This is a general explanation, not tax advice. Rules change, so confirm the current position on the Income Tax Department's website (incometax.gov.in) or with a chartered accountant (CA).
Capital gains
If you buy a share for ₹100 and sell it for ₹130, the ₹30 profit is a capital gain. If you sell for ₹80, it is a capital loss. Gains are taxed in the financial year (April to March) in which you sell, not when you buy.
Short term and long term
How long you held the investment matters. For listed shares and equity mutual funds, holding for more than 12 months counts as long term, and 12 months or less as short term. For some other assets, such as unlisted shares or many debt funds, the periods and treatment are different. Long-term gains from listed equity have generally been taxed at a lower rate than short-term gains, and a limited amount of long-term gains per year has been exempt. The exact percentages and limits have been changed by recent Budgets, so check the latest figures instead of relying on memory.
Other kinds of income
- Dividends: added to your income and taxed at your slab rate. Companies and funds may deduct tax at source (TDS) before paying.
- Interest on bank deposits and bonds: also taxed at your slab rate, and banks may deduct TDS.
- Trading in futures and options: treated as business income, with different rules and a need to file the correct form.
Records and filing
Your broker and fund house send statements of profit and loss. You report capital gains when you file your income tax return. Keep your contract notes and statements. Losses can sometimes be set off against gains and carried forward, but only if you file on time.
If you are under 18
Income from investments in a minor's name is usually clubbed with the parent's income in tax rules. Ask a parent or CA how it applies.
Taxes are one more cost to understand. They are not a reason to buy or avoid anything.