The four tax buckets for market income
Indian tax law treats market income differently depending on what you traded and how long you held it. (Rates below are for FY 2025-26; always confirm with a tax professional.)
1. Delivery equity - capital gains
| Holding period | Tax | Notes |
|---|---|---|
| ≤ 12 months (STCG) | 20% | Section 111A, flat rate |
| > 12 months (LTCG) | 12.5% | Section 112A - first ₹1.25 lakh of LTCG per year is exempt |
Example: you bought shares for ₹4,00,000 and sold after 14 months for ₹6,00,000. Gain = ₹2,00,000. Taxable LTCG = ₹2,00,000 − ₹1,25,000 = ₹75,000. Tax = ₹9,375 (plus cess).
2. Intraday equity - speculative business income
Buying and selling the same stock on the same day is speculative business income. It is added to your total income and taxed at your slab rate. Speculative losses can only be set off against speculative gains (carried forward 4 years).
3. F&O - non-speculative business income
Futures and options profits are non-speculative business income - also slab rate, but with useful differences:
- Losses can be set off against most other income (except salary) and carried forward 8 years.
- Expenses (brokerage, internet, research subscriptions, advisory fees) are deductible.
- If turnover crosses limits or you declare profit below 6% of turnover, a tax audit may apply - this is where good record-keeping matters.
4. Dividends
Dividends are added to your income and taxed at your slab. Companies deduct 10% TDS if your dividend from them exceeds ₹10,000 in a year.
STT - the tax you pay without noticing
Securities Transaction Tax is deducted automatically on every trade:
| Transaction | STT |
|---|---|
| Equity delivery (buy & sell) | 0.1% each side |
| Equity intraday (sell side) | 0.025% |
| Futures (sell side) | 0.02% |
| Options (sell side, on premium) | 0.1% |
Practical compliance checklist
- Download your P&L and capital gains statements from your broker at year-end - these map directly to the ITR schedules.
- Choose the right ITR form: ITR-2 for capital gains only; ITR-3 if you have intraday/F&O (business income).
- Pay advance tax in quarterly instalments if your total tax liability exceeds ₹10,000.
- Harvest losses before 31 March - booked losses offset gains and reduce your bill.
Parasram India clients get help assembling capital gains statements, P&L reports and tax-filing paperwork - one of the small tasks our branch handles. This article is educational, not tax advice; consult a CA for your specific situation.
