Home >Money >Personal Finance >When should you pay income tax on profits made in stocks?
I am a student and have started investing in listed shares out of my pocket money from last year.
I am a student and have started investing in listed shares out of my pocket money from last year.

When should you pay income tax on profits made in stocks?

Filing of ITR for profits on the investments not yet realised

I am a student and have started investing in listed shares out of my pocket money from last year. I have not yet sold any of my investments yet. As of now market value of my investments in shares has gone up substantially compared to my cost. Do I need to pay any income tax on such book profits and file my income tax return?

-Anuradha Kohli

By Balwant Jain, tax and investment expert

Profits on investments in shares, are treated as capital assets under the income tax laws and profits on such investment are taxed under the head “Capital Gains". The liability to pay tax on such investments arises only, when the investments are sold. So there is no tax liability as long as you do not sell the investment and realise the profits.

Moreover, the liability to file your ITR generally arises only when the taxable income from all sources including profits on investments before various deductions and exemptions exceeds the threshold of basic exemption.

One is generally required to pay tax only if the total income from all the sources, after various deductions, exceeds the basic exemption limit which is 2.50 lakh. In case of profits made on listed shares which are sold on stock exchanges after one year, each tax payer is entitled for an additional basic exemption of one lakh in addition to the basic exemption applicable. Based on the discussion it must become clear to you that you need not worry about, either filing the ITR or paying taxes, as long as you do not sell your investments in shares.

(Views expressed by the expert are his own.)

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