What a Share Trade Really Costs: Commission, Fees and Capital Gains Tax

 

You buy a share at Rs 500 and sell it at Rs 540. That's Rs 40 profit per share, right? Not quite. By the time the broker, SEBON, the depository and the tax office have taken their share, a fair chunk of that Rs 40 is gone.

None of these charges is big on its own. But if you don't count them, you'll overestimate your returns, and if you trade often, they can quietly eat most of your profit.

The charges on every trade

When you buy or sell on NEPSE, these are the main costs you'll see on your broker's bill:

• Broker commission. A percentage of the trade value, charged on both buying and selling. It's tiered: smaller trades pay a higher rate, roughly 0.3% to 0.4% for the amounts most individual investors deal in, with a minimum charge per trade.
• SEBON fee. A small regulatory fee, a fraction of a percent of the trade value.
• DP charge. A flat fee per company, charged by your depository participant when shares move in or out of your demat account. It's small in rupees, but it doesn't shrink with the trade size, so it hurts most on tiny trades.
• Capital gains tax (CGT). Charged only when you sell at a profit. For individuals, the rate has been lower for shares held longer than a year than for shares held for a shorter time.

Rates change from time to time, so treat the numbers below as an illustration and check the current schedule with your broker.

A worked example

Say you buy 100 shares at Rs 500 and sell them eight months later at Rs 540. Using illustrative rates (0.36% commission on the buy, 0.33% on the sell, a 0.015% SEBON fee, a Rs 25 DP charge each way and 7.5% CGT for a holding under a year):

• Buy: Rs 50,000 + commission Rs 180 + SEBON fee Rs 7.50 + DP Rs 25 = Rs 50,212.50
• Sell: Rs 54,000 − commission Rs 178.20 − SEBON fee Rs 8.10 − DP Rs 25 = Rs 53,788.70
• Gain before tax: Rs 3,576.20
• CGT at 7.5%: Rs 268.22
• What you actually keep: about Rs 3,308

The "Rs 4,000 profit" was really about Rs 3,300. Roughly a sixth went to costs and tax. Hold the same shares for over a year, and at a 5% rate the tax drops to about Rs 179, so you'd keep around Rs 3,400 instead.

Your break-even is higher than your buy price

In the example, your real cost per share isn't Rs 500. It's about Rs 502. Then selling costs more again. Work it through and the price has to reach about Rs 504 before you've made a single rupee.

That's less than 1%, which sounds like nothing. But if you buy and sell every week chasing small moves, you pay that 1% every time. Ten round trips a year is roughly 10% of your money gone on costs before the market has done anything. That's one more reason I prefer a patient approach, like the one in my post on placing orders in TMS.

Keep your purchase cost updated in Mero Share

CGT is worked out on the difference between your selling price and your cost. For shares you bought on the secondary market, the cost comes from your trade records. But for IPO shares, bonus shares and rights shares, you may need to confirm the purchase source in Mero Share so your weighted average cost (WACC) is right.

If it's missing or wrong, your gain can be calculated on the wrong cost, and you may pay more tax than you should, or have the sale held up. Bonus shares in particular usually come in at a low or zero cost, which lowers your average. I explained why in my post on cash dividends vs bonus shares. Check the WACC before you sell, not after.

New to all this? My demat, Mero Share and broker account post covers the setup.

How to keep costs down

• Trade less. The single biggest saving. Fewer, bigger, better-thought-out trades beat lots of small ones.
• Avoid tiny trades. Buying 10 shares means the flat DP charge and minimum commission are a big slice of the trade.
• Mind the one-year mark. If you're close to a year and planning to sell anyway, the lower tax rate may be worth waiting for. Don't let tax be the only reason to hold a share you no longer want, though.
• Read your bill. Every trade comes with a broker bill or contract note. Check it against the rates at least once so you know what you're paying.
• Settle on time. Late payment for purchases can bring extra charges or problems with your broker.

A quick checklist

• Count commission, SEBON fee and DP charge on both buy and sell
• Work out your break-even price, not just your buy price
• Check the CGT rate for your holding period before you sell
• Confirm the purchase source and WACC in Mero Share
• Keep every broker bill until you've filed and checked your records

General information, not tax or personal financial advice. The rates in the example are illustrative and rounded. Commission, fees and capital gains tax rates are set by SEBON, NEPSE and the government and can change, so check the current schedule with your broker before you trade. Have a question? Leave it in the comments.