Trading and long term equity appreciation option
Identifying yourself as a trader or an investor is the first step to file your income tax returns. This may seem like an easy task, but here is what this circular from CBDT Central board of direct taxes says: Yes, that is how vague it is, and this is a circular datedreleased after 18 years of the original circular. Trading and long term equity appreciation option judicial pronouncements and government was still unable to clear this highly debatable issue.
Thanks to the vagueness of this circular, it has given too much power in the hands of the assessing Trading and long term equity appreciation option tax officer AO especially considering the fact that most of the stock purchases are done intending to profit from the price appreciation. Updated 2nd March Finally the income tax department has brought in clarity in classifying yourself as a trader or an investor equity delivery trades through this CBDT circular.
It now says that an individual can decide on his own to either show his stock investments as capital gains or as a business income trading irrespective of the period of holding the listed shares and securities. Whatever is the stance once taken, the taxpayer will have to continue with the same in the subsequent years.
So before filing income tax returns, you will have to first classify yourself as an investor, trader, or both. By income I mean both profits and losses. When trading or investing you need to classify your income under one of these heads, broadly speaking they are —.
Assume you buy stocks or Mutual Funds today for Rs. Generally speaking, gain or profit earned by investing into stocks or equity mutual funds, and selling after 1 year from date of purchase can be categorized under LTCG. Do note — the purchase and sale of shares has to be conducted via a recognized exchange.
Assume you buy listed stocks or equity oriented mutual funds today for Rs. Generally speaking, gain or profit earned by investing into stocks or equity mutual funds holding for more than 1 day also called delivery based and selling them within 12 months from date of purchase can be categorized under STCG.
As per section 43 5 of the Income Tax Act,profits earned by trading equity or stocks for intraday or non-delivery is categorized under speculative business income. Currency trading is also considered as speculative since there is no STT unless you are using currency derivatives to hedge.
There is no fixed rate like capital gains tax rate when you have a business income. If trading and long term equity appreciation option have a business income, it has to be added to the rest of your other income and tax has to be paid as per the tax slab you fall in. For example, assume for the financial year my profit from trading intraday stocks was Rs. So my total income for the year is Rs 5,00, and I have to pay taxes on this as per my tax slab, Rs in this case as shown below.
So the point here is that, one needs to club the speculative business income with other income source and identify the taxable amount. Once this is done, tax has to be paid based on the tax slab one belongs to. Like discussed earlier, business income has trading and long term equity appreciation option fixed tax rate, you are required to add the non- speculative business income to all your other income, and pay taxes according to the slab applicable to you. Besides this assume he also earns Rs.
When trading intraday there is no intention of taking delivery, and hence it is considered speculative business. Let us look at the bright side first; here is trading and long term equity appreciation option list of advantages of declaring trading as a business income.
But as a trader, it becomes your business income which has its own pros and cons as discussed above. So even if you are salaried, you have to compulsorily use ITR3 trading and long term equity appreciation option declare this income profit or loss from trading as a business.
Hiding trading activity on the exchange from the IT department could mean trouble, especially in case of any IT scrutiny IT scrutiny is when the assessing income tax officer AO demands you to meet him and give an explanation on your IT returns.
On the other hand, if you are salaried or have some other business as your primary source of business, it becomes easier to show your equity trades as capital gains even if the frequency is slightly higher. Thankfully one thing that the circular clarified was that you can be a trader and investor both at the same time. So you can have stocks meant as investment for long term, and stocks meant for shorter term trades. But it is important to clearly demarcate your trading and investment portfolio while filing returns.
So, you can be an investor, trader, or both, but make sure to keep the above points in mind, and do consult a chartered accountant before filing returns. As long as your intent is right, you know the basic concerns of the IT department and keep those in mind while filing IT returns, it is quite simple. CBDT circular on distinction between trades and investments. Business Standard — Is your return from stocks capital gains or business income? Economic Times — Are you a stock trader or an investor?
Taxguru — Income from share trading — Business or capital gain? Moneycontrol- Investor or trader: Economic Times — Budget clarifies that commodity trading on recognized exchanges is non-speculative. Disclaimer — Do consult a chartered accountant CA before filing your returns. My question is Can I offsets gains in this year against the loss from last year, since I had not declared it last year?
Sri, you can revise last two years, and since you have filed on time, so yeah you can declare the loss in the revised return and carry forward.
Hi,first let me appreciate for detailed explanations provided in this article. No need to file, but trading and long term equity appreciation option is best you do. Will help you in the future to have income tax returns when applying for loans or any kind of credit. The issue is, income tax department gets access from exchanges on all trades done. They have softwares that pickup people who have traded but not declared it on the ITR. Thanks Nithin, Wonderful article.
Yep, that is the right way Vivek. This means Vivek has to declare himself as both trader as well as investor? A Great initiative and an excellent tutorial. Thanks a ton for this. I love Pi by the way and I am much profitable trading options for this financial year with Pi.
The Income sources I have that are taxable are: Rental income from a flat and a shop approx. Dividend from shares Approx Rs.
My question is, what will be the carry forward loss in the above case? Will it be the net of 1, 2 and 3 above whice is Rs. But yes, you can netoff your rental and interest income with trading loss. So your carry forward loss would be Pearl, when you open a demat account, you also get something called a delivery instruction booklet very similar trading and long term equity appreciation option your cheque book that you get for a bank account.
Similar to how you can transfer money using cheque book, you can transfer shares using this DIS delivery instruction slips. This happens off the exchange, as no trade is recorded on the exchange. Hence called off-market transaction. Thank You Sir for your wonderful effort. I want to ask one question. If I buy shares and sell with in months ,can I show this as non-speculative business income?
Dheeraj, if you are not actively trading i. Business income only if you are doing this actively. Hi NIthin, I wish to thanks a lot for this wonderful effort. Good explanation about the market related taxation. And one doubt for me. Should i pay the gain income tax. All long term capital gain stocks held for more than 1 year is exempt from taxes. One more doubt in the above statement.
Saravana, like I have mentioned in the trading and long term equity appreciation option above, there is no such fixed number of trades to consider low or high. But a general rule to follow is that if trading is your primary business, then best trading and long term equity appreciation option consider it as non-speculative business income.
If trading is not your primary source of trading and long term equity appreciation option, even if number of trades is a little higher, you can still show it under STCG. But best to consult your CA once. Thank you very much for all the informative articles. I have a few questions about filing my taxes. I have just started investing and trading since Feb The money Rs 7,00, was given to me by my father since he wants me to get involved in trading.
He is a Government employee and does not have time to trade himself. I have no other income since I am a student. I have incurred loss worth Rs 90, Which ITR form trading and long term equity appreciation option I use? Should I show the Rs 7,00, that I have taken from father as trading and long term equity appreciation option income or not?
Or will it be treated as gift from family? I have no income. Trading is not my business and in the future we will be making Long term investments only once I get a job. Thank you very much for all the hard work you are doing and the modules in Varsity have been very helpful. Explained in the module Tushar, it depends on what you are trading. Do read up all the chapters, all details you know already there. Also since your net income for trading and long term equity appreciation option year is negative for the year, you no mandatory to file returns.