Tax benefits of share market invesments?

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It is kind of an incomplete question, but let me give it a shot:

Some of the tax benefits you get by investing in stock markets,

  1. If you invest into stocks, hold it for more than 1 year, any gain you make which is called as long term capital gain (LTCG) will be exempted from taxes. So if you bought stocks for 1lk and sold after 2 years for 2lks, on this gain of Rs 1lk, you would not need to pay any taxes.

  2. If you are a first time investor, government has launched RGESS scheme, where you can open demat and buy stocks (part of NSE - 100), for upto Rs 50,000. When you do so, you get a 50% deduction. So if you invest 50k, 25k can be reduced from your taxable income.

  3. You can also invest into the markets indirectly using tax saving mutual funds, also known as ELSS (Equity linked savings scheme). Upto Rs 1lk per year can be done under section 80C and so you get the entire amount as deduction from the taxable income. So if you invest Rs 1lk, that much is reduced from your income.


Let’s take a look at an example which will explain the capital gains taxes in details.

Let us say Mr. Rahul has purchased securities A and B both on April 11, 2013 for a total price of 1,00,000 each. As on December 5, 2013, value of his investments is as follows:

Securities Purchase Value Current Value
Stock A 1,00,000 1,30,000
Stock B 1,00,000 50,000

Rahul has got 4 options now. Below table illustrates the available options and the tax impact.

No Option Result
1 He can hold both stocks for more than 12 months; in anticipation of price appreciation No long term capital gains tax.
2 He can book profit in stock A and hold stock B which is in loss On the profit position in stock A he pays short term capital gains tax of 15%.
3 He can sell stock A; book profits and sell stock B; book losses Profit of Rs.30,000 in stock A – Loss of Rs.50,000 in stock B = Net Loss of Rs.20,000. This loss can be carried forward for 8 years. No short term capital gain tax on profits.
4 Hold stock A for more than 12 months and book losses in stock B No long term capital gains tax in stock A and short term capital loss of Rs.50,000. This loss of Rs.50,000 can be carried forward for 8 years.