Online traders are often advised to do thorough research and understand hidden costs before trading. You do not want to waste money on unnecessary expenses. Unlike some visibly upfront costs, many stockbrokers have invisible costs like volatility, basis risks, liquidity, etc. Therefore, it is essential to carefully read the terms and conditions before beginning your online trading journey.
This article will discuss the different types of charges you may face while doing online stock trading in India.
Different types of charges in online trading
- Brokerage Charges
- Securities Transaction Tax (STT)
- Goods and service tax
- Stamp Duty
- Transaction charges
- Depository Participant charges
- SEBI turnover charges
- Capital gain tax
💸 The following are some common charges in online trading in India:
1. Brokerage Charges
These are the commissions or fees, either flat rate or a percentage, that brokers charge to trade on an investor’s behalf. Transactions may include purchases, sales, consulting or delivery. Due to rising competition, several online apps offer zero commission when investors sign up for online trading.
2. Securities Transaction Tax (STT)
It is a direct tax on selling or purchasing securities listed on an Indian stock exchange. These vary with the security type. For instance, if you do intraday and derivative trading, you are subject to an STT only on sale. STT is 0.01% on sale for equity futures, and for equity options, STT is 0.05% on sale. However, for equity share (delivery based), a charge of 0.1% on share value applies for both purchase and sale.
3. Goods and Service Tax
The government imposes a mandatory tax of 18% on brokerage and transaction fees on the services rendered.
4. Stamp Duty
In India, a tax is levied on trading in stocks, currency derivatives, and commodities. From 1st July 2020, there will be a uniform stamp duty charge across the country for both physical and Demat shares. For the issue of share certificates, the fee is 0.005%, and for the transfer of shares, it is 0.015 %.
5. Transaction charges
These are the turnover charges levied by the NSE or BSE on the transaction value. NSE charges 0.00325%, while BSE charges 0.00275% of the total amount.
6. Depository Participant Charges
These are the fixed fees for keeping your shares in electronic form. NSDL and CDSl charge these to your Demat Account provider or brokerage firm, who in turn charge you.
7. SEBI Turnover Charges
Whether intraday or delivery trading, purchase or sale, the Securities and Exchange Board of India (SEBI) charges a turnover fee of 0.0002% of the total transaction value.
8. Capital Gain Tax
If the holding period does not exceed one year, tax on short-term capital gains is levied at 15%, excluding cess and surcharge. Stocks sold after a year are subject to a long-term capital gain tax of 10% on gains exceeding Rs. 1 lakh. Tax is exempt on long-term capital gains up to Rs. 1 lakh.
Successful investors understand their financial goals and risk appetites before choosing stocks with patience and discipline. It is, therefore, advisable for beginners to start with safe stocks. To start online trading, you also must be familiar with basic terms, different charges, stock trading lessons and how to read the market fluctuations. For queries or doubts, you can always consult an expert.
Happy Trading 📈