Stock market trading:
Stock market trading is the purchasing of stocks, debentures, mutual funds, exchange-traded funds, and mutual funds. It not only includes the purchasing of the securities rather it includes taking on a position to gain income. Stock market trading is different from stock market investment. The trading includes two aspects: Purchasing and selling that do not take a long period. The trading can be done online in the shares that are known as online share trading.
To trade in the stock market, you need to open an online trading and Demat account. The account can be opened with any broker firm. The Demat account allows trading anywhere and anytime. You can buy and sell shares and other securities without much effort.
The stock market trading has the following features:
- The stock market trading deals with the shares, debentures, derivatives, and other marketable securities.
- It can be done with an online trading and demat account. The Demat accounts are the platforms to trade online in shares, debenture, and others.
- It provides the investment benefit in terms of regular interest and dividends.
- You can sell the securities whenever you reach the desired level of income.
- Stock market trading involves the taxes on income generated on the securities.
Relation of share market trading and tax:
Trading in the stock market involves taking long and short positions for the same securities. If you purchase a stock or share, then you will get a regular dividend on the securities. Likewise, if you invest in debentures, then you will get a regular interest on debentures. At the end of the maturity or at the time of selling the securities, you will get an income in the form of capital gains.
The income from the stock market securities and the taxes are directly related to each other.
1. Taxes on the income from trading in shares and stocks:
The shares and stocks provide the regular dividend income. The tax on dividend in case of equity shares ranges from 0% to 15%. The tax rate increases with the increase in the income on the shares. The capital gain tax is also 15% on the stock income. The capital gain is the income from taking a short position.
The taxes on the dividends would not be borne by the company. The taxes are borne by the investors only. The high tax rates reduce the income and it affects the investment decisions for the future.
2. Taxes on the income from the trading in debentures:
The long-term capital gain tax in the case of debenture is 20%. The long-term capital gain is the income from taking short positions for the debentures. The tax on interest is borne by the company that is charged at a corporate tax rate.
The tax on interest income reduces the resulting income for the investors. Generally, the investment in debenture is for the long term. Hence the tax rate for the capital gain is applicable at 20%.
The impact of income on tax:
The income from the stock market trading impacts the tax structure. The different tax slabs and the rates on regular income and capital gain affect the investment decision of the investors. If you are going to trade in the stock market with any security, then you need to understand the effect on taxation, and the effect on income.
Before investment and trading online, you need to analyze the fundamentals of the company and the securities, different aspects related to the market, and the impact of taxation. If the taxes heavily impact the investment decision, then it will fluctuate the income.
In short, stock market trading has a direct impact on the taxation and the financial goals of the investors.