Investing in stocks is all about making money. You think of only one thing when you invest in stocks. How fast will your money grow?An investment in stocks can also be very risky. Just as you can get very high returns from investing in stocks, you can also lose a lot of money. Investing in stocks is high returns, but at high risk.
Does this mean an investment in stocks is very risky? Should you follow the advice of friends and family and stay far away from stocks? Warren Buffett the great investor has an answer, “Risk comes from not knowing what you’re doing.” Always study the Company whose stocks you plan to buy. Do your research.
Stocks can be very volatile in the short term. So you must always invest in stocks for the long term. Pick very good stocks at low prices and stay invested, for at least 3 to 5 years. The trick to make money in stocks? Buy the right stocks at the right time and stay invested for the long term. The profits you make on selling stocks may be taxed. You also need to study how the profits you make from selling stocks is taxed.
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If you purchase stocks and sell them within a year, any profits you make are called short term capital gains. Your short term capital gains are taxed at a flat rate of 15%. (Profits on sale of stocks held for less than a year are called short term capital gains and are taxed at a flat rate of 15%).
If you sell stocks listed on an exchange after holding them for a year or more, your profits are called long term capital gains. Long term capital gains are tax free.
The Prime Minister Narendra Modi in his speech, hinted of a need to increase the contribution of tax, from those who make money from the stock markets. The true measure of success of the stock markets is in its impact in villages and not on Dalal Street.
The Prime Minister is going to look at investors, who make a lot of money from stocks. There is a high chance of an increase in the tax rate, on returns made by stock market investors.
Currently, your short term capital gains are taxed at a flat rate of 15%.
Your short term capital gains may be taxed at a flat rate of 20% after Union Budget 2017.
What about long term capital gains? If you stay invested in stocks for more than a year, the gains/profits you make are called long term capital gains and are completely tax free.
There are rumors that the Government could tax long term capital gains on stocks, after Union Budget 2017. This looks highly unlikely. The Government would most probably increase the time of holding, to give you the long term capital gains tax benefit.
You would have to stay invested in stocks for 3 years or more, to get the tax benefit on long term capital gains. Only if you stay invested in stocks for 3 years or more, are your long term capital gains, tax free.
Let’s say you invest INR 1 Crore in stocks. You hold these stocks for a year and sell them for INR 1.2 Crores. You get a return of 20%. These gains/profits are long term capital gains and are tax free. Your profit of INR 20 Lakhs is absolutely tax free. Now, your friend works for an IT firm and earns INR 20 Lakhs a year. He has to pay close to INR 5 Lakhs in income taxes.
The Government has noticed this and feels it unfair. The Government may say…Let an investor stay invested for 3 years or more in stocks and only then will the profits he gets on selling stocks, be tax free.
The Prime Minister Narendra Modi, believes that those who make money from stocks, should make a fair contribution towards Nation building. These citizens need to pay more taxes. These taxes would be increased in a fair, efficient and transparent way. Be Wise, Get Rich.
Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.