Actual cost of buying/selling a share

Posted by Namita Gad on 06 Feb, 2018

Actual cost of buying/selling a share

Will equity shares & mutual funds markets still be attractive to the investors after a pinching proposal to levy LTCG tax at 10% on the gains exceeding Rs.1Lac? Well, we will know this only with time, but securities markets were and will always be Government’s one of the preferred segments to impose various charges and taxes. Over the past many years, government and institutions have smartly been levying various taxes and charges under different nomenclatures on securities trades. If introduction of LTCG tax worries you, then knowing the actual cost of your trades might worry you even more.

There are several charges on equity trades, which you would be paying unknowingly to your broker either directly or as a custodian every time you buy or sell the share. Understanding these charges might help you to bring it down.

Brokerage: It is charged by your broker for offering their platform to trade. Some brokers charge a flat fee per trade and some charge a percentage of your trade value. Such brokerage charges differ for intra-day and delivery trades. If your trading volume and frequency are high then you might be offered a discounted fee structure. You can always negotiate with your broker for the best rates.

Securities Transaction Tax (STT): It is the second biggest charge after brokerage. STT is levied at 0.1% on both, buy and sale for delivery trades and on sale at 0.025% for intra-day. No STT is levied on intra-day purchases. Such charge is on the transaction turnover. STT was originally introduced in 2004 by the then Finance Minister, Mr. P. Chidambaram, to stop tax avoidance of capital gains tax. Surprisingly in few months, we will be having both – STT and LTCG tax.

Exchange Transaction Charges: Stock Exchanges in India are privately owned businesses and thus aim to make profits themselves. Significant share of their revenue comes from Exchange Transaction Charges. NSE, BSE and MCX charge it on every trade in cash, futures and options. Your broker collects it from you and deposits it with the respective exchanges.

Goods & Service Tax (GST): Brokers’ services to traders and investors were under the service tax net at 15% earlier; and w.e.f 1st July 2017, it is covered under GST. The broker charges 18% GST on a sum of brokerage and exchange transaction charges, collects it from you and deposits it with the respective state and central government.

Stamp Duty: This levy is by the state government and rate differs from state to state. Stamp duty is also charged on both sides of trading (buying & selling) on the total amount of turnover. Stamp duty in Maharashtra is 0.002% for intra-day, F&O, currencies and 0.01% for delivery.

SEBI Turnover Charges: Brokers, Stock Exchanges, State & Central Governments are earning revenue from the trades then why should SEBI, the security market regulator, not earn anything out of your trades? SEBI also charges 0.0002% of the turnover value for both, intra-day and delivery trades.

Depository Participant (DP) Charges: Finally, it comes to two stock depositories in India - NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Shares must be kept in an electronic form with the depository. For this service, depositories charge fixed amount per debit and credit trade. As this is an electronic debit or credit to your DMAT account, it is charged only for delivery and not for intra-day trades.

Capital Gains Tax: For traders, profits from share market transactions are treated differently as income from business. But investors declare the realized gains from trades under capital gains. If such capital gains are made from the sale of securities within 12 months of purchase, then it is offered as short term capital gains at 15%; and on enactment of proposed provision over LTCG tax, long-term gains over Rs.1Lac would be taxed at 10% from FY2018-19.

There are some other charges too, such as account opening charges, inactivity fees, charge on non-maintenance of minimum balance, interest on margin loans etc. Each trade you make rewards your broker, depository, state government, central government, SEBI and the stock exchange.