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Re.:share trading

Dilip Datta Choudhury (Tax Practioner/Consultant) (84 Points)

12 May 2017

I have only business of share trading on delivery basis. Aprox turnover Rs.2 Crore. Apart from this, I have F.D. & bank interest income. Can I treat this as business income, claiming all expenditure or I have to consider as Short Term Capital Gain. In this case initinal exemption limit of Rs.2,50,000/- can be claimed as per Income Tax. Please advise. Also advise my account should be audited in case of business or to consider as short term capital gain.

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9 Replies

neeraj gupta (1138 Points)
Replied 12 May 2017

I was in the same situation last year and I chose to show it as business income. Technically it seems ok as this is the only active way in which a person in earning, hence to be entitled as business. I would like hear others' opinion on it.

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CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 12 May 2017

Honestly, if you are involved in share trading with delivery basis, it "must" be considered as LTCG or STCG. A trader who buy/sell shares with non-delivery base, can claim the income as speculation business income. In your case, it would be LTCG/STCG., and all further processes will be followed accordingly.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 12 May 2017

Originally posted by : neeraj gupta
	I was in the same situation last year and I chose to show it as business income. Technically it seems ok as this is the only active way in which a person in earning, hence to be entitled as business. I would like hear others' opinion on it.

In your case, I would say that thankfully, no one has raised question so far. If any AO audits your case, PAN based, he can easily see that you are having delivery based trading, which is not business income from speculation.

neeraj gupta (1138 Points)
Replied 12 May 2017

Thanks for you feedback Mr Dhiraj. I will take a look at it. This was done after consulting my CA. I will check with him. I got the audit 44AB also done on the same. Personally I do remember reading something on the same. I shall try to get the section/ clause and post it here.

RAMA KRISHNAN (247 Points)
Replied 12 May 2017

INCOME earned by way of share trading is to be treated as business income or capital gain depending upon the quantum of transaction, frequency of transaction in respect of purchase and sale of shares. so if you are engaged in intra trading like intraday futures and options, it has to be taken as business income only

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neeraj gupta (1138 Points)
Replied 12 May 2017

Dear members, thanks for your views. I will ask for your pardon in advance as my post is going to be a bit long,
Intraday trading is mandatorily Speculative Business Income.
Derivative is treated as Business Income. This is accordingly to the guidelines by ICAI. Puristic ally even this is speculative business income. However treating this as normal business income is very much accepted by Chartered Accountants and brokerages as well.
I will address the real dispute in next message.

neeraj gupta (1138 Points)
Replied 12 May 2017

The real dispute that has arisen in this question and it has been source of dispute for many years is: "Can income/loss generated by delivery based shares trading be treated as business income/loss". The key here is whether shares are treated as 'Stock in Trade's. This is easily probable if the primary activity of the trader is to generate income through regular and active shares trading. This applies very well for delivery based shares as well. In my next post I will post the CBDT circular which actually addresses this question which has been perennial cause of dispute so far.

neeraj gupta (1138 Points)
Replied 12 May 2017

Central Board of Direct Taxes (CBDT) issued circular No. 6/2016 on 29.2.2016 .
https://www.incometaxindia.gov.in/communication/circular/circular-no-6.pdf
Sub:Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income -. Instructions in order to reduce litigation.
Excerpts from the article:
:
a) Where the assessee itself, irrespective of the period of holding listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as business income.
best) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee Desiree to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing officer.
:

neeraj gupta (1138 Points)
Replied 12 May 2017

Conclusion that I would draw: It is very much legal and as clarified by the circular the choice lies with the assessee. Mr Dilip I would suggest you to read the circular yourself or discuss this with your financial advisor and take appropriate steps. Hope that helps.