Tax on Income from Share Market

As per the Indian Income Tax system if a person earns any income from shares market than has to pay capital Gain. If the shares are regarded as stock-in-trade, the income from the sale of such shares would be business income, which will be taxable at normal slab rates. The mere classification by the taxpayer as capital gains does not necessarily mean that it will be taxed only as capital gains.

When it comes to shares we are aware that Long Term capital gains taxable @10% over and above Rs. 1 Lakh on sale of equity shares, while Short Term capital gains are taxed at the rate of 15%.

In this case, your exposure to stocks will be treated as your investment portfolio.

However, in case your treat your income from shares as Business Income, then the short-term equity holding will be treated as stock-in-trade will be taxed at the normal business income rate of 30%.

Applicability of Audit in case of derivative (F&O) Transactions:

Taxpayers should carefully note that tax audit provision as per section 44AB will be applicable to the transactions in F&O if the turnover of an individual/HUF from derivative transactions exceeds Rs. 10 Crore, taxpayers would be required to get the accounts audited.

In case turnover is not exceeding 2 cr, tax audit (u/s 44AB r/w section 44AD) will be mandatory if the net profit from such transactions is less than 6% of the turnover.

The total of profit and loss shall be taken as turnover i.e., aggregate of the differences, whether positive or negative is considered as “turnover”. It makes no difference whether the difference is positive or negative for computing turnover.

For example, a person has a profit of Rs. 3 Lakh & loss of Rs. 7 in F & O. Though there is a net loss of Rs. 4 Lakh in F & O Transactions, Turnover will be considered as Rs. 10 Lakh.

In case of capital gain basic exemption limit can be claimed but no deduction will be allowed for amount specified under Chapter-VIA. Rebate u/s 87A is allowed for STCG but denied for LTCG u/s 112A. Losses can be carried forward for 8 years in both STCG & LTCG or they can be set off in current year. (Not with salary or business income or interest income).

Link to open Demat Account

https://lnkd.in/eHpU9nx

For more information reach out to CA Neetu Jain