TDS on Stock Market Transactions in India

For most retail investors, this is the single most confused topic in personal taxation. Words like STT, TDS, advance tax, and capital gains tax get used interchangeably — and then the same person ends up paying tax twice on the same income, or filing returns wrong, or panicking about a number on Form 26AS that they never needed to worry about.

I'm going to walk you through this the way I'd walk a classroom — in plain English, in the order it actually matters. By the end, you'll know exactly which taxes touch your trading account, which ones are TDS, and what you have to do about them.

STT, TDS, and Capital Gains Tax Are Not the Same Thing

Most of the confusion around taxes on stock market transactions comes from mixing up three very different things. Let me set them apart in one sentence each.

STT (Securities Transaction Tax) is a transaction charge collected by the exchange when you trade listed securities. The application is segment-specific: equity delivery has STT on both buy and sell; intraday equity, futures, and option trades are mainly sell-side; exercised options have their own treatment. Equity mutual funds attract STT on redemption of units. It is paid to the government via the exchange and you cannot claim it back. Think of it as a toll, not a tax.

TDS (Tax Deducted at Source) is an advance instalment of your income tax. Whoever is paying you — a company paying a dividend, a mutual fund paying IDCW, a bond issuer paying interest — withholds a slice and pays it directly to the government on your behalf. You can claim it back when you file your ITR if you actually owe less.

Capital gains tax is the final tax on your trading and investing profits. Short-term, long-term, equity, debt — different rates, but always paid by you, either as advance tax during the year or while filing your return.

TDS If You're a Resident Indian

This is the section that applies to the overwhelming majority of readers. And the headline news is genuinely good: most of your stock market activity has no TDS at all.

When you sell a share at a profit, no TDS is deducted. When you book an intraday gain, no TDS. When you make money on a Nifty option, no TDS. When you redeem a mutual fund unit, no TDS. Your broker pays you the full amount, and you handle the tax yourself.

So where does TDS apply to a resident? Just three places, and they all relate to income you receive, not gains you book.

Dividends from Stocks — Section 194

When a listed company pays you a dividend, the company itself acts as the TDS collector. From 1 April 2025, the threshold under Section 194 was raised from ₹5,000 to ₹10,000 per company per financial year.

So if Infosys pays you ₹8,000 of dividend in a year — no TDS. If TCS pays you ₹12,000 — TDS of ₹1,200 (10%) is deducted, and you receive ₹10,800. The ₹10,000 threshold is checked per company, not on your total dividends across the portfolio.

If you haven't given the company your PAN, the rate jumps to 20%. So make sure your PAN is updated with every Registrar & Transfer Agent (RTA) like KFintech or Link Intime — most of us update one and forget the other.

Dividends from Mutual Funds (IDCW) — Section 194K

Mutual funds also pay dividends — though SEBI now calls them IDCW (Income Distribution cum Capital Withdrawal). Section 194K applies the same logic as Section 194: 10% TDS once your IDCW from a fund crosses ₹10,000 in a financial year.

Important nuance: this is only on the dividend/IDCW option. If you're in the growth option of a mutual fund — which is what I'd recommend for most investors anyway — there's nothing to pay TDS on. When you eventually redeem, you pay capital gains tax through your ITR, not via TDS.

Interest on Bonds and Debentures — Section 193

If you've invested in corporate bonds, NCDs, government securities, or RBI bonds, the interest you earn may attract TDS under Section 193 — but the rules here are not a single clean threshold.

Some categories use a ₹5,000 threshold (interest on debentures of a public company paid by account-payee cheque to a resident individual). Some notified securities use a ₹10,000 threshold, which Budget 2025 expanded to cover more bond types. And certain government securities and listed demat-form debentures may be exempt from TDS entirely, depending on the specific instrument.

The practical rule: treat each bond or NCD separately, check the TDS note the issuer, broker, or RTA sends with your interest credit, and verify against your AIS. The standard rate when TDS does apply is 10% (20% without PAN). And remember — this is about interest income, not the gain you make when you sell a bond before maturity. The capital gain part follows the normal capital gains rules — no TDS for residents on the gain itself.

The pattern is clear: TDS for residents is on income you receive (dividends, interest), not on gains you book (capital gains, trading profits). The gains side is handled by you, on your own, when you file your return.

TDS If You're an NRI — A Different Game

If you read the Resident section above and felt taxes were manageable, brace yourself. For Non-Resident Indians, the picture widens significantly. Section 195 of the Income Tax Act says any payment to a non-resident that is chargeable to tax in India may need TDS deducted at source — because the government can't easily chase a non-resident for tax later. So instead of asking you to file and pay, they often collect upfront.

But "Section 195 can apply" is not the same as "TDS is always deducted on every rupee." For equity delivery capital gains and dividends, brokers and AMCs commonly deduct TDS at source. For intraday and F&O profits — treated as business income — deduction practice varies. Some brokers (Zerodha, for example) deduct 30% plus cess on taxable NRI business gains; others may not deduct at all and expect the NRI to pay the tax directly via advance tax and ITR. Always confirm what your specific broker deducts, and verify with a CA.

The Income Tax Department's TDS chart is the primary reference. ClearTax and similar sites are useful explainers but should not be the last word — always cross-check against official sources or your CA. Here is the practical map. The rates below are before surcharge and cess, which add a few extra percentage points at higher income levels.

DTAA and the Lower Deduction Certificate

Two important escape valves for NRIs.

First, DTAA — the Double Taxation Avoidance Agreement. India has tax treaties with most countries (US, UK, UAE, Singapore, Canada, Australia, and many more). If the treaty rate is lower than the rate above — and for dividends and interest, it often is — you can claim the treaty rate by submitting a Tax Residency Certificate (TRC), Form 10F, and a beneficial-ownership declaration to your broker or AMC.

Second, Form 13 — Lower or Nil Deduction Certificate. If you can show the assessing officer that your actual tax liability for the year will be much lower than the upfront TDS (e.g., because you're sitting on a loss elsewhere, or your gains are under the basic exemption), they can issue a certificate authorising your payer to deduct at a lower or nil rate. Apply early in the year — these certificates are not back-dated.

What Has Changed Recently — and What's Coming

The TDS landscape for stock market income has been moving faster than usual. Four shifts you should be aware of:

The Income Tax Act, 2025 — which came into force on 1 April 2026 — is the biggest structural rewrite since 1961. Rates haven't changed; what's changed is organisation. All TDS provisions are now consolidated under a single Section 393, with three tables (residents, non-residents, and "any person"). Section 194's old number lives on in the Table at Sl. No. 7.

One more thing for FY 2026-27: the buyback rules flip back. From 1 April 2026, buyback proceeds are once again treated as capital gains, not as deemed dividend. So if you're tendering shares in a buyback this year, you're back to the pre-2024 capital gains regime.

How to Handle TDS on Your Stock Market Income

Knowing the rates is one thing. Knowing what to do with them is the other half of the article. Five practical steps that handle 95% of situations.

1. Check Form 26AS and AIS Every Year

Form 26AS is the consolidated TDS statement against your PAN. AIS (Annual Information Statement) is a richer version that also shows financial transactions reported to the tax department — dividends paid, mutual fund redemptions, even some securities transactions. Both are available free on the Income Tax e-filing portal.

The job here is two-fold: confirm that every TDS deducted has actually been deposited against your PAN (sometimes companies mess this up), and confirm that the dividend amounts shown match what hit your bank account.

2. Claim TDS in Your ITR

When you file your return, the TDS already deducted is auto-populated against your final tax liability. If your tax owed is more than the TDS, you pay the balance. If it's less, you claim a refund. Either way, you must file — TDS does not magically settle the tax on its own.

For NRIs, this step is non-negotiable. Most of your TDS is at the highest applicable rate, and the only way to recover any over-deduction is to file an ITR. Skip it and you've effectively donated the excess to the government.

3. Use Form 15G / 15H If Your Income Is Below the Tax Threshold

If your total income for the year will stay below the basic exemption limit (₹3 lakh under the new regime for FY 2025-26), you can submit Form 15G — or Form 15H if you're a senior citizen — to the company or AMC. They will not deduct TDS on your dividend or interest. From 1 April 2026, both forms have been merged into a single Form 121 under the new Income Tax Act.

4. Keep PAN Linked to Aadhaar and Updated with Every RTA

If your PAN is not linked to Aadhaar, it's deemed inoperative — which means TDS gets deducted at the higher 20% rate instead of 10%, and refunds get delayed. The same is true if your PAN isn't on record with the company, mutual fund, or RTA paying you. Five minutes on the e-filing portal saves you a lot of paperwork later.

5. Pay Advance Tax on Trading Gains Yourself

Because residents have no TDS on capital gains, intraday, or F&O, the tax department expects you to pay quarterly through the advance tax route — 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March. Miss these, and you'll owe interest under Sections 234B and 234C. Most retail traders skip this step and discover it on filing day. Don't.

TDS Quick Checker

Pick your situation below and the tool will show whether TDS likely applies, the approximate rate, who deducts it, and what to check in your AIS. This is an educational estimate — verify with a CA before you file.