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Explainer: Will there be taxes to pay even if the money earned in the stock market is reinvested in the market?

Sagar Patel

By Sagar Patel

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When is the tax applied to the stock market?

A few years ago, Anand bought about 200 shares of a company at the rate of Rs 150. Now the value of each of these shares is around Rs 550. In such a situation, Anand wants to book profits and buy new shares, but he fears being hit by double taxation. Let’s solve this dilemma…

If you trade stocks in the market, in addition to income tax, you will also have to pay securities transaction tax, GST, etc. There are different conditions for collecting income tax, depending on which short-term capital gains tax or long-term capital gains tax applies. But if profits are made and reinvested in the market, will this reinvestment also be subject to taxes?

First know what tax is applied and when?

First of all you must understand what tax is applied to you in the stock market. Let us understand this only with the example of Anand. When Anand would have made the share purchase transaction from his demat account, he would have paid securities transaction tax. You will now have to pay this tax every time you sell your shares. Their fee is very nominal. You also have to pay applicable GST for using demat banking services while buying and selling shares.

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Now comes the question of short-term and long-term capital gains tax. This is part of your income tax. If you buy a stock and record profits on it for a period of less than 12 months, then short-term capital gains tax applies on your profits. Its rate is set at 15 percent. Although earnings up to Rs 1 lakh are tax free but if they make your general income taxable then you have to pay income tax as per your tax slab.

The same thing happens when you own a stock for a period longer than 12 months and then sell it. The tax on profits earned at that time is called long-term capital gains tax. Its rate is set at 10%. In this case, earnings up to Rs 1 lakh are tax-free. However, this also depends on your tax base.

Will I have to pay taxes even if the profits are reinvested?

From the case mentioned above, you must have understood that when you trade or invest in the stock market, you have to pay short-term or long-term capital gains tax only on the sale of shares. That means you don’t have to pay any tax for investing in shares, except for securities transactions and GST.

One more thing: when you book the profits from the sale of shares, the amount received becomes your capital again. You can use it as you wish.

Sagar Patel

Sagar Patel

I am Sagar Patel, specializing in business news reporting. With a keen focus on economic trends, market analysis, and corporate developments,

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