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Now lets understand what this means.
Before April 2018 if we held any stock for 12 months and sold it after that, which means technically after holding it for a year, then tax to be paid was nil
But after April 2018 in the budget it was decided that know any holding above 12 months if sold even after 3 or 4 years will attract a Long term Capital gain Tax of flat 10%
Now lets understand how much is free under this and how much is taxable.
So if you earn less than Rupees One lakh as profit in your holding than its tax free even if you sell it after a year or after 2 years or more.
So lets understand it through a case study suppose you invested 1 lakh in a share in May 2018 whose price was Rs 1000 thus you get 100 shares of that company.
Now you sell that share at a price of 1700 after one year, that is on April 2019. So the profit that you earn is Rs1700-Rs1000=Rs700 per share
Now you had 100 shares so the profit that you earn is Rs700*100 that is Rs 70,000 which is less than Rs 1 lakh. So in this case your LTCG is nil so you need not pay any tax.
But suppose the share price turns to Rs 2020 and then you sell it even after 2 years that is in April 2020 or Jan 2020 then your profits per share would be Rs2020-Rs1000=Rs 1020
Now since you had 100 shares so 100*1020=1,02,000
Thus now you will be required to pay 10% tax on this profit of Rs 2000 only as upto one lakh profits is free.
Thus the total of any investments that you sell after one year should not exceed one lakh in profits. If it does than you need to pay tax only after whatever is left after taking away profits of one lakh
Let us also understand how this would work with other Mutual Funds.
Assume you invest a corpus of Rs3 Lakhs today. After one year, the net worth of your investment appreciates to Rs5 Lakhs i.e. a profit of Rs2 Lakhs.
In such a case, you would have to pay 10% tax on Rs1 Lakh only as the other 1 Lakh is exempted income.
That is Rs 3 lac as your investment, Rs one lac as your profit allowed and only on Rs one lac you need to pay 10% tax
Now this tax can only change if your tax bracket for your I.T assessment is above 10%
Invest in good long term stories which can create wealth for you
So that even if you have to pay taxes it cannot matter to you because the other 90% still remains with you.
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