If you trade on Zerodha and you've been assuming your taxes are being handled somewhere in the background — they aren't. Zerodha does not deduct capital gains tax. It never has. It is not required to.
This is one of the most common misconceptions among retail traders in India, and it costs people money every year — not because they're trying to evade tax, but because they genuinely believed their broker was handling it. They weren't paying attention to their capital gains because they assumed someone else was.
This article explains exactly what Zerodha does deduct, what it doesn't, what your obligations are, and what happens if you get it wrong.
Zerodha deducts two things from your trades. Neither of them is capital gains tax.
STT is a transaction tax levied by the government on the value of securities traded on Indian exchanges. It is deducted by your broker at the time of the trade — you'll see it on every contract note as a line item.
For equity delivery trades:
For equity intraday (MIS):
For F&O:
STT is deducted automatically and appears on your contract notes and in your Zerodha Console reports. It is a transaction cost — it is not capital gains tax.
If a company you hold shares in pays a dividend, and the total dividend from that company in a financial year exceeds ₹5,000, the company deducts TDS at 10% before crediting the dividend to you. This also appears in your Form 26AS. Again — this is not capital gains tax. This is TDS on dividend income.
STT is a transaction cost. TDS on dividends is tax deducted on dividend income. Capital gains tax is tax on your profit from selling shares. These are three completely different things. Zerodha handles the first. The company paying dividends handles the second. You — and your CA — handle the third.
There is no legal provision in India that requires stock brokers to deduct TDS on capital gains from equity trading. The Income Tax Act provides for TDS on many types of income — salary, interest, professional fees, dividends — but not on capital gains from listed equity securities sold on a recognised exchange.
The reasoning is practical: the broker doesn't know your cost basis. Zerodha sees the sell transaction. It doesn't know when you bought the shares, at what price, from which account, or through what route. Without the cost basis, it cannot compute the gain, and without the gain, it cannot compute the tax.
Only you know your full purchase history. And even then, you need to apply FIFO matching across all your buy transactions to arrive at the correct gain on any given sell. This is a calculation the trader — or their CA — is responsible for.
You are responsible for computing and paying capital gains tax on every profitable trade you make. The government knows about your trades — they are reported to the Income Tax Department through the Annual Information Statement (AIS). Your gains and losses appear there. If you don't declare them correctly in your ITR, there will be a mismatch.
Capital gains on equity are computed using the FIFO method — First In, First Out. When you sell shares, the cost of the oldest shares you hold is used as the cost basis for the sale. If you've made multiple purchases of the same stock at different prices, the calculation can get complex quickly.
For example: you bought 100 shares of Reliance in three tranches — 30 shares at ₹2,000, 40 shares at ₹2,200, and 30 shares at ₹2,400. You then sell 50 shares at ₹2,800. Under FIFO, the cost basis for the first 30 shares sold is ₹2,000, and for the next 20 shares is ₹2,200. Your gain on the 50 shares is not simply (₹2,800 − average cost) × 50. It's a lot-by-lot calculation.
Multiply this across a year of active trading — dozens of stocks, hundreds of buy and sell transactions — and the manual computation becomes practically impossible without software.
If you only traded equity delivery, you file ITR-2. If you traded F&O at any point in the year — even once, even a small position, even if you lost money — you must file ITR-3. Filing the wrong form is a common mistake that creates a mismatch with your AIS and can trigger a defective return notice or scrutiny.
If your total tax liability for the year (after TDS credits) exceeds ₹10,000, you are required to pay advance tax in quarterly instalments — 15% by June 15th, 45% by September 15th, 75% by December 15th, and 100% by March 15th.
Traders who have a profitable year are often surprised by this — particularly first-time active traders who assumed their taxes would be settled when they filed in July. If you've had significant gains, you may owe advance tax, and the penalty for not paying it on time is interest under Section 234B and 234C.
Zerodha doesn't deduct capital gains tax, but it does provide the data you need to compute it. Here's what's available and where to find it.
In Zerodha Console → Reports → Tax P&L, you'll find a pre-computed capital gains statement. This is Zerodha's estimate of your STCG, LTCG, and losses for the financial year, broken down by scrip. It uses FIFO to compute the gains.
Important caveat: this report is useful as a starting point, but it may not be complete or fully accurate in all cases. It may not account for corporate actions (bonus shares, splits, mergers) correctly. Shares held in physical form or transferred from another broker may not appear. Your CA should verify this report against your actual purchase records before it goes into your ITR.
Console → Reports → Tradebook gives you a raw record of every trade you've made — buy and sell, with date, quantity, and price. This is the primary source document. Your CA will use this to independently verify the Tax P&L. It's also the file Fynr reads to run its own FIFO analysis.
Every trade generates a contract note — a legally valid document showing the transaction details including STT, brokerage, and other charges. These are available in Console → Reports → Contract Notes and are the documents your CA will want to see if there's any discrepancy.
Zerodha's Tax P&L is a useful tool, not a tax certificate. It doesn't account for shares you may have transferred from another broker, shares received as gifts, bonus shares where the cost basis needs to be adjusted, or offline transactions. Use it as a starting point, verify it against your records, and have your CA confirm it before filing.
The most expensive mistake active traders make — selling a losing position in April instead of March. That loss cannot offset this year's gains. It carries forward under Section 74, but the tax saving from this year is gone. The traders who avoid this mistake are the ones who check their loss positions before March 31st, not after.
If you traded options or futures in any segment — equity, currency, commodity — even once, your ITR form should be ITR-3. This is consistently one of the most common errors in trader filings, and it is caught because your AIS shows the F&O activity even if your return doesn't.
A profitable trading year creates an advance tax obligation. The interest for failing to pay it (234B, 234C) is not trivial — it's 1% per month on the shortfall. If you've had gains, speak to your CA in September, not March.
For shares purchased before January 31, 2018, there is a grandfathering provision: the cost is deemed to be the higher of the actual purchase price or the fair market value as on January 31, 2018. This provision was introduced alongside the reintroduction of LTCG tax in Budget 2018, and it means that for many long-held positions, the taxable gain is significantly lower than the nominal gain from the original purchase price. Many traders — and some CAs — miss this.
The traders who pay the least tax (legally) and have the smoothest filing experience are not the ones with the most sophisticated strategies. They're the ones who are organised early and share the right information with their CA at the right time.
Upload your Zerodha tradebook to Fynr. In 60 seconds you'll see your STCG, LTCG, realised losses, LTCG exemption headroom, near-LTCG positions, and any F&O flags — everything your CA needs, and everything you need to act before March 31st. Free.
Scan my Zerodha tradebook →CA verification is required on all Fynr outputs. This article is for informational purposes only and does not constitute tax advice. Tax rules and rates reflect FY2024-25 as understood at time of writing. Always consult a qualified Chartered Accountant for advice specific to your situation.