: no tax. Sold on Friday 16 October at ₹4444.80, the same two shares give a gain of ₹1528.72, all of it short term: 20% plus cess is ₹317.97: show the note on Tax on the Friday sale, 16 Oct 2026 (if her other income already uses up the tax-free band). The Friday price was higher; the Monday sale kept more. And a year whose long-term gains reach ₹175000 pays 12.5% of ₹50000 plus cess: ₹6250 + ₹250 = ₹6500. These are today's rates; a sale in a later year meets the rates in force then.

Two more surprises. India's default income-tax bands, the new regime (an older set with deductions can be chosen instead), carry a rebate that makes income up to ₹12 lakh tax-free, but it does not cover these special rates: someone with ₹10 lakh of other income and a ₹1 lakh short-term gain pays nothing on the ₹10 lakh and ₹20800 on the gain. And a resident whose other income is below the nil band (₹4 lakh in the new regime) uses the unused part against these gains first.

Who receives a dividend is fixed by the record date (Corporate Actions explains the dates). For tax, a dividend is income from other sources: show the note on Before April 2020: it is added to the rest of your income and taxed at your slab rate, the rate for your band of income (from 0% to 30% in the new regime's 2026-27 bands), plus cess. A final dividend counts in the tax year it is declared, an interim one in the year it is made available to you; usually, the year it is paid.

A dividend is not a capital gain, so it does not use the ₹1.25 lakh.

TDS (tax deducted at source): when one company's dividends to a resident individual pass ₹10000 in a tax year, it deducts 10% before paying, or 20% without a valid PAN, India's tax identity number. The deduction appears in your annual tax statement and counts towards your tax; your real tax is still at your slab rate, which may be more or less.

Titan's board recommended a final dividend of ₹15 a share for 2025-26 on 8 May 2026, with a record date of Thursday 9 July 2026; shareholders approved it at the annual meeting on 27 July, and it was paid from 28 July. Maya's what-if 2 shares, held on the record date, would have brought ₹30: show the note on Titan's final dividend on 2 shares: nothing deducted, all of it income of the tax year 2026-27, taxed at her slab rate. A ₹15 dividend passes ₹10000 only from 667 shares (₹10005), if it is that company's only dividend to the holder in the year.

A buyback is taxed differently. From 1 April 2026, what a shareholder receives, less what the shares cost, is a capital gain (section 69 of the 2025 Act). From 1 October 2024 to 31 March 2026 the whole amount was taxed as a dividend and the shares' cost became a capital loss, as in Infosys's buyback at ₹1800 a share in November 2025.

Chapter 1 sorted the two kinds: shares bought and sold the same day without delivery give speculative business income; futures and options give non-speculative business income. Their profits are taxed the same way, below; their losses are not (chapter 6).

How it is taxed: the year's trading profit, less allowed business expenses (brokerage, software and, here, STT), is added to your income and taxed at your slab rate, plus cess. For example, ₹100000 of net trading gains less ₹20000 of allowed expenses leaves ₹80000 of business income. Maya knows this way of counting from her restaurant's books: takings, less food, rent and wages, leave the profit. The comparison stops there: the restaurant files its own return, while a trader's profit is added to the trader's own income, at the trader's own slab rate.

What comes with it: books of account above set limits and, in some cases, a tax audit: show the note on Tax audit (an accountant's check of the books), for example when business turnover passes ₹1 crore (₹10 crore when cash receipts and payments are each no more than 5%), or, for some businesses, when profit is low against turnover. For traders, turnover is worked out in a special way, never the contract value; Options lesson 40 explains every test. Business income has its own return form (ITR-3 for the year to March 2026) and later due dates: 31 August 2027 without an audit, 31 October 2027 with one.

Maya buys to own, so for her this chapter is a map of the road she is not taking. If she ever trades within the day or in futures and options, the full rules are in Options lesson 39, and what SEBI's studies found about individual F&O traders is in Trading vs Investing.

Two words do the work here: set-off, using a loss to reduce income of the same year, and carry forward, keeping the unused part for later years.

The rules: a short-term capital loss can be set off against short-term or long-term gains; a long-term capital loss against long-term gains only; both carry forward eight years. An intraday loss only against intraday profit, for four years. An F&O loss against most other income in the same year, never salary (a few kinds, such as lottery winnings, are excluded), then for eight years against business income only.

The condition: a loss carries forward only if the return showing it is filed by the due date, 31 July 2027 for most investors' 2026-27 returns. A late return can still be filed, but the loss in it can no longer be carried forward. Losses from before April 2026 keep their kind and their remaining years under the new Act.

Say instead Maya had bought her 2 Titan shares at 2026's highest close, ₹5169.20 on Friday 28 August 2026, and sold them at the close on Monday 19 October 2026, ₹4424.20. With the charges that count, her cost was ₹10346.44 and the sale brought in ₹8842.85: a short-term capital loss of ₹1503.59: show the note on The loss what-if, 2 Titan. It can cancel up to ₹1503.59 of any capital gain that year, short or long term; what is left carries forward up to eight years, if her return is filed on time.

What a set-off saves, on round made-up numbers: in one year, a short-term gain of ₹25000 and a short-term loss of ₹10000 leave ₹15000 to tax, ₹3120 with cess instead of ₹5200. The loss saved ₹2080 of tax, but the ₹10000 is still gone. A ₹10000 long-term loss could not have done this.

In the US, up to $3000 of net capital loss a year can reduce other income; India allows no such use.

Tax is not paid only in July. India collects income tax during the year the income is earned, and paying late costs interest. So the tax year 2026-27, which ends on 31 March 2027, has four dates for advance tax, the tax paid during the year, set as running totals: show the note on Running total: by each date, that share of the year's tax should already be paid.

Advance tax is due when your tax for the year, after TDS, will be ₹10000 or more: at least 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March, each a running total.

The relief for gains: tax on a capital gain or a dividend that was not in your estimate attracts no instalment interest if it is paid in full in any of the instalments still to come, or by 31 March (section 425(4)).

Otherwise there is interest. When an instalment falls short, 3% of the shortfall at each of the first three dates and 1% at the last; and 1% a month if less than 90% of the year's tax was paid in advance.

Say Maya's tax for 2026-27, after TDS, will be ₹40000 (a made-up amount): ₹6000 by 15 June, ₹18000 by 15 September, ₹30000 by 15 December and ₹40000 by 15 March, each a running total. If a sale in November 2026 brings a made-up ₹10000 short-term gain that adds ₹2080 of tax, she can pay it with the 15 December instalment, or by 31 March, without interest.

The return comes after the year ends: by 31 July 2027 for an investor whose return has no business income; 31 August 2027 with business income and no audit; 31 October 2027 with one. A late (belated) return can still be filed until 31 December 2027, but a loss in it cannot be carried forward. The return forms for 2026-27 will be notified before the due dates.

To reconcile is to match one record against another until they agree. Maya's what-if Titan sale has a chain: Sahi's two contract notes (bought 17 October 2025, sold 19 October 2026 at ₹4424.20); the CDSL statement of her demat account (2 Titan shares in, then out for the sale, settled on Wednesday 21 October after the Dussehra holiday); and her HDFC Bank statement, which shows the money she sent to Sahi and the money Sahi paid back, both recorded in Sahi's ledger, the running account of her money at the broker.

Once a year come two summaries. The broker's capital-gains statement (often called the tax P&L, profit and loss) lists each sale with its buy and sell dates and values, split short and long term. The Income Tax Department's annual statement shows what others reported about you (share sales, dividends, TDS): Form 26AS and the fuller Annual Information Statement (AIS) for years up to March 2026, and Form 168, which replaces Form 26AS, from the tax year 2026-27.

What ties the papers together: the ISIN: show the note on ISIN, a 12-character code that names one security in every record (Titan's is INE280A01028), printed on the contract note and the demat statement; the order and trade numbers on the contract note; and the dates.

Match, then fix. Dates, quantities and amounts should agree with the notes; the 12-month split and first in, first out should be right; charges in, STT out; and every broker's statement together, because the ₹1.25 lakh is shared. The AIS can miss or double an entry: report what actually happened, and send feedback on a wrong entry.

How long to keep them: the buy records for as long as you hold the shares (chapter 2), and the whole year's set after you file.

Before she meets her accountant, Maya can check six things: a contract note for every buy and sale; every sale matched to a demat debit; short and long term split by the 12-month line, oldest shares first; charges in, STT out; every dividend and its TDS in her records and in the AIS; and every loss in its own bucket, with the return filed by the due date. With the cost and the tax of a trade counted, one question comes before any order: when the market will take it, and how the day opens and closes.