The top 1 per cent tax filers in terms of gross income, or about 50,000 individuals, accounted for over 54 per cent of short-term capital gains (STCG) (reported for the assessment year 2023-24 (AY24).

However, the same group took home just 16.1 per cent of the total earnings, reflecting a lopsided trend in individual income and STCG, according to an analysis of income tax data for AY24.

STCG refers to gains from securities, gold, property and other assets held for less than a year. The tax data does not provide a break-up of gains specifically from the stock market, but trends can be considered broadly indicative.

The number of individuals reporting STCG has risen over tenfold from 0.43 million in AY13 to 4.58 million in AY24 amid surging participation in the stock market. The Securities and Exchange Board of India (Sebi) has been warning investors of the perils of stock market speculations, citing losses that many have faced. In a report released on September 23, Sebi pointed out that 91.1 per cent of traders lost money in the futures and options segment in the financial year 2023-24.

Significantly, People at the top of the pyramid made significantly more money than at the bottom.

For example, those who reported STCG of over Rs 1 crore made average gains of Rs 3.8 crore in AY24. One single individual reported Rs 880.41 crore in STCG for the year. In contrast, the average gain for everyone else was Rs 70,000. This only includes those who reported non-zero STCG. A vast majority (around 71 million filers) reported zero gains.

Institutions and the very wealthy can spend crores to execute trades faster using algorithms and money that the average retail investor cannot do.

Such positions, which are taken and closed out within the same session, often in minutes or fractions of a second, are declared as business income rather than short-term capital gains. Futures and options also fall under business income. Many are attracted by the potential for large gains but don’t necessarily seem to a understand that a single trade gone wrong can wipe out their accumulated profits.