Investors should invest in shares of NTPC Limited, one of India's largest power generation companies, as a top avenue for investment in possession of stock of leading public giants for many investors looking for exposure in the energy sector. But before you start integrating NTPC by understanding every single aspect of the company and tracking every detail on the NTPC share price, you need to keep an eye on taxes raised on money put in NTPC shares.
Investors must first open a demat and separate trading account before buying NTPC shares or any other listed securities. A demat account, on the other hand, electronically holds shares, while a trading account is used to buy or sell them on stock exchanges. Many brokerage firms and financial institutions offer these integrated demat and trading services. Once this account becomes active, the investor can now track the NTPC share price and buy or sell as and when they order.
Buying Shares of NTPC and Holding Period
Short-Term Capital Gains (STCG): Investors incur gains from the sale of shares within 12 months after purchasing them.
Long-Term Capital Gains (LTCG): Investors realize gains when they sell shares after holding them for over 12 months.
Taxation of Dividend Income
Companies once exempted dividends from the declarations of shareholders, as they were liable to pay Dividend Distribution Tax (DDT). However, with effect from Financial Year 2020-21, companies like NTPC or other listed public companies now tax dividends in the hands of investors. The dividend shall be added to the total income of the investor and taxed according to the respective income tax slab.
The huge stock of dividend income may tax individuals in the higher income tax brackets. One important point to note is that the company will deduct tax at source (TDS) at 10% if the aggregate dividend income from all companies exceeds ₹5,000 during a financial year.
Set Off and Carry Forward of Losses
Investors can set off capital losses on account of the sale of shares of NTPC against taxable gains.
Investors can set off short-term capital losses against short-term capital gains and long-term capital gains.
Investors can set off long-term capital losses only against long-term gains.
If these losses cannot be fully adjusted in a particular financial year, then investors may carry them forward for eight assessment years. It is necessary for investors to file their income tax returns on or before the due date to avail themselves of the carryforward of these losses.
Filing Requirement
Taxpayers who incur capital gains or losses from buying and selling shares of NTPC must report them in the Income Tax Return. The Income Tax Department specifies the ITR forms for taxpayers having capital gains.
ITR-2 applies to individuals who receive salary and capital gain income only.
Those who regularly trade or earn business income would need to use ITR-3.
Investors must also report NTPC dividend income under Income from Other Sources.
Impact of Market Movements and NTPC Share Price
Since the NTPC share price changes with the market conditions, any regulatory change in the company, as well as its performance, will lead to timing in making decisions regarding buying and selling. All comes under capital gain or loss. Investors should also understand the price trend from an investment and tax planning perspective.
For example, investors can sell NTPC shares during a dip in the market to create a capital loss that can offset gains later. Likewise, investors can hold shares for over a year to exit once the NTPC share price is in favor of the taxpayer and minimize the tax liability.
Conclusion
Investing in shares at NTPC entails the possibility of capital gains and dividend income. Understanding the subject of taxation on such investments, however, is vital. From the time you open a demat account to when you dispose of shares or receive dividends, the rules governing taxation will apply at different stages.
