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Income from selling listed shares can be taxed under:-
♦ Business income or
♦ Speculative Business income.
Let us first understand the types of Trading:-
1. Intraday Trading – Shares are bought & sold on the same day without taking the delivery of the shares.
2. Futures & Option Trading – Here we buy or sell the derivatives (Futures or Options) which are based on the underlying Index or Stocks with weekly or monthly expiry.
3. Delivery Trading – In this case the shares are bought and they are sold after taking the delivery of the shares. However the time frame may vary.
| Type of trading | Taxable under |
| Intraday Trading | Intraday trading is considered as Speculative as delivery of shares is not taken. Therefore, all the gains from intraday is to be taxed as Speculative Business Income under the head Profit & Gains from Business & Profession. |
| Futures & Options Trading | All the profit from Futures & Options trading is specifically treated as non-speculative and therefore it is to be taxed as Normal Business Income under the head Profit & Gains from Business & Profession. |
| Delivery Trading | For the purpose of taxation of Delivery trading, the Income Tax Department has issued a Circular no. 6/2016 |
Explanation of Circular no. 6/2016
| Holding Period | Assessee’s treatment | Taxation |
| More than 12 months | Stock in trade | Normal business income |
| Up to 12 months | Stock in trade | Normal business income |
| More than 12 months | Capital Asset | Capital Gain |
| Up to 12 months | Capital Asset | It will be decided upon various factors suggested in Circular no. 4/2007 –
1. Treatment in the books of assessee 2. Objective of the assessee 3. Holding period 4. Own funds or loan taken for buying shares |
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