Costs/Charges/Fees w.r.t Share Trading/Investing Explained:
India is unique in the sense that though over time trading/investing has become easier, it still comes with a plethora of charges.These charges are primarily determined by the duration for which you hold the stock. In this post we will try and cover the costs involved with trading in
general. Let’s cover a couple of basic terms first.
1. Intraday Trading:
Intraday trading involves buying and selling of stocks within the same trading day. Here stocks are purchased or sold, not with an intention to invest, but for the purpose of earning profits by predicting the movement of stocks.
2. Delivery
In delivery trades, the stocks you buy are added to your demat account. They remain in your possession until you decide to sell them, which can be in days, weeks, months or years.
It is important to note that you have to pay a brokerage charge on both times of trading i.e. while buying a share and selling a share. There are some brokers (very few) who charge brokerage fee only at one side of transaction i.e. either on buying or selling.
Like I said before, there are a number of charges applied on trades. Apart from brokerage charge, other charges include but are not limited to: Security Transaction Tax, GST, Stamps Duty, Transaction Charges, SEBI Turnover Charges, Depository Participant (DP) charges and Capital
Gain Tax.
Let’s understand the other different charges on share trading and taxes involved first. Then we will see an example for further understanding.
Different Charges on Share Trading-
Security Transaction Tax (STT):
STT is kind of financial transaction tax which is similar to tax collected at source (TCS). STT is a
direct tax levied on every purchase and sale of securities that are listed on the recognized stock exchanges in India.
Salient Points
- This is the second biggest charge after the brokerage charge.
- For delivery trading, STT is charged on both sides (buy & sell) of trading.
- For intraday trading, STT is charged only when you sell the stock.
- In general, for delivery, the STT charge is around 0.1% of total transaction (on each side of
trading). - For intraday, the STT charge is around 0.025% of the total transaction (while selling).
Levy of Securities Transaction Tax
|
Taxable securities transaction |
Rate of STT |
Person responsible to pay STT |
Value on which STT is required to be paid |
|
Delivery based purchase of equity share |
0.1% |
Purchaser |
Price at which equity share is purchased* |
|
Delivery based sale of an equity share |
0.1% |
Seller |
Price at which equity share is sold* |
|
Delivery based sale of a unit of oriented mutual fund |
0.001% |
Seller |
Price at which unit is sold* |
|
Sale of equity share or unit of equity oriented mutual |
0.025% |
Seller |
Price at which equity share or unit is sold* |
|
Derivative – Sale of an option in securities |
0.017% |
Seller |
Option premium |
|
Derivative – Sale of an option in securities where |
0.125% |
Purchaser |
Settlement price |
|
Derivative – Sale of futures in securities |
0.01% |
Seller |
Price at which such futures is traded |
|
Sale of unit of an equity oriented fund to the Mutual |
0.001% |
Seller |
Price at which unit is sold* |
|
Sale of unlisted shares under an offer for sale to |
0.2% |
Seller |
Price at which such shares are sold* |
GST:
GST is charged at 18% total, but in two parts: SGST and CGST.
Things to note here are:
The actual amount is dependent on the brokerage, % is same but amount you pay can be quite dampening on your profits and trading capital.
If you have discount broker account, that is where the total taxes paid will be lowest. If you want to compare, simply go through the ledger or financial data fact sheet provided by broker.
Stamp Duty:
This is charged by the state government. Different states have different stamp duty. Here is the stamp duty of two of the Indian states-
|
|
Intraday |
Delivery |
|
Maharashtra |
0.002% |
0.01% |
|
Delhi |
0.0025% |
0.0025% |
Stamp duty is also charged on both sides of trading (buying & selling) and are charged on the total amount (turnover). A detailed list of state-wise charges can be found here state wise charges.
Transaction Charges:
Stock Exchanges in India are privately owned Businesses. As is the objective of any business, stock exchanges also exist to earn profits. Their most significant source of Income comes from the Exchange Transaction Charges. Simply put, the exchange takes a small charge on the turnover from every trader or Investor per trade to provide them the technology platform to buy & sell securities.
Salient Points
- This is charged by the stock exchanges. Transaction charges are charged on both sides of the trading and are same for both intraday & delivery.
- National stock exchange (NSE) charges a transaction fee of 0.00325% of the total amount.
- Bombay stock exchange (BSE) charges a transaction fee of 0.00275% on total amount.
SEBI Turnover Charges:
SEBI stands for the Securities & Exchange Board of India. SEBI is the market regulator & is entrusted with ensuring that the Interests of the Investors are safeguarded.
What are SEBI Charges?
Beginning 1 January 2007, a SEBI circular on turnover fees introduced the “SEBI Regulatory Fee” commonly called SEBI Charges on all registered Stock Exchanges of India based on their respective Turnover.
This charge is levied by SEBI to meet expenses it incurs while carrying out its duties.
Salient Points
· It is charged on both sides of transaction i.e. while buying and selling.
· The SEBI turnover charge is 0.0002% of the total amount and is same for both intraday and delivery trading.
Depository Participant (DP) Charges:
Let’s try and understand a few basic terms first.
Depository is a place where financial securities are held in dematerialised form. It is responsible for maintenance of ownership records and facilitation of trading in dematerialised securities.
A Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors.
There are two stock depositories in India- NSDL (National Securities Depository Limited) & CDSL (Central Depository Services Limited).
Salient Points
· Whenever you buy a share, it is kept in an electronic form in a depository. For this service, the depositories charge some fixed amount.
· They don’t charge the investors directory but charge the depository participant. Here, the
broker company or your demat account company is the depository participant (DP).
· DP acts as a linkage between the depository and the investor as the investors cannot
approach depository directly. So, overall the depository charges the depository
participant and then the depository participant (DP) charges the investors.
· DP charges are a flat of between Rs 4.5 to 35 depending on your broker and this is also charged only for delivery trading (not for intraday).
|
Broker |
Depository |
Depository |
Broker Debit |
Total |
|
5.5 |
0 |
5.5 |
||
|
4.5 |
0.04% |
31.5 |
||
|
5.5 |
8 |
13.5 |
||
|
4.5 |
0 |
4.5 |
Capital Gain Tax:
This is the most important tax to understand for a trader.
There are two types of Capital gain tax – Short-term capital gain tax and Long-term capital gain tax.
When you sell a stock before 1 year of buying, then it is considered as a Short-term.
When you sell a stock after 1 year of buying, then it is called long-term capital gain.
Tax on Short-Term & Long-Term Capital Gains:
|
Tax Type |
Condition |
Tax applicable |
|
Long-term capital gains tax |
Except on sale of equity shares/ |
20% |
|
Long-term capital gains tax |
On sale of Equity shares/ units of equity |
10% over and above Rs 1 lakh |
|
Short-term capital gains tax |
When securities transaction tax is not applicable |
The short-term capital gain is added to your income tax |
|
Short-term capital gains tax |
When securities transaction tax is applicable |
15%. |
