Be Tax-Wise When Investing In Stocks To Maximise Gains

Nearly every investor knows that the short-term capital gains from the stocks get taxed at the rate of 15% whereas the long-term capital gains are tax-free. But not many investors are aware of the other tax advantages and the regulations. For example, the short-term losses from the stocks can be adjusted against the taxable capital gains. So, if the stocks bought for less than 12 months ago are in the red, you can even sell them to book a loss and then regulate that loss against the gains from the other instruments such as the debt schemes, gold funds and even physical gold. What’s more, the unadjusted loss from the stocks can be carried forward for up to 8 financial years. But the taxpayers must also know that the capital losses can be carried forward only if the tax return has been filed by the due date. 

While the capital losses can be regulated only against the capital gains, losses in the secondary sector can also be set off against the other incomes, including the interest and the rentals. This is because the trading in the secondary i.e., the futures and options of stocks, currencies and commodities is treated as non-speculative business. Therefore, no loss can be regulated against the salary income.

Stocks investors are familiar with the tax rules which are able to optimise the returns from their investments. They use corporate actions such as bonus issues and dividends to reduce their tax accountability. When bonus shares are issued or after the dividend is paid out, the price of the scrip comes down. Savvy investors hold their stocks long enough to avoid the bonus-stripping and dividend-stripping clauses before the offloading them to book the losses. Therefore, some experts feel that this tax arbitrage is not a desirable ploy and must be avoided lest the tax authorities raise the objections.

Even the most knowledgeable investors require to keep themselves updated with the changes in the tax rules. This year’s Budget has changed the tax rules for dividends from the stocks. If the dividend income is over Rs 10 lakh in a financial year then it will bring a tax of 10%. Fortunately, the companies announce dividends much in advance, giving the investors enough time to make changes in their portfolios. Investors with large holdings must accordingly rejig their portfolios so that their dividend income does not cross the threshold.

No TDS is applicable on the short-term or long-term capital gains earned by the resident Indians when they sell the mutual funds or the stocks. Therefore, the tax rules are different for the NRI investors. There is a 15% TDS on the short-term capital gains from the shares and the mutual funds if the securities transaction tax (STT) has been paid. If no STT has been paid then the TDS rate is higher at 30.9%. The NRIs are also liable to a 10% TDS on the long term gains from the shares and the mutual funds.

Given the complication of the tax rules, it can be a good idea to use the services of a qualified tax professional. HNIs will especially find it more cost efficient to use a tax professional than trek into these taxation issues on their own. 

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.