The taxation in equities is simple. If you hold any equity instrument (stock or mutual fund), for more than one year, it counts as Long Term Capital Gain. Anything lesser is Short Term Capital Gain.
LTCG is taxed at 10% whereas STCG is at 15%. The first one lakh is exempt. This means if your LTCG is Rs 200,000 then the tax will be 10% of (200,000 minus 100,000) which is Rs 10,000.
Dividends on equities are also taxed in the hands of the investor. Implications:
- A smart direct equity investor will not look at dividend yield when making long term growth oriented investments. Dont bother about the tax. Period.
- A smart mutual fund investor would accumulate their wealth as much possible without incurring taxes on dividends. Avoid dividend schemes.
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