What Do I.Get Taxed When I Sell My Stock Shares Share Trading In India For Beginners – Basic Requirements To Get Started

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Share Trading In India For Beginners – Basic Requirements To Get Started

There are several basic requirements that must be met before a person can begin the process of buying, holding and selling stocks. This document is a basic guide to explain these requirements. Please note that this document does not make any recommendations about which stocks to buy or which investment strategy is right for an individual. This is a getting started guide for individuals based on my own experience.

3 basic things you need to get started:

* Dmat account

* Trading account

* Bank account

Dmat account

A Dmat account is similar to a bank account, except that instead of cash, a Dmat account holds stocks. So, when shares are bought, they are credited to the buyers Dmat account, and when shares are sold, they are deducted from the Dmat account accordingly. Shares deposited into or withdrawn from a Dmat account are e-shares. For an individual who wants to trade in shares, it is mandatory to trade in Dmat (dematerialized) shares only. Physical shares cannot be traded. Dmat shares have many advantages in terms of ease of handling etc.

A Dmat account can be opened at most banks and financial institutions after filling the necessary forms and providing proof of identity and address. Common charges associated with a Dmat account:

1. Account opening fee

2. Annual Dmat account maintenance fee

3. Periodic recurring charges for holding shares in a Dmat account

4. Fees for other services based on completed transactions. There are usually no transaction / service fees when buying shares. Fees will be charged when shares are sold.

The above fees may not be the same across service providers, but a significant portion of them are likely to be the same as regulatory bodies such as the Securities and Exchange Board of India (SEBI) set certain norms.

Trading account

A trading account is required if an individual wants to trade, ie. buy and sell shares on the stock exchange. The two main stock exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). A merchant account can also be opened at most banks and financial institutions after completing the necessary forms and providing proof of identity and address. Actual trading can be done over the phone, over the Internet, or using a transaction form provided at the time of account opening. Personally, I have found buying and selling online quite convenient. There are options to specify the price at which to buy or sell, and it’s easy to track the status online.

There is a brokerage fee that is charged for both buying and selling shares. This fee varies from merchant to merchant. In addition, government charges such as Securities Transaction Tax (STT) are levied on such transactions.

bank account

Needless to say, a bank account is necessary for carrying out various financial transactions related to stock trading. Money from selling shares will be credited here or money for buying shares will be debited. A regular savings account is enough, and you don’t need to do anything extra with a bank account.

Trading process

Once the Dmat account, trading account and bank account are created, one is ready to start trading. Although it is not necessary to have a Dmat account, a trading account and a bank account with the same organization, I believe that having one with the same organization offers additional benefits, especially for individuals who trade online. The following example of buying and selling using an online trading account shows the convenience of having a Dmat account, a trading account and a bank account in one entity.

Buying Shares: When an individual wants to buy a share, he enters the trading account and provides details like company name, no. shares for purchase and purchase price. Depending on this information, the required amount from the bank account is set aside for this trade. When the desired price is reached, this trade is executed and the amount (after adjusting for expenses) is debited from the bank account and the shares are credited to the Dmat account.

If the bank account was with another organization, then in order to carry out this trade, it would be necessary to transfer the amount to the Trading Account.

Selling Shares: When an individual wants to sell a share, he enters the trading account and gives details like company name, no. shares for sale and the price at which to sell. Depending on this information, the required number of shares from the Dmat account is allocated for this trade. When the desired price is reached, this trade is executed and the shares are debited from the Dmat account and the amount (after adjusting for expenses) is credited to the bank account.

If the bank account was with another organization, then after this transaction it would be necessary to transfer the amount from the trading account to the bank account.

Please note that there will be additional government taxes such as STT and Service Tax in addition to the charges levied by the bank, Dmat service provider and merchant account. Also, please remember to read all terms and service provider fee details before opening any account and be aware of the transaction costs associated with each transaction. Happy trading!

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