INCOME
FROM STOCK LENDING IS TAXABLE
Income generated from the
business of stock-lending and sale-repurchase of shares by a borrower will
be taxable.
The Central Board of Direct Taxes (CBDT) has exempted stock lending/borrowing
from the purview of securities transaction tax (STT) and capital gains tax Borrowers
will make some payment to lenders of shares by way of interest or fees that
will be income in the hands of the lender While selling the
shares, borrower will not be paying any tax as the gain from such sale is not
known
However, the Central Board of Direct Taxes (CBDT) has exempted stock
lending/borrowing from the purview of securities transaction tax (STT) and
capital gains tax. CBDT has issued a circular in this regard to the income tax
field formations.
Borrowers will make some payment to lenders of shares by way of interest or
fees that will be income in the hands of the lender.
"It will be treated as income from business of lending/borrowing or income
from other sources of income and will
be taxable at applicable rates," said a finance ministry official.
While selling the shares, borrower will not be paying any tax as the gain from
such sale is not known. But when a borrower repurchases shares to return to the
lender, the margin between sale and re-purchase will be treated as profit from
business or capital gains depending on the tax treatment of shares as per CBDT
rules, the official said.
If the shares transacted are treated as capital assets, then short
term capital gains tax will be levied at the rate of 10 per cent. If they are
treated as trading asset, the tax
rate could be as high as 30 per cent.
Another big issue likely to come up is - whether stock lending and borrowing will
be treated as a speculative activity. According to sources, the income tax
assessing officers can treat the stock lending/borrowing as speculative
transaction.
That means, losses on speculative business will not be allowed to be set off
against income from normal business for claiming tax refund or reducing tax
liability.
According to the government official, there were two issues before the CBDT -
(i) whether lending/borrowing of securities under
securities lending and borrowing scheme will amount to "transfer"
under clause 47 of the Income Tax Act, in the hands of lender?
(ii) Whether lending/borrowing of securities will be subjected to securities
transaction tax?
Both the issues have been taken care of in the circular.
CAclubindia
