This financial year has been a rollercoaster, both for long-term and short-term gains. My long-term investments in PFC and REC paid off handsomely, prompting me to book profits rather than wait another year. My swing trades also did well—Urja Global, Suzlon, NMDC, NHPC, and NALCO all contributed to my gains. Much to the dismay of my fund manager, I decided to redeem my SIP units to reinvest in MOIL in February. Though some investments were in the red, I was happy to offload a few underperformers (panautis) from my portfolio. So, there I was, with both long-term capital gains – LTCG and short-term capital gains – STCG on shares and mutual funds.
Interestingly, Short Term Capital Gains Tax on Shares and Mutual Funds is 15%
While I enjoyed my profits from swing trading, it was time to pay taxes in FY2023-24, and that too at a flat rate of 15%, irrespective of my tax slab. Whether it’s dividends or profits from shares and mutual funds, it’s all added to your income and is taxable. Oops!
Now, I don’t mind paying taxes on my earnings, but paying 15% STCG on shares stings a bit—come on, that’s my reward from swing trading! Imagine the risk I took, the tricks I employed to buy at the right day and time, even when my own bank account showed me the door. Not to mention the endless hours spent watching technical indicators—the moving averages, the RSI baffling my gray cells, and the regrets of missing stocks that went from meh to insane.
Also Read: Decoded Strategy: How to Select Stocks for Swing trading?
Why 15% STCG on Shares and Mutual Funds is Painful & Unfair?
Firstly, short-term gains come with higher risks. Unlike long-term investments, where the stakes are spread over a longer period, short-term trading is all about timing the market. It’s a game of strategy, timing, and sometimes a mixture of everything. The 15% tax on these gains feels like a hefty toll on the efforts and risks we undertake. The volatility of stocks and the relentless pursuit of minute-to-minute market movements bring immense thrill and stress, and at the end of the day, we’re taxed 15% on the gains, regardless of the amount.
Secondly, the lack of a tax-free limit on STCG for shares and mutual funds contrasts sharply with the benefits provided for LTCG. The exemption up to ₹1 lakh on LTCG encourages long-term investors to hold onto their investments longer. However, short-term traders don’t get such benefits, which seems quite unfair. It’s a disincentive for those actively engaged in the markets, trying to maximize their returns through frequent trading.
Moreover, the 15% tax rate on STCG seems arbitrary and steep, considering the nature of short-term investments. The expenses involved, the potential losses, and the sheer amount of time and effort spent analyzing the markets should ideally be factored in. In essence, the government’s share from our gains does not account for the risk-adjusted returns we seek to achieve. It’s like penalizing us for being agile and responsive to market movements.
On the Contrary,
Incentivizing or Reducing STCG on Shares and Mutual Funds to 10% or 5% Looks Like Fair Play
Imagine if the STCG tax rate was reduced to 10% or even 5%. This would be a game-changer. Lower taxes would not only encourage more people to engage in trading but also potentially increase market activity. More trading means more volume, which could lead to higher overall tax revenue despite the lower rate. It’s a win-win. Businesses would benefit too, as more capital would be available for funding through the stock market, boosting economic growth.
Now, let’s talk about the emotional and psychological toll. Being a short-term trader is not for the faint-hearted. The constant monitoring, the stress of making those quick decisions, the fear of market fluctuations—these are taxing enough. And on top of all that, a 15% tax on our gains feels like an extra punch in the gut. It’s not just about the money; it’s about the mental and emotional strain that comes with this profession. A lower tax rate would ease some of this burden, making the trading environment a bit more forgiving.
The absence of any tax breaks or exemptions for short-term capital gains doesn’t just seem unfair—it stifles innovation and trading activities. High taxes scare off new investors and traders, especially middle-class salaried people, who might be interested in joining the market but are intimidated by the hefty tax rate. By lowering the STCG tax, we could encourage more people to dive into trading, bringing fresh perspectives and new strategies into play.
While taxation is essential for nation-building and contributing to public finances, the current 15% STCG tax on shares and mutual funds is a heavy burden on short-term traders. It doesn’t consider the risks involved, the effort required, or the psychological toll that active trading entails. A more balanced approach, perhaps with some exemptions or a lower rate, could foster a more encouraging environment for traders and enhance the overall health of the market. Until then, the 15% STCG tax remains a painful reality that we, the short-term traders, have to tolerate.
How Can We Make It Fair?
So, what’s the solution? For starters, introducing a progressive tax system for STCG could be a good move. Lower tax rates for smaller gains and a gradual increase for higher gains would be more equitable. This way, small traders wouldn’t feel the pinch as much, and those making larger profits would contribute more fairly.
Another idea is to provide a tax exemption up to a certain limit, similar to LTCG. This would encourage more people to try their hand at trading without the fear of losing a significant chunk of their profits to taxes. It would also reward traders who might not have substantial capital but are skilled at navigating the market.
Finally, the government could consider offering deductions for the costs associated with trading, such as brokerage fees, research tools, and even the cost of internet and software subscriptions. These expenses are a necessary part of trading and recognizing them would make the tax system more sympathetic to the realities of trading.
Final Thoughts
Trading is a challenging endeavor that requires dedication, skill, and a willingness to take risks. The current 15% STCG tax rate feels like a punishment rather than a fair share of our hard-earned gains. By rethinking this tax policy, the government can support the vibrant trading community, encourage more people to participate in the stock market, and ultimately create a more dynamic and robust economy.
Until then, we traders will keep navigating the highs and lows, hoping for a fairer tax regime that acknowledges our efforts and contributions. Here’s to better days and hopefully, better tax policies!
Disclaimer: We do not recommend or endorse any specific shares or investment strategies. Investing in the stock market is subject to market risk, and short-term investments are particularly vulnerable to market volatility. It is crucial for investors to conduct their own research and consult with a financial advisor before making any investment decisions.
