📈 Technical Analysis
Technical analysis evaluates securities using price charts, volume data, and statistical indicators — without looking at company fundamentals. Used by traders to time entries/exits and by investors to improve buy/sell prices.
Technical analysis (TA) is the study of past market data — primarily price and volume — to forecast future price movements. Unlike fundamental analysis, it ignores balance sheets and P&L statements entirely, focusing only on what the market is telling you through price action.
The Three Core Assumptions
- The market discounts everything: All known information (earnings, news, rumours, insider knowledge) is already reflected in the current price. You don't need to read the annual report — it's in the chart.
- Prices move in trends: Once established, a trend (up, down, or sideways) is more likely to continue than to reverse. This is why TA is about identifying trends early, riding them, and exiting when they end.
- History repeats itself: Market psychology is consistent — greed and fear cause the same price patterns to appear again and again. Learning to recognise these patterns gives you an edge.
Where TA Works Best
- Liquid markets with high trading volume (Nifty 50 stocks, major indices)
- Short-to-medium timeframes (intraday to swing trading)
- Markets dominated by institutional and active participants
The candlestick chart — invented in 18th century Japan by rice trader Munehisa Homma — is the most widely used chart type in the world. Each candle tells the story of a period's price action in four numbers: Open, High, Low, Close (OHLC).
Anatomy of a Candlestick
- Body: The thick part. Green/white body = close above open (bullish). Red/black body = close below open (bearish).
- Upper Wick (Shadow): Line above the body. Shows how high price reached before sellers pushed it back down.
- Lower Wick: Line below the body. Shows how low price fell before buyers stepped in.
Key Single-Candle Patterns
| Pattern | Shape | Signal |
|---|---|---|
| Doji | Tiny body, long wicks both sides | Indecision — trend may reverse |
| Hammer | Small body at top, long lower wick | Bullish reversal at bottom of downtrend |
| Shooting Star | Small body at bottom, long upper wick | Bearish reversal at top of uptrend |
| Marubozu | Full body, no wicks | Strong bull/bear momentum; no indecision |
| Spinning Top | Small body, equal wicks | Indecision; watch next candle |
Chart patterns are recurring price formations that reflect the psychology of market participants — greed, fear, and indecision. They broadly fall into two categories: continuation patterns (trend will continue) and reversal patterns (trend will reverse).
Major Reversal Patterns
- Head & Shoulders: Three peaks — left shoulder, higher head, right shoulder. Neckline is the key level. A break below the neckline after the right shoulder signals a bearish trend reversal. One of the most reliable patterns in TA.
- Inverse Head & Shoulders: Opposite — three troughs. Break above neckline is bullish reversal signal.
- Double Top: Price hits the same resistance level twice and fails both times. Entry signal: break below the valley between the two tops. Think of the letter 'M'.
- Double Bottom: Price bounces from the same support twice. Bullish signal on break above the peak. Think of the letter 'W'.
Continuation Patterns
- Bull Flag: Sharp rise (the 'pole'), then a narrow downward channel (the 'flag'). Breakout from the flag continues the original uptrend. Very reliable pattern.
- Triangle (Ascending/Descending/Symmetrical): Price compresses into narrower range. Ascending triangle breaks up (bullish), descending breaks down (bearish), symmetrical can break either way.
- Cup and Handle: Long rounded base (cup) followed by a smaller consolidation (handle). Breakout above handle is bullish. Famously described by William O'Neil (CANSLIM).
Support and resistance are the two most important concepts in technical analysis. Everything else — patterns, indicators, candles — is built on these foundations.
Support
A price level where demand is strong enough to stop the price from falling further. Think of it as a floor. When price approaches support, more buyers enter than sellers, so price bounces.
Why does support work? Traders who missed buying the previous bounce place buy orders near the old low. Traders who are down set their sell targets at breakeven (the old low) creating buying pressure. Psychological round numbers (₹500, ₹1,000, ₹10,000 on Nifty) act as natural support.
Resistance
A price level where selling pressure exceeds buying pressure, stopping price from rising. Think of it as a ceiling. Traders who bought near the top (now at breakeven) sell to exit. Shorts who've been waiting enter here.
The Role Reversal Principle
This is one of TA's most powerful ideas: once a support level breaks, it often becomes resistance, and vice versa. Old ₹400 support on a stock, after breaking down, becomes resistance — sellers who bought at ₹400 try to sell at breakeven on any rally back.
A moving average (MA) calculates the average price over a specific number of periods, smoothing short-term volatility to reveal the underlying trend direction. It's a lagging indicator — it follows price, not predicts it.
Types of Moving Averages
- SMA (Simple Moving Average): Equal weight to all periods. 200-day SMA is the most widely watched long-term trend indicator.
- EMA (Exponential Moving Average): More weight to recent prices — responds faster to price changes. 12-day and 26-day EMAs are used in MACD calculation.
Key MA Signals
- Golden Cross: 50-day MA crosses ABOVE 200-day MA → strong bullish signal. Markets often rally 15–25% after golden crosses.
- Death Cross: 50-day MA crosses BELOW 200-day MA → bearish signal. Market may see significant decline ahead.
- Price vs 200-day MA: If Nifty is above its 200-day SMA, it's in a broad uptrend. Below = caution. Institutions use this as a simple go/no-go signal for deployment.
RSI — Relative Strength Index
RSI measures the speed and magnitude of price changes, ranging from 0 to 100. Developed by J. Welles Wilder. Answers: is this stock overbought or oversold relative to its recent history?
| RSI Level | Interpretation | Action |
|---|---|---|
| > 70 | Overbought | Consider selling or tightening stop-loss |
| 50–70 | Bullish range | Trend is up; favour longs |
| 30–50 | Bearish range | Trend is down; favour shorts or wait |
| < 30 | Oversold | Consider buying or building position |
MACD — Moving Average Convergence/Divergence
MACD shows the relationship between two EMAs (12-day and 26-day). Consists of three elements: the MACD line, Signal line (9-day EMA of MACD), and Histogram (difference between MACD and Signal).
- Bullish crossover: MACD line crosses above Signal line → buy signal
- Bearish crossover: MACD line crosses below Signal line → sell signal
- Divergence: Price makes new high but MACD makes lower high → bearish divergence (powerful reversal warning). Opposite for bullish.
Volume is the number of shares traded in a given period. It's often called the "fuel" behind price moves — a move on high volume is more reliable and significant than the same move on low volume.
Core Volume Rules
- Volume confirms breakouts: A stock breaking above resistance on 3x+ average volume is a high-conviction breakout. On average or below-average volume, treat it with suspicion — likely a false breakout.
- Volume confirms trends: In an uptrend, up-days should have higher volume than down-days. If you see selling days with higher volume, the uptrend is weakening.
- Volume divergence: Price makes new high, volume makes new low → distribution is happening (institutions quietly selling to retail buyers). Bearish warning.
- Climax volume: Extremely high volume at the end of a long trend (either up or down) often marks exhaustion and reversal.
No single indicator should drive a trading decision. The strongest setups occur when multiple technical factors align — this is called confluence.
A Simple 5-Step Entry Framework
- Step 1 — Market Direction: Is the Nifty above its 200-day SMA? If yes, focus on long trades. If no, avoid new longs.
- Step 2 — Stock in Uptrend: Is the stock above its 50-day and 200-day SMAs? Look for stocks making higher highs and higher lows.
- Step 3 — Pattern: Is there a recognisable consolidation (bull flag, cup-and-handle, base breakout)? Wait for the pattern to complete.
- Step 4 — Entry Trigger: Buy on breakout above the pattern's key level on above-average volume. Use a limit order 0.5% above the breakout level.
- Step 5 — Stop Loss: Place stop 1–2% below the breakout level (or below the pattern's low). Risk only 1–2% of portfolio on any single trade.
The Importance of Journaling
Keep a trading journal recording entry reason, setup type, volume, stop level, and exit. Review monthly. Most successful traders attribute 30–40% of their edge to post-trade analysis rather than pre-trade setups.
🔍 Fundamental Analysis
Fundamental analysis determines the intrinsic value of a company by examining its financial statements, business model, competitive positioning, and growth prospects — then comparing that value to the current market price.
Fundamental analysis (FA) is the method of evaluating a security's intrinsic value — what it's actually worth — by analysing the company's financials, industry position, management quality, and macroeconomic factors. If the intrinsic value exceeds the current market price, the stock may be undervalued — a potential buying opportunity.
Top-Down vs Bottom-Up Approach
- Top-Down: Start from macro (economy → sector → company). E.g., "Indian economy growing → IT sector will benefit → which IT company is best placed?"
- Bottom-Up: Start from the company itself, regardless of macro. E.g., "Asian Paints has exceptional ROE and moat — buy regardless of macro."
The P&L statement (also called Income Statement) shows whether a company is making money. It covers a specific period (quarterly or annually). Read it from top to bottom — the 'waterfall' of revenue flowing down to profit.
| Line Item | What it Means | Good Sign |
|---|---|---|
| Revenue (Top Line) | Total sales of goods/services | Growing 15%+ YoY |
| Gross Profit | Revenue − Cost of Goods Sold | High & stable gross margin |
| EBITDA | Operating earnings before non-cash items | EBITDA margin expanding |
| EBIT / Operating Profit | After depreciation & amortisation | Stable or rising |
| PBT (Profit Before Tax) | After interest expense | Interest coverage > 3x |
| PAT (Net Profit) | The 'bottom line'; basis for EPS | Growing faster than revenue |
Key Metrics to Compute
- Revenue Growth: Compare YoY. Consistent 15–20% growth over 5+ years is exceptional.
- EBITDA Margin = EBITDA / Revenue: Reflects operating efficiency. Improving margins over time = pricing power.
- Net Profit Margin: PAT / Revenue. FMCG companies typically 10–15%; IT companies 20–25%.
The balance sheet is a snapshot of a company's financial position on a specific date: Assets = Liabilities + Shareholders' Equity. It tells you how healthy a company's financial structure is.
Assets Side
- Current Assets: Cash, receivables, inventory — convertible to cash within 1 year
- Non-Current Assets: Property, plant & equipment, goodwill, intangibles
Liabilities + Equity Side
- Current Liabilities: Short-term debt, payables — due within 1 year
- Long-Term Debt: Bonds, term loans — due beyond 1 year
- Shareholders' Equity: Share capital + retained earnings = the book value of the company
Key Ratios from Balance Sheet
The cash flow statement is arguably the most important financial statement for detecting accounting quality. Profits can be manipulated through accounting choices, but cash flow is harder to fake.
Three Sections
- Operating Cash Flow (OCF): Cash generated from the core business. This should be positive and growing. A company reporting profits but negative OCF is a major red flag.
- Investing Cash Flow: Capex, acquisitions, asset sales. Usually negative for growing companies (spending on growth). Very negative = heavy investment phase; very positive = selling assets (declining business?)
- Financing Cash Flow: Debt raised/repaid, shares issued/bought back, dividends paid. Positive = company is raising capital; negative = returning money to shareholders.
Valuation Ratios
| Ratio | Formula | Benchmark |
|---|---|---|
| P/E Ratio | Market Price / EPS | Nifty average ~20x; sector-specific |
| P/B Ratio | Market Price / Book Value | > 3x = growth premium; < 1x = potential value |
| EV/EBITDA | Enterprise Value / EBITDA | Below 15x often considered fair |
| PEG Ratio | P/E / Earnings Growth Rate | PEG < 1 = potentially undervalued |
Profitability Ratios
| Ratio | Formula | Target |
|---|---|---|
| ROE | Net Profit / Shareholders' Equity | > 15% consistently = excellent |
| ROCE | EBIT / Capital Employed | > WACC means value creation |
| Net Margin | PAT / Revenue | Sector-dependent |
A "moat" — popularised by Warren Buffett — is a sustainable competitive advantage that protects a company from competition, allowing it to maintain high returns on capital over time. Without a moat, even a great business degrades as competitors copy it.
Types of Moats
- Network Effects: The product gets more valuable as more people use it. Stock exchange (NSE), payment network (Visa), social media. Extremely hard to displace.
- Cost Advantages: Produce goods/services at lower cost than anyone else. Achieved through scale (D-Mart), proprietary processes, or unique resources.
- Switching Costs: Making it expensive or painful for customers to leave. ERP software (SAP), banking relationships, embedded industrial components.
- Intangible Assets: Brands (Asian Paints, Pidilite), patents (Sun Pharma), government licences (IRCTC, NSE).
- Efficient Scale: Operating in a niche where only 1–2 players can exist profitably. Indian airports, gas pipelines.
Discounted Cash Flow (DCF) is the gold standard of fundamental valuation — used by all serious investors including Warren Buffett. The idea: a company is worth the sum of all the cash it will ever generate, discounted back to today's value.
Step-by-Step DCF
- Step 1: Project Free Cash Flow for 5–10 years (use historical FCF + management guidance + industry growth)
- Step 2: Estimate Terminal Value (FCF in year 10 × (1+g) / (WACC−g) where g = long-term growth ~5–6%)
- Step 3: Choose Discount Rate (WACC — typically 12–15% for Indian companies)
- Step 4: Discount all cash flows to present value
- Step 5: Add cash, subtract debt → Equity Value / Shares = Intrinsic Value per Share
20-Point Pre-Investment Checklist
- ✅ Revenue growing 15%+ YoY for 5+ years?
- ✅ Net profit growing faster than revenue (operating leverage)?
- ✅ ROE > 15% for 10 consecutive years?
- ✅ ROCE > 15% (or > WACC)?
- ✅ Debt-to-Equity below 1.0 (or declining)?
- ✅ Operating Cash Flow positive and growing?
- ✅ FCF positive (not just profits)? FCF/PAT ratio > 0.7?
- ✅ Promoter shareholding high (> 50%) and not pledged?
- ✅ Company paying consistent dividends or buybacks?
- ✅ Moat identifiable (brand, network, switching costs, cost advantage)?
- ✅ Industry tailwinds (growing sector)?
- ✅ Management with skin in the game (meaningful promoter ownership)?
- ✅ No related-party transactions or corporate governance red flags?
- ✅ Auditor is a reputable Big-4 firm?
- ✅ P/E reasonable vs historical range and sector peers?
- ✅ PEG ratio below 1.5?
- ✅ Company understood by you? (Don't invest in what you can't explain to a 12-year-old.)
- ✅ Read at least 3 years of annual reports including Chairman's letter?
- ✅ Margin of Safety — buying at 20–30% below intrinsic value?
- ✅ You're comfortable holding for 5+ years?
🧠 Behavioral Finance
Why do intelligent people make terrible investment decisions? Behavioral finance — a fusion of psychology and economics — reveals the cognitive biases that cause investors to buy high, sell low, and underperform markets they could simply track.
Classical economics assumes investors are rational agents who always maximise their utility with perfect information. Behavioral finance, pioneered by Daniel Kahneman and Amos Tversky (and recognised with a Nobel Prize in 2002), showed this is completely wrong.
Humans use mental shortcuts (heuristics) that work well in everyday life but systematically fail in investing. The result: the average retail investor significantly underperforms the very markets they invest in — not because of transaction costs, but because of the timing of their own decisions.
The Evidence
- DALBAR's annual study consistently shows retail mutual fund investors earn 3–5% less than the funds they invest in — due to buying high (after rallies) and selling low (during crashes)
- Equity SIP investors who didn't stop their SIPs during COVID (March 2020) earned 60%+ more than those who panicked and paused
- Studies show investors check prices more often when markets are falling — fuelling panic-selling
Kahneman and Tversky's Prospect Theory showed that the pain of losing ₹10,000 is psychologically about twice as powerful as the pleasure of gaining ₹10,000. This asymmetry of feeling — loss aversion — is perhaps the single most important bias for investors to understand.
How Loss Aversion Destroys Portfolios
- Selling winners too early: Investors lock in profits quickly because "what if it falls?" — missing the majority of a big move
- Holding losers too long: Investors can't bring themselves to sell at a loss (realising a loss makes it "real") — so they hold bad investments for years hoping to break even
- Panic selling in crashes: As markets fall, the intensifying pain drives selling at exactly the wrong time
Anchoring bias is the tendency to rely too heavily on the first piece of information received (the "anchor") when making decisions. This number becomes a mental reference point even when it's completely arbitrary or irrelevant.
Common Investing Anchors
- Purchase price: "I bought this at ₹500; it's at ₹300 now — I can't sell until it gets back to ₹500." The ₹500 purchase price is irrelevant to the stock's current or future value.
- 52-week high: "This used to be ₹1,000 six months ago — it's cheap at ₹700!" Past prices are not indicators of future prices.
- Recent NAV: "The fund's NAV was ₹150 in January; now it's ₹110 — that's 'on sale'!" NAV history doesn't predict future returns.
- Index levels: "Nifty at 22,000 seems expensive because it was at 15,000 two years ago." Valuation is about P/E ratios and earnings growth, not absolute index levels.
Humans are social animals. We evolved to follow the group — it was usually a survival advantage. In investing, following the herd is one of the most reliable paths to poor returns, because by the time "everyone" is buying something, the smart money has already made most of its profit.
The Herd Cycle in Markets
- Early adopters buy into a trend while it's still unknown or unpopular
- Early majority joins as the trend becomes newsworthy
- Late majority (the herd) piles in when the trend is on TV, friends are making money, and 'everyone is bullish'
- Late adopters buy at the very top, right as early adopters are selling
India examples: Infrastructure stocks in 2007–2008 (collapsed 90%+). Crypto in Nov 2021. SME IPOs in 2024. In each case, retail investors flooded in at peak valuations.
FOMO (Fear of Missing Out)
FOMO is herd mentality on steroids, accelerated by social media showing screenshots of gains. The feeling of watching others make money while you sit on cash is almost unbearable — and almost always leads to buying at exactly the wrong time.
Confirmation bias is the tendency to search for, interpret, favour, and recall information in a way that confirms what you already believe. Once you've decided a stock is great, you unconsciously filter out negative information and overweight positive signals.
How Confirmation Bias Plays Out in Investing
- Reading bullish analyst reports after buying a stock while dismissing bearish ones
- Joining investment communities where everyone shares the same bullish thesis on the same stocks
- Interpreting ambiguous news (e.g., flat revenue) as positive ("at least it didn't fall!")
- Ignoring red flags in management quality, accounting, or competitive dynamics
The Pre-Mortem Technique
Before buying, write down all the reasons why this investment could fail. Imagine it's 2 years from now and the stock has fallen 50% — what happened? This forces you to confront the bearish case you're mentally blocking. If you can't generate at least 3–4 compelling bear cases, you haven't done enough research.
Studies consistently show that 80–90% of investors believe they are above-average investors — which is statistically impossible. Overconfidence leads to excessive trading (increasing costs), insufficient diversification (concentration risk), and underestimation of unknown risks.
Signs You May Be Overconfident
- You've made good returns for 1–2 years and are increasing position sizes significantly
- You're making predictions about macro events (election outcomes, Fed decisions, oil prices)
- You have fewer than 5 stocks in your portfolio and are 'very confident' in all of them
- You're trading more frequently as your confidence grows
- You believe you can time the market (most professionals can't do this consistently)
The Antidote
Keep a decision journal. Write down your prediction and your confidence level. Review quarterly. Most people discover they are far less accurate than they thought. This is humbling but essential for growth as an investor.
12 Habits of Rational Investors
- 1. Automate: Set up monthly SIPs. Remove the decision of "when to invest" entirely.
- 2. Write an Investment Policy Statement: Define your goals, time horizon, risk tolerance, and asset allocation before markets move.
- 3. Don't check your portfolio daily: Daily price checking increases emotional decision-making. Weekly or monthly check-ins are sufficient for long-term investors.
- 4. Use a pre-buy checklist: Requirement to complete your checklist before buying prevents impulsive decisions.
- 5. Set stop-losses in advance: Decide your exit price before entering — while you're calm, not during a panic.
- 6. Separate 'I like this company' from 'this is a good investment at this price': Great companies can be terrible investments at peak valuations.
- 7. Rebalance mechanically: Rebalance annually regardless of your opinion on markets. This enforces selling high and buying low automatically.
- 8. Read history: Understanding past market cycles (1929, 2000, 2008) builds emotional resilience for future downturns.
- 9. Limit financial news: Most financial news is noise designed to generate engagement (fear/greed), not to help you invest better.
- 10. Find an accountability partner: Someone who will challenge your investment thesis and push back when you're being irrational.
- 11. Sleep on major decisions: Never make a significant investment decision on the day a big market move happens (up or down).
- 12. Accept uncertainty: No one knows what the market will do tomorrow. Good investors make good decisions with incomplete information — and stay humble about outcomes.
🇮🇳 India Tax Guide for Investors
Understanding the tax implications of your investments is as important as understanding the investments themselves. A tax-unaware investor can lose 20–30% of their effective returns to avoidable taxes. This module covers everything an Indian retail investor needs to know.
India's investment tax framework broadly divides gains into Capital Gains (from selling assets) and Income (dividends, interest). Capital Gains are further divided by holding period into Short-Term and Long-Term, each with different tax rates.
Three Types of Investment Income
- Capital Gains: Profit from selling an investment. Tax rate depends on asset type + holding period.
- Dividend Income: Post-2020, dividends are taxed at the investor's income slab rate (previously a Dividend Distribution Tax was paid by the company).
- Interest Income: From FDs, savings accounts, bonds — added to income and taxed at slab rate. Banks deduct TDS at 10% if interest > ₹40,000/year.
| Asset | Holding Period | Tax Rate | Exemption |
|---|---|---|---|
| Listed Equity Shares | < 12 months | STCG 20% ↑ (was 15%) | None |
| Listed Equity Shares | ≥ 12 months | LTCG 12.5% ↑ (was 10%) | ₹1,25,000/year ↑ (was ₹1L) |
| Equity Mutual Funds | < 12 months | STCG 20% | None |
| Equity Mutual Funds | ≥ 12 months | LTCG 12.5% | ₹1,25,000/year |
| Debt Mutual Funds (post Apr 2023) | Any | Slab Rate | None |
| Listed Bonds / NCDs | ≥ 12 months | LTCG 12.5% | None |
| Unlisted Equity | ≥ 24 months | LTCG 12.5% (no indexation) | None |
↑ Rates changed in Budget 2024 (effective July 23, 2024). Budget 2025 made no further changes to capital gains rates.
Section 80C of the Income Tax Act allows a deduction of up to ₹1,50,000 from your taxable income for investments in specified instruments — reducing tax by up to ₹45,000 for someone in the 30% slab.
| Instrument | Lock-In | Returns | Tax on Maturity |
|---|---|---|---|
| ELSS (Equity MF) | 3 years | Market-linked (~12–14%) | LTCG 10% above ₹1L |
| PPF | 15 years | 7.1% (guaranteed) | Tax-FREE (EEE) |
| NSC (National Savings Certificate) | 5 years | 7.7% (guaranteed) | Taxable (EET) |
| Tax Saver FD (5-year) | 5 years | 6.5–7.5% | Taxable |
| Life Insurance Premium | Policy term | Low (~4–6%) | Tax-free if conditions met |
| Sukanya Samriddhi Yojana | 21 years | 8.2% (guaranteed) | Tax-FREE |
| EPF (Employee PF) | Till retirement | 8.15% (guaranteed) | Exempt up to ₹2.5L/year |
| Home Loan Principal Repayment | Ongoing | N/A | N/A |
| Section | What | Limit |
|---|---|---|
| 80D | Health insurance premium (self + spouse + kids) | ₹25,000 (₹50,000 if senior citizen) |
| 80D | Health insurance for parents | ₹25,000–₹50,000 (₹50K if parents are senior citizens) |
| 80CCD(1B) | NPS contribution (Tier 1) over and above 80C | ₹50,000 additional |
| 80CCD(2) | Employer NPS contribution | 10% of salary — no cap; fully deductible |
| 24(b) | Home loan interest (self-occupied) | ₹2,00,000 |
| 80G | Donations to approved charities/organisations | 50–100% of donation; some with limits |
| 80E | Interest on education loan | Full interest for 8 years |
New Tax Regime Slabs — FY 2025-26 ✦ Budget 2025 (Major Overhaul)
| Income Slab | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Standard deduction ₹75,000. Rebate u/s 87A raised to ₹60,000 — zero tax for income up to ₹12L (effective gross income ₹12.75L after standard deduction). No other deductions allowed under new regime.
Old Regime Slabs (FY 2024-25)
| Income Slab | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction ₹50,000. All deductions (80C, 80D, HRA, 24b, etc.) available. Rebate u/s 87A: zero tax up to ₹5L taxable income.
Dividend Taxation (Post-2020)
From FY 2020-21 onwards, dividends from Indian companies are taxed in the investor's hands at their applicable slab rate. The company deducts TDS at 10% if annual dividends from that company exceed ₹5,000.
- Declare dividends in ITR under 'Income from Other Sources'
- You can claim credit for TDS already deducted
- Mutual fund dividends (now called 'IDCW — Income Distribution cum Capital Withdrawal') also taxed at slab rate
Interest Taxation
- Bank FD/RD interest: Fully taxable at slab rate. Bank deducts 10% TDS if total interest > ₹40,000/year (₹50,000 for senior citizens)
- Savings account interest: Up to ₹10,000 exempt under Section 80TTA (or ₹50,000 for senior citizens under 80TTB)
- PPF interest: Completely tax-free (EEE status)
- Sovereign Gold Bond interest: 2.5% annual interest is taxable at slab rate; capital gains on maturity are exempt
Tax loss harvesting is the deliberate selling of investments at a loss to offset capital gains taxes on profitable investments. It's one of the most powerful tax optimisation strategies available to retail investors — and almost no one uses it systematically.
How It Works
- You've booked ₹3L in LTCG from selling an equity mutual fund that did well
- You also hold another fund/stock with an unrealised LTCG loss of ₹1.5L
- Sell the losing position → realise the ₹1.5L loss
- Your taxable LTCG drops from ₹3L to ₹1.5L → tax reduced from ₹25,000 to ₹3,125 (₹22K saving at 12.5%)
- Reinvest immediately in a similar (but not identical) instrument
Loss Set-Off Rules
- STCL can be offset against both STCG and LTCG
- LTCL can only be offset against LTCG (not STCG)
- Unused losses can be carried forward for 8 years
- Must file ITR on time to carry forward losses
Which ITR Form to Use
| If you have… | Use ITR Form |
|---|---|
| Salary + Bank interest only | ITR-1 (Sahaj) |
| Salary + Capital Gains (Equity MF, stocks) | ITR-2 |
| Business income + Capital Gains | ITR-3 |
Documents Needed
- Form 16 from employer (for salary income)
- Capital Gains Statement from CAMS or KFintech (for mutual funds — downloadable)
- Broker's Capital Gains Statement (for direct equity trades)
- Form 26AS and AIS (Annual Information Statement) — download from IT portal
- Interest certificates from banks
ITR Filing Deadlines
- Regular taxpayers (no audit): July 31 of assessment year
- Belated ITR: December 31 (₹5,000 penalty; ₹1,000 if income < ₹5L)
- Must file to carry forward capital losses