Home Learn Breakdown of smallcase Taxation: What are the Tax Charges Incurred when Investing in smallcases?

Breakdown of smallcase Taxation: What are the Tax Charges Incurred when Investing in smallcases?

Breakdown of smallcase Taxation: What are the Tax Charges Incurred when Investing in smallcases?
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For calculating your smallcase taxation, the guidelines are the same as those for individual stock holdings.

  • Short Term Capital Gains (STCG): Stocks sold less than 12 months of holding period would be taxed at 15% of the gains. Not applicable on losses.
  • Long Term Capital Gains (LTCG): Stocks sold after more than 12 months of holding period with a gain of over Rs.1,00,000 would be taxed at 10% of the gains from Apr 1, 2018.

*  The dividend will be taxed only in the hands of the recipients at their applicable rate.

Understanding smallcase taxation

As we know, smallcase is a readymade portfolio of equities/stocks. So the same rules apply when you invest in smallcases. The tax on your smallcase depends on the time period between the date of acquiring ownership (buy) to the date of transfer of ownership (sell). 

When you buy equity or stock, you gain ownership of the stock. You become a stakeholder in the stock’s company. Whenever you decide to sell the stock, you transfer the ownership. In such a scenario, you either make a profit or suffer losses. If you’ve earned a profit, the tax applies to the profit alone.

If you held the stocks for less than 12 months in the stock market, the tax authorities would classify it as a short-term capital gain. Any period longer than a year falls under long-term capital gains

Getting to dividend tax, if any retail investor receives a dividend exceeding ₹5,000 in a fiscal year, the entire dividend will be subject to TDS (Tax Deducted at Source) @10%. We credit the remaining dividend to you, considering it in your total income. Therefore, it is taxable under the Income Tax slabs.

The rebalance taxation guidelines on smallcases are similar to that of individual stock holdings, i.e categorised under Short Term Capital Gains (STCG) & Long Term Capital Gains (LTCG)  depending on the period you have owned the individual stocks.

smallcase Taxation Example

Let’s understand the tax implication on smallcase with the help of an example:

  •  Ms. Reena earns ₹13 lac as a salary. She has been investing in smallcases. 
  •  In the fiscal year of 2020-2021, she also earned ₹1 lakh as dividends from the smallcases she invested in. After deducting the TDS@10%, it is ₹10,000.
  • She completely exited from a smallcase that she had invested in 2 years ago. The capital gains were ₹1,50,000. The total tax on the exited smallcase amounts to ₹5,000.
  • She invested in another smallcase at the beginning of the year & rebalanced it once every quarter through the year. She made a total profit of ₹50,000 from the rebalances and the tax on rebalance on that smallcase comes out as ₹7,500.

As per the old regime, this is how the tax on your smallcase would be calculated:

As per the new regime, this is how the tax on your smallcase would be calculated:

Sneak Peek into Taxation Terminologies

Here’s a guide to understand the terminologies associated with smallcase taxation:

  • Capital asset  – any form of asset that can be acquired or sold (transfer of ownership). Land, building, vehicles, jewellery, etc. are some examples.
  • Cost of acquisition – the value for which the capital asset was acquired by the seller.
  • Capital gain – any profit made from the sale of a capital asset.
  • Types short-term capital gain (STCG) and long-term capital gain (LTCG)
  • Securities Transaction Tax (STT) – STT is the tax you pay only if you buy or sell stocks listed on a stock exchange.
  • Dividend tax – taxes charged on the extra income (dividend) gained by investing in the high dividend yield stocks of companies.

Have more questions? Reach out to us at help@smallcase.com and we’d be happy to clarify all your concerns.


1. Does smallcase come under 80C?

No, smallcase does not come under Section 80C of the Income Tax Act, 1961. Section 80C allows a deduction of up to ₹1.5 lakh on investments made in certain specified instruments, such as ELSS, PPF, and LIC policies. Smallcase consists of a ready-made portfolio of stocks, and the gains you earn from it incur capital gains tax.

2. How is smallcase taxed?

Short-term capital gains (STCG) are taxed at 15% if the shares are sold within 12 months of purchase. Long-term capital gains (LTCG) are taxed at 10% if the shares are sold after 12 months of purchase, with a deduction of Rs. 1 lakh.

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