When we are speaking about stock market and investing, we cannot forget the term capital gain & capital gain tax. There are 2 types of capital gains, Shot term and Long term. Short term capital gain is defined as profit generated by selling a stock or group of stocks which were held and sold with in a year. Whereas, Long term capital gain is stocks sold which were held over a year. The long term gains from equity above Rs. 1 lakh annually are taxed at 10% while short term gains are taxed at 15% as of July 2024.
I invest on selected stocks, which I feel would give great returns on long term. However, initially when I started my investing journey, I own few stocks and sold with in a year. These comes under short term capital gain tax of 15%. This was very huge and revisited my portfolio and spend time in identifying the quality stocks which I would keep at least for 10 years and invested on those. Buying and selling of stocks not only attract capital gain taxes, we should also consider brokerage, security transaction charges, exchange charges, GST and stamp duty. So, holding a stock more than 10 years would reduce our taxation and also increase the profit earned over time.
Let us keep aside this capital gain tax aside. When we hold a quality stock, we also has the option to pledge those and get the collateral margin to perform trading (this is advisable only when a person gets enough knowledge and practice with small money). This collateral margin received could be somewhere between 80% to 90% of the current value of the stock. So over time, when the stock price increases we will also get higher collateral money to trade on futures and options. This could give us some additional profit, if done carefully with patience.
Hope this blog helps in understanding the concept of capital gains and taxes.
Have a Great Day
B G Nareshkumar
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