Tax implications for a Stock Marketer !

Financial year 2009-10 will get wrapped-up on March 31. But, before that various business class, self-employed and professional people including those working as employees in different firms; will have to ensure proper due-diligence about their income and expenditures from the point of view of tax treatment of their net taxable incomes.

Even stock market traders and investors start juggling their portfolios in order to minimize the tax impact on profits and losses accrued on their transactions. In fact, such traders or investors can also shuffle their current portfolio and holdings in order to benefit from unrealized losses in bringing down their taxable income.

Pay 15% Tax on Your STCG

As per current structure of tax treatment procedures, Short Term Capital Gains (STCG), which accrue on sale of transaction of securities which attract Securities Transaction Tax (S.T.T.) on equity investments made within one year of buying the shares, are taxable at the rate of 15% of the profits accrued. Any equity investment gains booked after 1 year can be termed as Long Term Capital Gains (LTCG), which are tax-free in nature.

Offsetting STCG from Capital Gains

As per the current law, the STCG during the year can be offset against Short Term Capital Loss (STCL). Thus, the burden of taxable income accruing on account of STCG can be brought down as against STCL, if any. However, the Long Term Capital Loss (LTCL), which accrues on sale of transaction which was bought more than a year ago, can not be offset against STCG. Only the liability from STCL can be offset as against income from STCG.

Carry Forward Excess STCL for 8 Successive Years

While LTCL can not be offset against STCG, the STCL for the year can be offset against STCG and LTCG both. In fact, if STCL falls short of being completely offset during the year, the STCL can as well be carried forward for eight successive assessment years to be offset against any nature of capital gains. However, this mechanism of carrying forward of STCL for eight successive years, is not applicable to liabilities on account of LTCL.

Investors should bear in mind that the tax treatment for transaction which involve levy of S.T.T. could differ in its approach, in comparison to the transactions which do not involve levy of S.T.T. Usually, most of the equity transaction involve levy of S.T.T., while non-equity market transactions such as bullion and real estate do not involve such levy.

Holding Any Unrealized Losses?

If, during the year, you are liable to tax on account of STCG and your portfolio constitutes of stocks which are hinting at unrealized mark-to-market losses from your investments made during FY 2009-10, you can book these unrealized losses just prior to March 31 and buy them back in the new FY 2010-11.

By this way, the unrealized losses, for purchases made during the year, gets transformed into STCL which could further be offset against STCG in your account, effectively reducing your tax liability.

Summary of Tax Implications:

1. STCG are liable to 15% tax.
2. STCG can be offset against STCL.
3. LTCL can not be offset against STCG.
4. STCL can be offset against STCG and LTCG both.
5. Excess STCL can be carried forward for 8 Successive Years
6. LTCG, with more than 1 year holding period, are not taxable.

Note: Above mentioned are my views on the impact on taxation on equity market transactions to the best of my knowledge. Readers are recommended to recheck the tax implications with their Tax Experts before acting on above published data and information.