Share trading has grown significantly in the last decade due to rise of the stock market and rapid adoption of technology. It is seen as a way to make quick bucks by a lot of people. However there is a lot of confusion among on how to treat the income earned from trading shares viz. business gain or a capital gain. It is very important to know the difference because the tax liability of an individual will depend on this, as the tax treatment of Capital gains and Business income are completely different.
As per the income tax department, any purchase of shares made with the motive of earning profit is considered to be Business income, whereas investments made with the intent of earning income through dividends will amount to capital gain.
For Example, if Mr. Saket has earned Rs. 100,000 by trading in shares for a short term i.e. by intraday trading or trading in F&O, it is taxable under the head Income from Business or Profession as per the tax slab applicable to him. While if he holds the shares for a considerable period time to accumulate wealth then it comes under head Income from Capital gains (if it is for period exceeding 12 months then no tax is levied provided STT paid. If it is for a period not exceeding 12 months then he will charged at 15% on his net gain).
However as per the newly inserted section 112A via Finance Act 2018, if the amount of long- term Capital gain exceeds Rs 1,00,000 than the amount in excess of Rs 1,00,000 shall be chargeable to tax @ 10% without indexation (plus heath and education cess and surcharge). However the application of sec 112A is subjected to certain conditions, one of it being the transfer should have taken place on or after 1st April ,2018. such capital gains arise from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust om which STT has been paid.
It also mentions that an individual can have two portfolios under the head Capital Gains and Business income, which means that if an individual earns income from intraday trading and F&O and also from investment in shares for considerable time to accumulate wealth then he can have portfolios under both the heads of income i.e. income from intraday Trading and F&O comes under Business Income while Investment in shares with the intent of accumulating profits comes under Capital Gains.
Thus, what matters is the intention of an individual whether he holds for a longer period of time to accumulate profits which constitutes the capital gain or does trading to earn profit (day to day) which constitutes the same to be treated as the business income.
Conclusion
Every individual should be very careful in characterization of income from share trading as capital gain or Business income because this characterization will affect the tax liability of the individual to a great extent. Suppose if you wrongly characterize your Long term Capital gain of Rs 100,000 as business income then you will be charged tax at rate of 30% that will amount to Rs.30,000 (Assuming you belong to highest Tax bracket) while the long term capital gains from shares are exempted provided STT paid. Thus you may end up paying extra tax.
Source: InvestmentYogi is one of the leading personal finance websites in India
(Republished With Amendments)
What is the Role of E-Way Bill?
Erroneously ,I had done intraday trading 2 to 3 times amounting small profit of Rs.2000/ and loss of Rs.1000/-.I have earned salary and pension during this year.Short term trading also done by me by booking profit of Rs.60000,/- and loss of 12000/-
Whether I have to file ITR-3 or ITR-2.
Please guide.
i think intra day trading loss will be treated as SPECULATION LOSS and KYA YE business loss hi mana jaayega or ITR 3 me bussiness code kya jaayega
kindly clarify…
I form one HUF and doing share trading from HUF account only (Not intraday transaction),
Trading volume around Rs. 700000,
Should i show as PGBP or under the head Capital Gain.
If i am showing under the head PGBP which ITR is applicable
Sir,
Under the following scenario mentioned below what would be my tax liability if short term capital gain tax on shares are considered-
I made a profit of Rs :50,000 in delivery based transactions in a particular stock -A.The stock was brought and sold in the same financial year(2015-16).During the same financial year I brought another stock B, during the purchase of which I incurred an expense of Rs 50,000 as brokerage service tax etc .I did not sell the stock -B in the financial year 2015-16.
Can I cancel off the short term capital gain tax on the profit made in Stock -A against the expenses incurred on the purchase of stock -B .
During estimation of short term capital gain tax on stocks can STT , service tax and stamp duty be treated as expenses?
Thanking you
Arun Polayil
Which ITR form needs to be filed if one has a small amount of intraday profit (Rs. 3000)?
Thanks,
Vaibhav
kindly inform me about speculation income comes under which head of income(intra day profit)
i think intra day trading income or loss will be treated as SPECULATION INCOME OR LOSS and not business income…
kindly clarify…
Thanks for info. – Precise and easy to grasp
So the business income is speculation business income/loss, & can be setoff only against speculation income & can be carried forward for 4 yrs.
Hence we cannot set off this income with any other business income.
Thanks for the information.
Would you be kind enough to enlighten me as to how the deduction in insurance commission (on first year premium) is to be claimed in the tax returns. Which section of Income Tax Act, 1961 allows it?
Thanks in advance.
Balasubramanian