Stock market investments are undoubtedly the most lucrative means today to multiply one’s returns on the available capital. To buy or sell shares in the stock market, a retail investor needs to transact through a SEBI(Securities and Exchange Board of India)-registered stockbroker.
There are various kinds of costs associated with such transactions, like the demat account opening charges. You need to be aware of all the charges involved (charges, taxes, levies, etc.) in stock trading to calculate the real cost of trading and a genuine analysis of your returns from the market.
Charges Involved In A Stock Market Investment
There are various charges levied by brokerage houses, SEBI, depositories, and governments on share market transactions. Here is a comprehensive list of these charges.
- Securities transaction tax: It is a mandatory charge levied as a percentage of the transaction value for delivery-based equity trades on both the buy and sell sides of the transaction. For intraday trades, the securities transactions tax gets charged only when stocks are sold. For delivery in general, this tax is charged at 0.1% of the entire transaction value for both sides. For intraday trading, the tax is levied on the selling party at 0.25%of the transaction value.
- Stamp duty and GST: It is charged on the transfer of shares. The stamp duty is set and charged by the state governments and may be different for various states. States charge stamp duty on the entire turnover amount from both the buying and selling parties. The governments charge GST as a percentage of the brokerage cost of every transaction. The present rate is 9% CGST and 9%SGST.
- Brokerage charges: Brokerage charges are the charges (flat rate or percentage of the transaction) a retail investor pays to the brokerage house having his demat account for the services they render.
- Service tax: It is uniform for delivery and intraday trading and is 15% of the brokerage charge that investors pay.
- Transaction charges: These are taken by the stock exchanges in the country on the buy and sell calls for a trade. The National Stock Exchange (NSE) charges 0.00325% of the entire transaction amount as a transaction fee. The Bombay Stock Exchange (BSE) charges 0.00275% of the transaction amount.
- SEBI turnover charges: The Securities and Exchange Board of India (SEBI) is the apex regulator of the securities market and charges a fee of 0.0002% of the total transaction amount from both sides involved in the trade.
- Depository Participant charges: The two depositories in India, the NSDL (National Securities Depository Limited) and the CDSL (Central Depository Services Limited) charge a fixed amount for keeping an investor’s securities safely in a digital form. The depositories charge the depository participants (DPs) or the stock brokers, who charge the investors.
- Capital gains: An investor has to pay taxes on the profit he earns from the sale of shares based on their holding period. If he holds the shares for less than a year before selling them, he has to pay Short-Term Capital Gains tax. For a holding period of more than a year, he has to pay Long-Term Capital Gains tax.
- Demat account opening and annual maintenance charges: Stockbrokers charge an account opening fee and annual maintenance charges on an investor’s demat account. Leading stockbrokers in the country waive the account opening and annual maintenance charges for account holders, helping lower the cost of investing.
Before foraying into the world of stock trading, one must be fully aware of the charges and taxes he has to pay on his buy and sell transactions. It gives a clear picture of the actual expense of trading, helping make realistic calculations on one’s profit and loss.
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