December 6, 2013

All about Tax Liability on Equity Share Trading

Do you know there are different tax rules for equity investor and equity trader? Equity Investment is treated as Capital Gain whereas Equity Trading is treated as Business Income. So in which category you will fall? Here in below post I am trying to simplify it.

TaxThe first thing to decide yourself is whether you are a trader or investor.

If you are a trader then whatever profit or loss from equity trading will be treated as business income and will be taxed at 30%. This trading includes Derivatives also. You can show the expenses incurred to lower your tax liability. Expenses include brokerage, broadband charges, advisory charges or any charges related to trading activity.

If you are an equity investor and the holding period is less than a year then it is treated as Short Term Capital Gain (STCG). This STCG is taxed at 15%. But do remember that stock selling after delivery of stock to your Demat account will only be treated as STCG. Otherwise it will be considered as Business Income.

Whereas if your holding period is more than a year then it is treated as Long Term Capital Gain (LTCG). This LTCG from equity investment is tax exempt. LTCG is exempted if a transaction done through recognized stock exchange and STT (Security Transaction Tax) paid. If stock is not trading on any recognized stock exchange then this LTCG is taxed at 20%.

So from above definitions you noticed that as far as a long-term holding is concerned there is no issue of taxing. But the issue arises for STCG. Whether to consider the stock trading of less than a year is as STCG or Business Income. This issue of deciding whether the stock is traded or invested is purely a subjective matter and depends on each case. So it is you who can decide and relive the future ambiguity and notice from the tax department.

Now while you are into stock trading or investing, every time it is not a case that you exit with profit. So what if you incur a loss? Below are a few options available for you either to set off or carry forward those losses.

Long Term Capital Losses-Long Term Capital Losses wherein STT paid can’t be set off either to any long term or short term capital gain from any source. Reason for such restriction is, you are not liable for long term capital gain so obviously you are also not have a provision to set off. But if this transaction not happened on any recognized stock exchange then the same loss can be set off against any long-term capital gain of other assets.

Short Term Capital Losses-Any Short-Term Capital Losses can be set off either to STCG or LTCG up to 8 years in the future (immediately succeeding the assessment year for which the losses was first computed). So this is a bit relieved option. But to avail this loss you need to show the income tax department that you did investment but not the trading 🙂 I think because of this decisive hurdle lot of equity looser stay away from setting it against their profits of LTCG or STCG.

Business Loss-When you declare as a trader then you have the option to set off against the losses you incurred. Business loss can be set off against any income other than salary and can be carried forward up to 8 years. You can include the expenses also for such loss.

What if the transaction not done through recognized stock exchange?

If you are a trader and done the transactions through unrecognized stock exchanges then the STCG will be taxable as per your tax slab. Where as for LTCG it will be taxed at 20% with indexation. Also do note that stock trading done through unrecognized stock exchange is considered as speculative trading. Such speculative trading is considered as speculative business. Any loss under such speculative business can only be set off against only speculative other business and can carry forward up to 4 years.  As of now the recognized stock exchanges (under Sec 43 (5) of Income Tax Act, 1961) are NSE, BSE, MCX and United Stock Exchange of India.

Hope this simplified information is enough for your taxability 🙂

268 Comments

  1. I am private tutor and earn to 50 to 70 k from it .also I earn some money from share trading as STGC and some as speculative gain.which itr form I require to file itr return.

    Reply
  2. Hello sir pls advice me,For intraday trading and delivery basis trading in Cash Share Market
    1. what is the real meaning of Turnover for a FY (if possible give e.g) ?
    2.when audit is needed?
    3.What is the yearly limit or monthly limit to avoid audit ?

    Reply
    • Inderjeet-1) It is the sales you did during the FY.
      2) An audit is required if you have a business income and if your business turnover is more than Rs 2 crores.
      3) Limit depends on YOU.

      Reply
  3. I paid an advisory firm sebi registered firm for trading tips in my name & traded F&O segment on my mother name .The payment bill can be use for showing business expense of my mother . i have trading tips day wise statement from company & it is match with F&O Trading

    Reply
  4. Hello Mr. Basu,
    Good informative article. Sir, could you please give your suggestion for a query…
    If there is a Long term Capital Loss in Apr 2017 on Listed Equity shares (purchased in May 2002) on which STT is NOT paid (Security Transaction Tax (STT) is introduced in Oct 2004). What will be the tax treatment for the same? With which assets can it be set off (LTCG) to bring down the tax liability?

    Reply
      • Hello Mr. Basu,
        Thank you for your quick reply. I have paid STT while selling the shares on the exchange but NOT during buying the shares in May 2002.Can I get a setoff…as the loss is Rs 10000/-…There are few more shares left..to sell at a loss…Shall I sell it off market..if I get a buyer for the same…to claim a setoff ??

        Reply
        • Arya-In that case you can set off against loss as I said above.

          Reply
          • Sir,
            Could you please elaborate as I am not yet clear on the solution..

            1) What to do in case of shares sold on the exchange with STT paid? What can be done with the LTCL of Rs. 10000/- ? Any set off against any other gain? Which LTCG ? Any small example?

            2) In future what shall I do with the shares remaining to be sold at a loss? Shall I sell it in the exchange? It will be difficult to find a buyer off market? Tax Treatment for the same to bring down the tax liability?

            Your suggestion will be appreciated…Thankyou…

            Reply
  5. if i buy shares of 100 rs sold at 120.
    then again buy shares of 120 rs sold at 130 rs.
    my total profit is 30rs.But what is the full value of consideration in this case.
    130rs or 250 ??

    Reply
    • Rajesh-For first trade the profit will be Rs.20 and for second trade, the profit will be Rs.10. So each trade is considered differently to arrive at value of consideration. Don’t combine both value to skip the tax liability.

      Reply
      • thanks for reply..

        you mean in itr
        full value of consideration is 250
        cost of acquisition 220
        profit 30.

        Reply
        • Rajesh-What I mean to say is each trade is considered as separately for taxation. You no need to club both.

          Reply
          • In itr there is a column for stcg :
            first point is – FULL value of consideration.(for whole year)
            what to write there i want to know.

            Reply
  6. Hello ,

    I have a basic question. Suppose i invest 10,00,000 in various shares and then keep selling or buying them intraday. How is income taxed. I know it will be speculative income.

    1. During the year , whatever intraday profit i made , is reinvested in shares immediately and I hold 20,00,000. What will be my tax liability.

    2. Same scenario , but suppose I hold only 15,00,000 in shares and 5,00,000 in profit. What will be by tax liability.

    Thanks
    Faraz

    Reply
    • Faraz-Each stocks you purchased and sold is considered for taxation rather than your re-investment.

      Reply
      • Had a feeling it would be that way. Thanks for your inputs.

        On another note , I am surprised however since its considered speculative income , then why advance tax is applicable. Do you know if there have been any successful challenges to this which we can use as a precedent

        Thanks
        Faraz

        Reply
        • Faraz-It is the rule and you have to follow of paying advance tax. No, there are no such challenges.

          Reply
  7. As per my brokers Capital Gains Statement, I have a profit of Rs.1,41,000/- from trading in shares for 2016-17. It is showna as a STCG. Should i pay 15% tax separately. In case I dont declare this STCG, what will happen

    Reply
    • Kushalappa-If it is trading activity, then you have to show it as business income. If you skip to declare then IT Dept may sue you.

      Reply
      • Thanks for your response Basavaraj-ji. This is not from trading activity per se, but routine buying on one day and selling after realisation of some profits on another day/month. I guess it would be prudent to be on the side of the law. Regards, Kushalappa

        Reply
        • Kushalappa-Whatever it is, you can track the buying and selling and the profit gained from such activity. Your broker can provide you the capital gain statement for your reference.

          Reply
  8. Hi, I want to pay tax on my intraday profit from shares trading. Can you please guide me whether STT paid can be deducted from the profit or not.

    Like if the Tax is around 12000 but I have paid STT as 5000, how much tax do I need to pay? Will it be 12000 or 7000(after deducting STT)

    Please advise.

    Reply
    • Nikhil-Yes, taxed paid can be considered as business expenses.

      Reply
  9. I am planning to open and transfer money to Demat account from salary savings account for buying ELSS.
    If after buying ELSS the remaining balance money(x) gets transferred back to same salary savings account, will the money(x) transferred back get taxed under income?

    Reply
    • Taxinvest-There is no such tax which applies for MONEY Transfer. However, during this demonetization period, IT department monitoring the transactions. It does not mean that you MUST not transfer your accounted money also. If the money is accounted, then you no need to fear.

      Reply
  10. query on intraday turnover calculation. If i buy 10 shares of 10/- each and sell all at 11/- then my turnover will be 10/- . is it correct?In another trade if I buy 10 shares for 10/- and sell in 8/- then my turnover will be 20/-. Likewise if I add all the turnover for a year then will it be my total turn over for the year. This 10/- is also my profit and 20/- is my loss. So total turnover is 30/- and total loss is 10/-. am I correct.

    Reply
  11. What all documents will a CA ask for if I hire one for keeping my books for share trading and also audit purpose for filing return in itr4.

    Reply
    • Aniruddha-Nothing but the yearly capital gain statement your broker provides.

      Reply
  12. Firstly, if I make 5000 profit and 8000 loss in short term trading then will I have to pay 15% tax on 5000 profit or can I show loss in short term trading and pay no tax? Secondly, under the same conditions how will I be taxed for intraday trading. In both the above situation I declare myself as trader. Thirdly, if I have paid suppose 200 rupees for stt, transaction tax, service tax demat etc, then will my profit for tax purpose be 4800?

    Reply
    • Aniruddha-There will not be tax on each trade you do (Profit or Loss). But it is combined yearly profit or loss. Taxes are considered as business expenses.

      Reply
      • OK then as per my query for short term trading, if my profit in a year is 5000 and loss in a year is 8000, in that case I have to pay tax on 5000. I cannot claim overall loss so no tax?

        Reply
          • profit from some short term trades is (+) 5000 and loss from some short term trades it is (-) 8000, so net loss is 3000. can I show loss in short term trading and pay no tax or do I have to pay tax on (+) 5000 if I show as capital gain though overall it is loss.

            Reply
  13. If profit in f&o is reinvested in f&o, then the p&l statement won’t show profit. If we keep on reinvesting the returns then there will be only open positions instead of profit. Then how to calculate net profit, income and income tax.

    Reply
    • Chaitanya-Each trade you square off is considered as profit or loss no matter what will be your next trade or open position on year ending. They are smarter than you 🙂

      Reply
  14. i did not show my equity comodity trding loss on my income tax file (-50,000) . becaue loss is not income.. so what will i do no.

    Reply
    • Pankaj-Your trading activity is considered as business income but not as capital gain.

      Reply
      • Mr. Basavaraj,
        I invested 6 lakhs and gained around 1.75 lakhs between August 2015 to October 2016. Income source is from overseas transfer into my account by my brother. Do I need to file IT return? Please advise.

        Reply
        • Ayoub-Yes, it may be in terms of gift or whatever, but you have to.

          Reply
          • Thanks for your immediate response. My doubt is when exemption is up to 2.5 lakhs and in my case it is 1.75 lakhs and that too period is from August 2015 to October 2016. Please clarify.

            Reply
  15. Dear Basu,

    I am doing trading in E-Margin in equity i.e buy a share of company by just paying a margin amount and rest of the amount will be paid by my broker, so in this case what will be the turnover, as I am paying only a 10-20% value as margin, plz advise.

    Reply
      • Sir, besides regular job, If earn extra money by freelancing and do not have documentation of that earning and expenses made to complete that job, how will I have to show that earning and adjust related expenses?

        What should I care about in future for such things?

        Reply
  16. I am private tutor and earn to 50 to 70 k from it .also I earn some money from share trading as STGC and some as speculative gain.which itr form I require to file itr return.and as I came to know that income tax on stgc was at 15% and from speculative gain is at 30% .so I am unable to get how tcalculate tax according to slab 10,20 and 30%.pl solve the query

    Reply
    • Raj-Use ITR4. Trading activity is considered as business profession.

      Reply
    • Dear sir, for filing tax return, what other form do i need to fill and submit any statement from broker along with form 16 given by my employer if I have some equity investment in both long term and short term?

      Reply
      • Anand-No proof required while filing IT return. Just declaration is enough. However, if AO ask for proof, then you must in a position to prove it.

        Reply
        • Sir,

          what is the fine/charge if i missed to give tax on short term gain from equity investment in 2014-2015 while filing along income tax last year?

          Is it really so necessary for very small investors?

          Also to confirm, there is no kind of relief on long term losses in equity investment?

          Reply
          • Anand-It depend on cases. Yes, whatever income whether it is small or big, must be shown. Regarding losses, I commented below. Please check it.

            Reply
    • Sir,
      If someone paid Tax on short term gain in equity in 2014-15, can he adjust that paid tax in previous year for the short term loss made in equity in 2015-16?

      Anand

      Reply
  17. Stgc income tax at 15% but slab are 10,20 and 30% so how it is to calculate

    Reply
    • Raj-For which asset class you are pointing that STCG tax is 15%? Can you give me details?

      Reply
      • STCG from share trading on delivery based as well as on intraday

        Reply
  18. Dear sir

    I have a loss of rs.330000 in f&o trading and 550000 in intraday trading in equity. I dont want to show a loss of 900000 in my return, instead i am planning to show a profit of around 10% in trading and pay the tax accordingly, is it possible to show the profit instwad of loss.

    Reply
      • Dear Sir,

        I want to show profit instead of loss so that my capital will be safe and by seeing a loss IT dept.will surely keep my file under scrutiny and there is a audit liability and maintaining a books also, so inorder to escape all this liabilities I am planning to show profit instead of loss. Apart from this I have one firm also having turnover above 1cr. and I have done audit from CA also, but I am in very much confusion and tension about the loss incurred in shares trading, plz guide.

        Reply
        • Sumit-Do you feel they rely ONLY on your IT claims? What about the trades you did? Will they not come into picture? Don’t be in wrong belief. They are more smarter than you and me 🙂

          Reply
        • Dear Sir,

          My total turnover in F&O is around 900000(total of profit & loss), and around 600000 in intraday equity trading(total of loss & profit), total turnover is around 1500000, I am planning to show a profit of about8-9% in f&o trading and 13-14% in equity trading, will it be a correct step or I will be in trouble in coming days. My CA is advising to show as profit or my capital will be washed away.

          Reply
            • Sir,

              Plz advise what to do next, is audit required for this case or directly the loss will be shown in return…..

              Reply
              • Sumit-If you are so much confused, then better to take the help fo CA of your area.

                Reply
      • Dear sir, please help me out – this could be problem of many people. Please just don’t say to consult a CA. I don’t enjoy the world and don’t like to go out and meet people.

        I’m buying shares from 2008 with all my savings + borrowed money from banks. I started accidentally in share market with zero knowledge. All the local gurus those who enlightened me in 2008 to buy shares have mostly spoiled their lives n career.

        I could also have hanged myself but due to regular income from my small mnc job, i survived, but took hit on my growth in my job n field very badly. in next 1 yr i will be out of job permanently due to the lost momentum of learning .

        At present also I’m in 15%debt of total stocks holding. Its mix of long term + short term investment. In past many years, mostly my holdings were in loss. In 2013 it was down by 70%.
        I never filed any thing regarding stocks in my IT return .

        I have been filing IT return only on the basis of form 16 given by my company since 2006. Since 2014 I did lots of buying n selling and booked many long n short term profits n losses.

        If it is dam necessary, minimum what i need to inform or file to IT dept regarding my stocks investment activity along with form 16 given by my company for 2015-16 ? Can it be done just buy downloading some sort of statement from my broker website regarding my holding/activities and submit to IT dept while filing return.

        Additional/situational information –
        # Portfolio size must be around 60 lac and any day i may liquidate fully in near future if i get out of job. If I would have done FD with all my savings, it must have grown over 1.25 crores.
        # Now i do have some knowledge & concept about companies/businesses/policies &stock market and would continue investing in shares for both short n long term in future too.

        Best of Regards.
        Sharad!
        New Delhi

        Reply
        • Sharad-I can’t guide your each transactions. It is difficult to guide me on this platform. Hence, if you want to be clear our of tax mess. You must visit the local tax expert or CA.

          Reply
  19. Can u please clarify regarding audit requirement of F&O.

    Assuming my purchases of options is rs 5 crore and sell is rs 4.98 crore and there is a loss of rs 2 lakh

    – is there a need for Audit-

    if i also hold shares in the trading ac and the prices of these shares ave gone up and there is a increase in value of the shares y rs 1 lakh- what is audit requirement and tax liability.

    will it make any difference if the shares is kept in investment demat ac which is not normally used for trading

    Reply
    • Ramji-Yes, as per Sec.44AB, if the person is carrying the business and his Total Sales, turnover or gross receipts, as the case may be, exceeds Rs. 1 Crore, then auditing is necessary.

      Reply
      • What is total turnover is it total profit or amount of total selling price or total amount of cost price plus selling price
        Pl ellobtate with example
        If 1000 share purchase value is 100 and sell value 125.also pl explain whether it include brokerage and service tax etc and demat AMC and other charges

        Reply
        • Raj-Turnover refers to “Net of all positive and negative incomes from various transaction”.

          Reply
  20. Dear Sir,

    I look forward for your valuable advice. My query is little long.

    In FY 2014-15, I had loss about 5 lakhs from indtraday share trading (No delivery of equity share in demat A/C). Other than that my total income (Salary + Bank Interest) is below Rs. 1 lakh. I consulted a CA and he put this under Short Term Capital Loss in ITR4 form to be carry forward.
    However now I came to know that this must be under speculative loss.
    Was my ITR filling incorrect ? Does speculative loss require book keeping and auditing?

    I have received IT notice for Limited Scrutiny for security transactions. How should I deal with it?

    In the FY 2015-16, I had profit of Rs. 900 from indtraday share trading. Other than that my total income is around Rs. 5 Lakhs. I filled the ITR4 for this year as well but I have not shown this Rs. 900 profit as I am not sure where to add this income and also I have not transferred this profit from my DEMAT account to my bank account. Is this comes under tax liability even if you have not transferred your profit from your DEMAT to bank A/C?

    Does my this year intraday trading require book keeping and auditing?

    A big thanks for your help, Sir.

    Reply
    • Amit-Your trading activity is considered as business profession not speculative. I am not sure how your CA considered this as investment. Consult your CA and resolve the issue.

      Reply
  21. I want to ask a question. Suppose I earn profit of 120000 on share tradin as STCG and I have other income 50000 total income than 250000 .Is I am liable to pay tax.

    Reply
  22. Dear sir,

    I have a question regarding gift. My father(not father-in-Law) has given me 1 Lac rupee as gift after marriage. Now I am planning to invest in somewhere. I want to know whether income generated from it would be taxable in my hand or in his hand?

    Thanks in advance.

    Reply
  23. Dear Basu,

    I have gone through various posts in this forum and I really appreciate the service given by you.

    My query is that I am holding few shares for more than 8 months now and in profit. Now I plan to gift these shares to my wife in whose name I have opened a trading account where I will do f & o activity by using these shares as margin after pledging these shares. My question is is two parts:

    1. Will the provision of clubbing of income apply for income generated in her account through f&o trading where she has pledged the shares gifted by me, for use as margin.

    2. In case, she sells the shares after 6 months, will she be required to pay any tax as I have already held these shares for 8 months.

    Thanks

    Ashu

    Reply
    • Ashu-1) Asset gifted by you is tax-free for her. However, whatever she earned from that gift is clubbed in your income and taxed as per your tax slab.
      2) If holding period is more than a year, then it is tax-free.

      Reply
  24. I have been holding shares of few companies for more than 2 years and plan to hold for few more years. There is significant unbooked long term gain. I plan to enter options trading now. I plan to pledge my shares for using it as Margin required for options trading. Can you clarify about implications on long term capital gains after shares have been pledged when I actually sell these shares after few years. I would really appreciate if you could send me the link of this rule set by either SEBI or by I T department that my long term capital gains would not be effected. Actually i want to be double sure before jumping in this segment. Thanks !!

    Reply
    • Vikas-There is no difference in taxation whether you pledge or not pledge.

      Reply
      • Thank you so much Sir !!

        Reply
  25. Dear Sir,
    Thanks for an excellent post.
    I work with a private company and have also invested through SBICAP demat account. I sold some shares before one year and earned short term capital loss. Further, I sold another share after more thab one year of investing, and earned long term capital gain. I am using ITR-2 for returns. I have two queries: A. Is the long term capital gain taxable and at what rate? B. The gains are to shown under item 2 (of the ITR-2 Java utility under Schedule CG) that says “From sale of bonds or debenture (other than capital indexed bonds issued by Government)” or item 3 (of the ITR-2 Java utility under Schedule CG) that says “Listed securities”. The first one is being taxed @10% whereas the second one is @20%.
    I would really appreciate any guidance.
    warm regards,
    Durgesh

    Reply
    • Durgesh-A) It is tax free. B) You are pointing towards debt instruments. Opt for equity, it is tax free if holding period is more than a year.

      Reply
      • Thanks a lot for the reply. Am slightely confused with B). Should I fill the long term capital gain details in the Schedule EI (Details of Exempt Income (Income not to be included in Total Income)) in the Java utility of ITR-2? Currently, I am filling these details in Schedule CG.
        Thanks in anticipation,
        Durgesh

        Reply
          • Thanks again for prompt reply. You are doing a commendable service by spreading awareness about return filing. Kudos!

            One more thing: The short-term capital loss detail will still be entered in the Schedule CG?

            Further, I made donation to an NGO caring for children. Will it be 100% exempt or 50% exmept. The receipt they send me shows exemption under 80G(5). Sorry for off-topic query.
            Warm regards,
            Durgesh

            Reply
      • Dear Sir, thanks for reply. It is about combined holding period of one year or she is required to hold for one full year.
        Thanks

        Reply
    • Dear Sir,
      It is grate one from you. i have an confusion on short term gains.
      If suppose i purchased equity share and sell them at profit and immediately invest the funds in other equity shares and my holding period is very less than 12 month (e.g. Intraday Treading).
      Am i supposed to pay short term gain tax?

      Abhishek

      Reply
      • Abhishek-Trading is considered as business income but not an investment.

        Reply
  26. I had 2.6 cr profit from speculation income if I want to audit. how much audit fee is nominally paid for it to auditor. Or. Their is any special amount is based on profit for audit fee

    Reply
    • Arun-I am not about about fee. You can check with your CA. It varies based on their popularity.

      Reply
  27. sir,

    My question is different from the topic. I earn approx. 1 to 1.2 lacs per anuum from home tuition irregulary and want to file income tax return sothat I can regularise my income tax return. Sir I want to know which ITR should I fill? And I am getting the whole amount in cash without any receipt so is it right or not?

    Reply
  28. Dear sir,
    I want to know I have opened a demat account on wife’s name which is non working . I have done both delivery and intraday trading in that account. I want to know whether intraday trading done in her account will be clubbed with my income as in intraday trading no money is given by me to her and she earned money through it.

    Reply
      • Sir,

        I don’t get the meaning of initial cash in the case of intraday trading. As for intraday trading no cash requirement is necessary but margin in trading account is required. That margin was given for delivery based holding existing in account which was bought from money transferred to her account.

        Thanks.

        Reply
        • Mohit-I am asking the source of funding for trading in her name.

          Reply
          • Sir,

            The source of intial funding is me.

            Reply
              • Sir,

                I have one more question.If I invest in my wife’s name in debentures,shares,fds etc then there will be income in form of short term capital gain, long term capital gain, interest , dividend etc. It will be clubbed with my income. But if I reinvest this STCG,LTCG,interest , dividend etc. again in the name of my wife will it be taxed in my hand or my spouse?

                Thanks

                Reply
  29. Respected Sir

    Thanks for the great support you are providing to everyone.

    Sir i need your support in my matter.

    Sir i was a mba student in 2011 – 2013 when i started trading. i took money from my Mother through neft in my account for trading as i do not have any source of income of my own.

    all my trades were intraday/short term mostly in future and options. i have never holded any share purchased in cash for more then a month. basically i traded as a trader.

    have suffered huge losses in shares since 2012.

    2012 – 2013 : 3 lakhs
    2013 – 2014 : 5 lakhs
    2014 – 2015 : 6 lakhs
    2015 – 2016 : 13 lakhs

    I have taken all this money either from mother or friends through account transfer.

    during 2012 2013 i was a student and there was no profit by trading and only losses so i did not filled it return for 2012-2013 as there was no one to guide me too. i accept my fault i should have known the basics but cant help it now.

    2013 – 2014 i got govt job and my employer filed my it return but only salary particulars were declared in it return.
    trading loss of 5 lakhs was not declared.

    2014 – 2015 & 2015 – 2016 again not filed any it return as i did not receive my salary being on loss of pay leave due to family tragedy trading loss for these years also not declared.

    now i have received income tax notice for 2012-2013 for non filing of it return and information seeking shares held bought and sold.

    Sir please guide me what should i do to overcome this situation as i dont want to get into any serious trouble. this is really making me tensed and i dont have anyone to guide me.

    thanks sir and waiting for your response.

    Regards

    Anivesh

    Reply
    • Anivesh-You claim that there is a loss in trading. So you no need to fear and show them the trading statement. If you are under loss, then your tax liability will not be there.

      Reply
  30. Hi,

    I am an NRI (India citizen) and tried to invest in the stock market since 2013. My intention was to invest and hold for a long period of time, but as i was in the learning process i have made multiple transaction as the market have been volatile and made losses or minimal profits. In some years my sell side turnover and reached more than 1 CR even though i had a capital of only 20-25lacs and all these transactions are delivery based STT paids. TDS at 15% has already been deducted on all the profit days as its a NRI PIS based account. The losses have not been adjusted. I didn’t file the returns as i was making losses or minimal. Now i have received a ITR notice regarding non-filing i have replied saying i didn’t file because i have only equity STT paid income/loss below the taxable limit therefore i didn’t file returns. Have i done the correct thing so far?

    Also there is that matter of turnover going above 1 CR. If i had held for 1 year and above i would have probably made some profits and that too tax free.

    Do i need to file returns for 14-15 & 15-16 in ITR form 4 and that too through a CA as the turnover is above 1 CR and that would mean auditing and all the additional costs on top of the losses?

    Reply
    • Imtiaz-Better to file the IT return. Regarding auditing of accounts by CA, I already replied in many of the comments. Please go through it.

      Reply
  31. Dear Sir,

    I am employee in Private company and my salary is 7 lpa. I have just opened trading account and invested 6 thousand rupees and understanding share market. Most of trading done as a intraday and some of delivery base and hold less than 4 days, Also i suffer loss in 15-16 year . Do i need to audit book, do i need to file ITR?, if yes which form i need to fill.

    Thanks in advance

    Reply
    • Ankita-Audit book not required. But yes, taxation will come into picture based on your capital gain. It is ITR4 form you have to use.

      Reply
  32. Sir,

    I am salaried employee working in a Public Sector Undertaking, a Government of India Undertaking. My wife is housewife. She has no income.

    I recently opened a De-mat account in my Wife name through Angel Broking for trading activities.

    I transfer money from my account to her account. I do the trading equities in her name. So far invested approx. Rs. 1 Lakhs.

    I would like to know:

    1) Is it legal doing trading in my wife’s name who has no income.

    2) Should I declare the profit / loss in my ITR.

    3) What precautions to take place as per Government Norms as Im working in Central PSU.

    Reply
    • Ravi-1) It is not illegal. But in case of her earning, you have to source of this Rs.1 lakh. How you show it? The best way is to gift her.
      2) If source of funding is from you, then you have to declare it.
      3) That is left with you as I don’t know your employer rules.

      Reply
      • Dear Sir,

        Thanks very much for the reply. I prefer to gift her the money so that i need not declare or show in my ITR. I like to know about gifting. Is there any format indicate that I gifted her so that I can keep it as a proof.

        Regards,

        Reply
        • Ravi-You find it in Google. But it is very simple process. You no need to keep this in bond paper or registration is also not required.

          Reply
  33. Hello sir ,
    I purchase equity share of 6 lakh RS. In fy 2015-16 .I hold these shares . I also other source income of RS 10 lakh . my question is

    1. Which itr form I fill ?

    2. Is it compulsory to show holding equity share in itr ?
    3. In which column of itr I fill these holding equity share of RS.6 lakh?

    Reply
  34. I HAD BEEN EARNED AGRICULTURE INCOME DURING F.Y.2013-14 AND I SOLD MY AGR.LAND WHICH I GOT FROM MY FATHER’S NOW I SOLD IT IN 100000/- SO WHT AMT SHOUD I PAY AS CAPITAL GAIN PL TEL MEE.i am from gujarat

    Reply
  35. dear Sir
    iam an employee in an company with salary of 5.00 lacs ( job joing date feb 2016) tds has been deducted also theron

    i do only intra day trading rarely (once or twice in a week) and made around 2 lacs as profit and 1 lac as loss

    now i have informed my off abt my trading activity….

    now advice how shd i file the return…….. as trading activity income does not come in FORM -16

    what should i do……………

    Thanks
    Bala

    Reply
  36. Hi Basavaraj,

    Really appreciate you post and kind support.
    1) If one has Rental Income from 2 houses (flats), FD’s and F&O trading which ITR form to be used.
    2) for F&O can STT, Brokerage, Telephone exp can be shown as business expenses against gains.
    3) for F&O Trading as a business income is it necessary to fill details such as CAPITAL, SUNDRY CREDITORS, DEBTORS, STOCK IN TRADE, etc.
    Pls. clarify, Thank you.

    Reply
  37. Hi Sir,

    I have some shares which I am holding in my demat account from more than 10 years & earlier they were present with me in physical Form.

    If I sell those shares now then “How should I calculate long-term capital gain” as I do not have purchase slip with me (I am not aware of purchase price) .

    I want to calculate long-term gain to mention while filling my ITR. Please suggest.

    Regards,
    Ashu

    Reply
      • Hi Basavaraj,

        Thank you for sharing your idea.

        I have a doubt on STCG. I have sold few of my MF and i have not paid tax for STCG for 2014-2015.

        Could you please guide how would i pay the amount and file it?

        Regards
        Kushal

        Reply
        • Kushal-You have to revise the IT return and show it under the head of capital gain income.

          Reply
  38. Hi Sir

    Due to my health concerns i have not been able to join any job in my prime years. However I have invested a few lakhs in stocks using the money gifted by my parents and siblings. I came into the market as the hassle would be less if one declares oneself an investor and no tedious book keeping or auditing.

    But i see in some of your comments you are telling people that when ‘trading’ is the only thing a person does, then it might constitute ‘business income’ and entails all that come with that label like book keeping and auditing. I want to know what if the only thing a person does is ‘investing’ like buying and holding shares for months on(it can range from one month to 12+months) and then only sell them and also take dividends if the companies pay them. Is there a way legally to put this income under ‘investor’ category even if it’s going to be the only or major source of income. I need this categorisation desperately as i’m not going to deduct expenses, keep books, or audit just because i can not do them due to my health concerns.

    Looking forward to your kind guidance.

    Thanks.

    Reply
    • Jakir-This confusion arises only for STCG. Please keep in mind that even if you are doing trading only, it can be treated as investment based on the holding period. You must have proper answer when AO questions you.

      Reply
  39. Hi Basu,

    I had some shares in physical form jointly with my dad as first holder and me as second. Due to unfortunate demise of my father, I had converted the physical shares to my demat account.

    Do I need to show these shares in my ITR. Physical shares are bought long ago around 1995.

    Regards,
    Ashok

    Reply
  40. DEAR SIR, I HAVE ACTIVLY TRADING IN NSE N NSEFO MY BTST AND 2 TO 3 DAYS DELIVERY VOLUME
    WOULD BE MORE THAN 1 COROR AND IN FO MY VOLUME IS 35 COROR IN 2015/16 I HAD A LOS OFF
    RS 9 LAKH IN ALL THIS TRANSECTION MY QUESTION IS THAT CAN I SUBMIT ITR4 AND I HAVE FILE MY RETURN WITHOUT AUDIT OR MUST GO FOR AUDIT IF I NT FILED THE RETURN WHAT WILL THE CONSIQUENCES THANKS SIR

    Reply
    • Reshma-Yes, you have to file ITR4. Auditing is also required when your sales, turnover or gross receipt in business for a financial year exceeds Rs.1 crore. If it exceeds in your case, then auditing is mandatory for you too.

      Reply
  41. Dear Basavaraj ji, I received a notice from Income Tax dept which says i have not filed income Tax returns for AY 2014-15.I have filed income Tax return in time as I am an employee.Yes i have not mentioned my investment in Equities.Now what should be my reply For STt-01, STT-02,STT-03.I am mainly an Investor.rarely I o trade.I cant remember whether I did any trade in FY 2013-1.Now what should be my reply in Related Information Summary.Pls let me know.

    Regards
    manojit dhar

    Reply
    • Manojit-First you inform and provide proof to them that you filed the IR return for that particular year. Then wait for their next letter.

      Reply
  42. Hello sir,
    I am a retired senior citizen 68 years old. I am paying a house rent of Rs. 17500/- per month to my flat owner. This includes approx. Rs.3500/- per month maintenance charges which are directly paid by the flat owner to the society and this is stated in the rent agreement. Kindly let me know if I have to deduct 10% TDS while making the rent payment. If yes is it to be deducted every month or it can be deducted as a lump sum amount towards end of the agreement period?

    Regards.

    Reply
  43. I have one query that an asseessee having delivery based share trading (having around more than 600 transactions in a year of purchasing and selling of shares in a recognised stock exchange with an annual turnover (sale value of shares) of approx more than Rs. 10 crore). all are short term transactions having holding period of app. 5-30 days.

    How we can treat it for Income tax purposes, i.e. either Short term capital gain income or business income. What id, we show it short term capital gain income because now it is also not possible to get accounts audited for last year as last date of audit has also gone.

    Reply
    • Abhishek-In my view it is business income. But is it purely AO who has to decide.

      Reply
  44. I got 3000000 from my sale of shares which i invested 14 months back. I declared myself as investor to my broker. I am not doing any job. My invested money is also below 250000 while investing. Can i invest that 30 lakhs in fd or can i spend that 30 lakhs for buying house or can i spend that money for personal use. I want whether i can do anything by that money without tax? And also i want to know should i file returns and which itr i should file? Is there any incometax on that 30 lakhs? If incometax is there how much tax i have to pay? My only asset is that 30 lakhs now. Plz suggest which is better for me to get the total 30 lakhs without tax.

    Reply
    • Sunny-Regarding taxation, I already explained above. Where to use this money is entirely your decision.

      Reply
  45. Dea Mr. Basavaraj,

    Thank you for your quick response. I hope my understanding is correct in respect of Futuresas as the profits or losses are marked to market on daily basis . Kindly confirm

    With Best Regards
    RAMAIAH DIVVELA

    Reply
  46. Dear Mr. Basavaraj,

    Thank you for your quick reply to my query dated 25 October 2015. I request you to clarify my one more query.

    My understanding is that mark to market profits/losses on day to day basis incurred during 1 April 2014 to 31 March 2015 in respect of Derivative Transactions are to be taken into consideration while finalising profits/losses for the FY 2014-15, irrespective of whether the Derivative Transaction is closed/squared off during FY 2014-15 or not.
    Kindly confirm that my understanding is correct

    With Best Regards
    RAMAIAH DIVVELA

    Reply
    • Ramaiah-In my view NO. Because, in case of options the profit or loss are not mark to mark, but only after closing the position.

      Reply
  47. Dear Mr. Basavaraj,

    The above article has given a very valuable information. Thank you very much for the same. I have an income of Rs 59,54,000 lacs from consultancy for the FY 2014-15, as I am an Actuarial Consultant to an Insurance Company. I also trade in Equity shares and F & O. I got a profit of Rs 67,000 from F &O for FY 2014-15 and whereas I incurred a loss of Rs 16,00,000 from trading in Equity Shares for FY 2014 -15( by buying and selling the equity within one year of their purchase during FY 2014-15). I declare myself as Trader( and not an Investor) and therefore based on your above article, I can set off the loss from Equity share Trading from my consultancy Income

    Please let me know that my net taxable income will be Rs 44,21,000( =59,54,000+67,000 -16,00,000). Kindly confirm that my understanding is correct

    With Best Regards
    RAMAIAH DIVVELA

    Reply
  48. Could you advise me what is minimum income from business (equity trading) that is taxed.

    Reply
  49. Dear Sir

    I am an emplyee with a annual salary of Rs.6.0 lakhs. I also trade in the Equity and F&O segments of the NSE.

    In the last financial year I had incurred a loss of Rs.3.90 lakhs in F & O segment plus brokerage and other charges of Rs.1.11 lakhs.

    I incurred a profit of Rs.1574 on Equity trading and expenses of Rs.2440. .

    Totally i incurred a loss of Rs.5.0 lakhs .

    The turnover as per statement of my broker for F& O segment is Rs.12.32 lakhs.
    The turnover as per statement of my broker for equity segment is Rs.16000/-

    Do I need to get my accounts audited?
    I want to show the losses so that they can be carried forward and set off against the future years as i am continuing to trade and intend to be fulltime trader in future.

    Reply
    • Kumar-You no need to go for audit. Auditing is required when your gross turnover is more than Rs.1 Cr. Regarding carry forward of loss, I already explained above.

      Reply
      • Hi Basavaraj,

        I was trading commodities futures through MCX for FY2010-11 and had incurred loss. I had no other income at that time. Is it mandatory for me to file a return??

        Pls advice.

        Reply
  50. dear sir
    i am a salaried person and i do not have any taxable income and i do not file ITR and and i also do BTST and intraday trading in recognised stock market, the purhase & sales turnover is exceeding Rs. 38 crore and loss have been incurred, should i file ITR? in there any tax audit requirement even if i considered this loss as short term capital loss? please suggest me

    Reply
  51. i am central govt employee
    can i buying/selling shares in the stock market?
    is it legal?

    Reply
  52. Dear sir,
    My mother in law, aged 90 years, passed away recently. She had invested Rs.1.9 lacs in two Tax Saver fixed deposits which would mature in 2017 & 2018 respectively. I understand that the FDs can be prematurely closed n the event of death of the holder. Could you please advise if the tax benefit enjoyed by her on these FDs will have to be refunded to Income tax department? Is there any penalty to be paid?

    Regards
    Mohan Pant

    Reply
    • Mohan-There is no such penalty as it is due to death of depositor.

      Reply
      • Thanks for the response. You have clarified that there is no penalty. However kindly let me know if the tax benefit accrued due to the tax saver deposits would have to be returned to Income Tax department.

        Regards

        Reply
  53. Dear Basavaraj ,

    could u pls help me on this ..

    I invested some 40 thousand ruppess in stocks and traded through Motilal oswal securities limited. I suffered huge losses and comparatively no gain .. i did intraday mostly — suffered losses
    and tooks shares in delivery for just two times. —- suffered losses

    Now i have recieved income tax letter to file ITR .. else i have to face action according to IT ACT 1961 ..

    Now should i file ITR for dis too …
    1) If YES than how
    2) Will i have to pay tax though i suffered losses .

    Kindly reply as early u can .. Thanks in advance

    Reply
    • Vishal-Yes, you have to file the return showing this income. Contact any tax expert of your area to get the guidance in filing IT Return.

      Reply
      • I know you are a very good tax expert.. I read somewhere that I can carry forward losses to Eight years. is it true .. pls help how to do this .

        actually Income tax dept asked to fill itr for year 2013-14 … for trading done in 2012 . I dnt have any data with me for exactly how much i invested and losses incurred ……… Pls suggest me any easiest process that i dnt have to go to any expert for all this as I belong to very small town.

        Reply
        • Vishal-Yes, you can carry forward but there are certain rules to it.

          Reply
          • Dear Basvaraj,

            I went through your article and it was very useful.

            My understanding takes a perspective of a trader and an investor, both. What I understand are in points 1-4 as below, for which I request your confirmation.

            1.) LTCG for shares held more than 12 months is always exempt (where STT is paid) for every individual be it trader or investor or both.
            2.) Intraday equity in cash segment is speculative business income and would be taxed as per slab rate. We can claim business expenses against the gains.
            3.) Intraday F&O or positional is non-speculative business income and would be taxed as per slab rate We can claim business expenses against the gains.
            4.) It’s the shares held less than 12 months where there is a bit of subjectivity involved as in it can be either treated as STCG or be treated as non-speculative business income depending on whether you have classified those transactions as investment or trade, respectively. And this subjectivity revolves around the “FREQUENCY” of such transactions. However, if an individual’s bread and butter activity is shares trading only then this would necessarily be treated as business income.

            Reply
              • Basvaraj- I also got to know that even LTCG would be treated as business income in case trade frequency is very high and your primary activity is shares trading.Is that correct?

                Reply
                • Ranjan-Yes, but it depends on how you declare like whether investor or trader.

                  Reply
  54. Hi,
    My main source of income is FDs and Intraday + BTST + short term. Income below taxable limit. Still I received notices asking why I have not submitted returns for past 2 years. They are referring to my above trades under STT-01, STT-02 and STT-03.

    So I have decided to file this years return and I know I need to file ITR 4. Please help in providing some ITR4 specimen for stock market traders…..

    Suppose as per portfolio position from backoffice I have:
    Delivery purchases = 500000
    Delivery sales = 492000
    Speculation purchases = 6200000
    Speculation sales = 6215000
    Total of positive and negative values of speculation entries = 50000

    Cost price of Stocks with me on 1 Apr 2014 = 56000 (Calculated my be from last year reports and not available directly)
    Cost price of Stocks with me on 31 Mar 2015 = 110000 (Calculated my be from this year reports and not available directly)

    Market value of stocks (available from backoffice) held on 1 Apr 2014 and same day value = 67000. I dont now why it is required. So I think this is to be ignored and 56000 is to be taken as opening stock.

    Market value of stocks (available from backoffice) held on 31 Mar 2015 and same day value = 95000. I dont now why it is required. So I think this is to be ignored and 110000 is to be taken as closing stock.

    Margin money in trading account on 1 Apr 2014 = 9000
    Margin money in trading account on 31 Mar 2015 = 10000

    Please help me with sample ITR 4 for this data.
    Assuming that FD + above data is less than taxable limit and my profit is less than 8 percent, am I required to get myself audited?

    Thanks

    Reply
    • Guarav-Sorry to say that, I can’t calculate each transactions and comment here.

      Reply
  55. Hello Sir

    Thank you very much for providing us such an informative knowledge on taxes on capital gains. It will be very helpful if you provide some more information for clearing my doubts about some points
    I am an salaried person with income greater than 5L. Also i have demat account in which i bought and sell some shares occasionly. At the end of fy, my net intraday profit is 600INR and STCG is 9400INR. Now my doubts are:
    1. Can i file ITR-2 and show stcg as 9400 and income from other sources as 600. or show stcg as 10000 and pay tax?
    2. In current fy, i have suffered loss of 30k. So i will show it as STCL in itr-2 next year ie fy15-16. But my doubt is that do i need to show this STCL in every return for 8 years after fy15-16 even if i have not STCG for any of those year? Will i be able to file itr-1 for those remaining years having only carried STCL but no new STCG or STCL ,or will i need to file itr-2 for those remaining years only just to show this carried STCL.

    Hope you understood my queries
    Looking forward for your reply
    Thanks in advance

    Reply
    • Rohit-How can you differentiate the intraday trading profit and STCG profit as different? In my view both are considered as business income. Hence, first define yourself which you want to declare.

      Reply
      • Hello sir
        I want to show myself as investor (not trader). I hardly trade in equities, turnover is very less ,frequency is once or twice in two weeks or less and also did not do f&o. That is why I want to show stcg as a investor but problem is where to show this small amount of speculative(intraday) gain.
        Do I have to fill itr-4 to show this small gain only as stcg can be filled in itr-2 also.
        Also please reply for my second question also asked above
        Thanks in advance

        Reply
        • Rohit-But sadly your intentions not match with your frequency of trading. Hence, they consider you as trader.

          Reply
  56. Sir , I trade in f&o and equity in fy 2014-15 . my trading detail are given below .

    F&O. Net buy amount. = 2,00,51,850
    Net sell Amount = 1,98,67,734

    Loss. = 1,84,116

    Equity.
    Net buy amount = 26,95,026
    Net sell amount = 29,27,712

    Profit = 2,32,686

    Now my question is ;

    1. Can I fill itr-4 ?
    2. What is my STCG ?
    3. What is my total income from share bussiness ?
    4. Is I fill itr-4 online myself or this is fill by CA only ?

    Please help me to til my return for fy 2014-15 . thank you

    Reply
    • Sir , two more question with last post is that ;
      What is full value of consideration ?
      What is cost of acquisition without indexation ?

      Reply
      • Varinder-Full value Consideration-It is the amount that you receive by seller in exchange of his asset. Cost of acquisition without indexation is the real cost he paid to own the asset.

        Reply
    • Varinder-Your broker provide you the capital gain statement. Please get that and it creates a life easy for you.

      Reply
  57. Hi Basavaraj,

    This article is very helpful to understand about investor & trader. Few below concerns I have and will really appreciate if you clear me.

    1. You have any article for MCX trading ?
    2. I do trading, salary person and I don’t have any other income. I have huge loss in F&O and commodities MCX. Is it can I carry forward the losses and if then how many years can I do ?
    3. How to calculate turnover ? for ex: in future nifty future 1 lot (50 shares) buy/sell @ 8300 -8350 =?, for options same nifty 1 lot buy/sell @ 50-75=?, for commodities Crude oil 1 lot (100 shares) buy/sell @ 3200 – 3400=?.
    4. In loss case if the turnover exceeds 1CR for a year then also tax audit required?

    I will be waiting for reply, thanks in advance.

    Thanks & Regards
    Purushothama

    Reply
    • Purushothama-1) Taxation not differ based on the market. Hence, it applies to MCX, NSE or BSE.
      2) I already wrote about business loss rules. Please go through above post.
      3) Your broker provide the statement.
      4) It is commented below. Please go through past comments.

      Reply
  58. Sir, I am a pension holder, only to pass time I invested in equity through a registered broaker, after three years I sold it with some gain (Rs1500/- ) and invested the money in other share, my total monthly income through pension and bank interest is about 3 lakh but due to medical insurance I am not paying any tax but has submitted my return, will I have to show the long time capital gain in the return, kindly advice.

    Reply
    • Surath-Yes, you have to show it. But it will not affect your taxation as long term equity holding is tax free.

      Reply
  59. Dear Basasvaraj,

    I got RSU’s from my company which are traded in stock exchange outside India and hence once i sell them, so STT will be paid on them.

    Whats the minimum holding period for stocks that are traded outside India so that on selling they qualify for LTCG ?

    thanks

    Reply
    • Anurag-If STT is payable then holding period more than a year will qualify for LTCG.

      Reply
  60. Hi Basavaraj,

    I have one query in e-filing.

    I have worked 3 months is Contract payroll & remaining 9 months in Regular payroll from different company.
    Hence I received both Form 16 A from the 1st company & Form 16 frokm 2nd company.

    Can you please guide me which form I should fill it for filing return?

    I see only Form 1 & Form 4S available in Quick efile.

    Can I fill Form 4S for this case?

    Thanks a lot in advance for ur help…

    Reply
    • Murthy-You have to show the consolidated income from both Form 16s. However, mention the current employer in employer field.

      Reply
      • Thats fine,

        But some ppl said I have to file in Form 4 & Some ppl said as Form 4S.

        So I got confused….

        Also As I got Contract income in Form 16A, Can I show as some Business expencess in my otal salary for that 3 months?

        Reply
        • Murthy-I am not aware about all those. Sorry to miss the word CONTRACT in your comment. You can show the expenses incurred related to this income. Also, you have to file ITR4.

          Reply
  61. Hello Sir, Your replies are very informative and helpful, I am a Salaried employee, I have taken a policy from HDFC, which allows me to save taxes annually, I would like to know if I open a demat account in my name or my wife’s name and invest in the stock market directly for the same amount equal to that of the policy, can I show this as an investment under any section or category and claim exemption?
    Waiting eagerly for your reply

    regards

    Shankar

    Reply
    • Shankar-What is your logic in investing equal of that that HDFC policy?

      Reply
  62. Hi Basavaraj,

    Really this page is very informative, But still I want to clarify my situation with you.

    I am a salaried person of 7 lakhs per annum and in Intraday transactions I have lost around 2.5 lakhs (Transaction amounts might be some 10-20 crores) in FY2014-15, I got year end statement from my Broker also.

    So Can I declare this 2.5 lakhs as my loss when I file my ITR? and My company deducted around 45k as tax paid, and Can I recover for 2.5 lakhs from the taxes paid?

    If so please guide me under which section I have to declare this 2.5 lakhs as loss.

    Or I have to approach any CV for this?

    Thanks a lot for your help in advance…

    Reply
    • Sathya-Sadly such short-term capital loss can’t be squared off against your salary income.

      Reply
      • Oh My god I thought I can show this loss & get my 40 k which I have paid as Tax under salary income…. Can you plz guide me if at all some way I can show this and get benefited???

        But if profit comes then I have to show mandatory???

        If at all I want to show (like in case of LTCG,STCG loss) under which section we can show that loss, I just wanted to know…

        Reply
  63. Respected Sir,
    I incurred a loss of Rs. 23000/- on intraday trading of equity shares during the year 2014-15, with total turnover of purchases and sales worth Rs.48000 thousand during the year. Can I set off the above trading loss of Rs.23000/- against my salary income (1, 76000/-) to get the Income tax benefit?
    Thanks and regards,
    Syam.

    Reply
  64. Hi Basavaraj,

    Please clarify me with the below cases.

    Case1:I invested 2 Lakh rupees and do trading only equities more often like in every month at least 5 to 6 buy & sell transactions.Sometimes I earn some profits & some times I may face losses. But at the end of the financial year I am in a profit of 10 thousand Rupees.So by the end of the year my capital amt would be 2lakh 10 thousand rupees.How tax will be calculated in this case.

    Case2:Assume this is also as Case1,but here I am in loss of 20 thousand by the end of F.Y.So now my total capital comes down to 1lakh 8o thousand rupees.In this case still I need to pay the tax?

    Reply
    • Kiran-It is your business income and the profit is taxed accordingly. Business loss conditions explained above. Please go through the post.

      Reply
  65. Hi,

    In case anybody has three sources of income as below:

    1. Salaries – through Full time employment

    2. LTCG : from stocks whose holding period is MORE THAN 12 months

    3. Speculative Income: from intra day / day trading activities – which are practically supported/managed by broker fully (that is, concerned employee is devoting NO time to the day trading activities).

    Issue: Can it be questioned that above LTCG which is otherwise fully exempt is taxable as business income as he is also having income from speculative tranactions i.e. business activities as is mentioned in point 3 above.

    Please note that transactions under both 2 and 3 above are done through SAME broker.

    Thanks a Lot !!

    Reply
  66. Hi,
    very informative article. but please clear a specific query..about gains in trading pattern given below:

    Individual invests in a trading company ( 2 lakhs) and the trade is carried out by the company broker with margin money on this capital provided by their fund house.( say 10 lakhs) in options / futures… Profit is shared in 70:30 ( client : broker) to 50:50 ratio and payment credited to individual account every 15 days. What is tax liability in this case for the individual??
    expecting reply..

    seshu

    Reply
    • Seshu-It is your internal adjustments. The earnings will be in your name. Because legally they can’t partner or take away your profit on their own.

      Reply
  67. respected Sir,

    I incurred a loss of Rs. 65000/- on intraday trading of equity shares during the year 2014-15, with total turn over of
    purchases and sales worth Rs.1.55 crores during the year. Can I set off the above trading loss of Rs.65000/- against my pension income and rental income to get the Income tax benefit?

    Thanks and regards

    Nirmala kumari

    Reply
    • Nirmala-The Short Term Capital Loss can be set off only against STCG or LTCG. But not against salary income or house property income.

      Reply
  68. Hi Basavaraj,

    Good morning. Thank you very much for maintaining the blog. This is Kumar, I am a salaried person further I started trading a year back and I am into LTCG, STCG, Intraday & F&O too. I spend 1-2 hours on trading on weekdays.
    This will be my first income tax filing as a employee and trader.

    Here are my questions, can you kindly explain in detail:
    1. How the turnover for a person is decided ? Is this the sum of all the profit & loss or is it the total amount of worth bought & sold ? Like for example, if I get 100 shares of reliance at 1000 and then sold it for 1050. The net profit is 5000. In this case what is my turnover ? 5000 or 105000 ?
    2. When do we need to see the CA ? I heard if the turnover is >1Crore or if it is less than 1 crore along with less than 8% returns. What is meant by CA audit ? What all are required for that ?
    3. Can a salaried person play a dual role of investor and trader, so that individual can avail all the benefits from the stock market ? My question is can I be an investor for LTCG (where the tax is 0%) & STCG (where the tax is flat 15%) and a trader for Intraday & F&O (where the tax will be according to the IT Slab of 0-2.5 L, 2.5-5 L, 5-10 L & 10 L above).
    I mean can I avail the benefit of 0% tax as an invester for LTCG & 15% on STCG (as I will fall into 20% when calculated according to IT slab).

    Overall my question is that, Can a person play a dual role of investor & trader ? If so, can you kindly let me know how can we make it ? or should everything goes into the account of ITR4 as a trader.

    In my case the total income for year April 2014 to Mar 2015:
    1. Salary – 6 Lakhs per year
    2. LTCG : 9,000 Profit
    3. STCG : 4,00,000 Profit
    4. Intraday: 90,000 Loss
    5. F&O: 10000 Loss (Every month there were around 2-3 lots of different stocks and they were kept till expiry, total 16L profit – 16.1L loss = 10,000 loss).

    Do I need a CA to file the intraday & FO income/loss as an ITR 4 ? Thank you again in advance for your kind help.

    Kumar

    Reply
    • Kumar-1) It is Rs.10,500.
      2) When the BUSINESS (but not the intraday turnover) turnover crosses Rs.1 Cr.
      3) You can have both roles, until and unless your employer allow you to do so.

      Reply
  69. 1)In relation to STCG, Are there examples, guidelines of how the IT department differentiates between a trader and investor on case by case basis.
    Assume that
    a) Trades are done on a recognized stock exchange
    b) Trades are done after the date of delivery of the shares

    2)If there is a short term loss (the above two assumptions are true in this case too) which is very insignificant as compared to amount traded (for ex loss less than 1000 Rs – 2000 Rs), it is advisable to declare it in the Return?
    OR
    Is it advisable not to declare it and get into the complications of inverstor Vs trader

    Reply
    • Kunal-1) There is no such specific guidelines. 2) Yes, you have to declare.

      Reply
    • I am freelancer and develop algorithmic trading strategies. I lend these strategies to clients on PnL sharing basis and client deduct 10% TDS while paying me money. In this set up, How service tax and income tax rules imply?
      Do I need to pay service tax and income tax both for such kind of income?

      Reply
      • Trader-This will be your business income. Hence, the income rules applicable to business apply to you.

        Reply
  70. I sold my house property on 27/11/2014. I had a long term capital gain which I want to invest in Capital Gain exemption bonds 54EC. If I apply for bonds now they would be issued to me on the last date of the month i.e 31/5/15 which would exceed 6 month (180 days) by 5 days. Please let me know which of the following dates would be considered for ascertaining 6 months by Income Tax department:
    1. The date of receipt of my application for the bonds
    2. The date when the amount is debited to my account
    3. 26/5/15
    4. 31/5/15 (considering calendar month for 6 months)

    Regards

    Reply
    • Mohan-It is clearly mentioned in all bonds as the DEEMED DATE OF ALLOTMENT will be Last day of the month during which the application amount has been cleared and credited to the collection account. However, the court judgment may help you about this. You may find this ruling HERE.

      Reply
  71. Dear sir,
    I have been doing day trading in stocks and incurred a loss of Rs.25000 in the FY 2014-15. Kindly let me know the following:
    1. Do I have to file my return in ITR4?
    2. Despite the loss do I have to get accounts audited by a CA? My turnover is much less than Rs.1 cr.

    I am a retired person with income from FDs, pension etc. and am a tax payee.

    Reply
      • Dear sir,
        I understand that the rules have been changed. As per new rule if one’s profit from speculative income is less than 8% of the turnover audit is required even if the turnover is less than Rs.1 crore. Kindly confirm

        Reply
          • This seems to be due to an amendment of Section 44AD. Until AY 2011-12, only the civil construction business was included in this section, but from AY 11-12 all business including the business of trading was brought under this section. What 44AD says is that if in case the turnover is lesser than Rs 1 crore and the profits are lesser than 8% of the turnover, an audit by a CA is mandatory and this now is applicable to the business of trading stock/currency/commodity markets. What this would mean is that if your profit is less than 8% of turnover for the year, even if your turnover is less than 1Crore (however small) you will need your books audited by a CA. So if you made a loss while trading, since it is less than 8% of your turnover, you will need to get an audit done by a CA.

            Reply
            • Mohan-Sec.44AD meant for the business professionals whose turnover is less than Rs.1 Cr and in that case they have option to pay tax presuming the income as 8%. It is a provision given to declare their income considering as 8%. But not a mandatory thing that all business must apply and file the return. Also Sec.44AD will not apply once your turnover crosses Rs.1Cr and you have to audit with CA.

              I don’t know who guided you about CA auditing for firms whose turnover falling under less than Rs.1Cr. Please differentiate between the Sec.44AD and CA auditing.

              Reply
              • Thanks a lot sir for your clarification. This would then mean that as an individual indulging in day trading of stocks with an annual turnover of less than 1 crore and incurring loss I do not have to get audit done and can easily show loss in the ITR4 form without incurring any queries from IT department on this count?

                Kindly also help me by letting me know n which columns of ITR4 form should the turnover and profit/loss of speculative business be entered.

                Regards.

                Reply
                  • Would it be posssible for you to help me by letting me know n which columns of ITR4 form should the turnover and profit/loss of speculative business be entered?
                    Regards

                    Reply
                    • Mohan-Please go through the form and instructions provided over there. It is so simple.

  72. Hi Basu,

    Your post and replies are of great help. I have some doubts and need some clarifications.

    I had resigned from my job in mid- 2013 and hence I am not a salaried person anymore. I have also not shown any income from any other business activities.

    I am actively investing in the stock market. I don’t do any day trading or F & O ( derivatives). I am into long term investing where majority of the profits have come from LTCG and some from STCG.

    1. Will the profits from sale of shares in my situation be considered as business income or taxed according to LTCG & STCG ( i.e 15% for STCG and NIL for LTCG).

    2. Which ITR form should i be submit.

    3. For future years, if I start with day trading also, will the sale of LTCG and STCG shares be considered as business income or investments and what will be the tax implications.

    Request you to please give clarity on this.

    Regards

    Vijay

    Reply
  73. Dear Mr. Basavraj,

    I was a salaried employee and retired in August, 2013. My income is now the interest income on FDs, annuity from insurance and the gains on my equity investments.

    I have equity holdings and I pay taxes on my long term and short term capital gains on the transactions done.

    From FY 2013-14, I am transacting in Derivatives (F&O). I have no gains so far in the derivatives and the losses incurred in derivatives trading was shown in my return and not set off these losses against any other income. In case in future years, I make gains on derivative transactions, I will pay taxes considering the same as business income.

    On the equity share investments I have been dutifully paying short term capital gains tax at applicable rates. On long term capital gains, I declare the gains in the return.

    Though I feel that the above is in line with your clarifications, I request your confirmation that the above is in order.

    Reply
  74. Dear sir,
    I have income only as short term and long term capital gains,
    however just one small intraday transanction (considered business income). also.
    which ITR should be used for AY13-14.
    thanks n regards for yr kind reply.

    Reply
  75. Sir,

    Can you please tell what is the last day of paying STCG on equity shares? Is it 31st Mar? Also, which form needs to be selected for Salary + STCG/LCTG on shares? Also, any advice on how to make the payment would be appreciated. Thanks

    Reply
    • Karan-Your tax liability will come to know during tax filing. So after filing tax return only you have to pay the tax as is in other case.

      Reply
  76. Sir,

    Thanks for your kind reply to my earlier query.
    I have registered my Pan Details in I Tax Portal. E Filing provision
    is available through the IT Portal using ITR- 1 OR ITR 4S(SUGAM) only.
    As suggested by you, ITR4 option is not available. Kindly help as I need to
    E-file ASAP.

    Thanks & Regards
    Kalyanasundaram Raja

    Reply
  77. Hi, Basavaraj,

    Thanks for your quick response. It was quite helpful. If possible please clarify one more doubt. If I have income from Salary and Business (due to Equity derivative trading) both, then in that case which ITR form I need to fill in for filing my return?

    Thanks in advance for your help and guidance.

    Regards,
    Sanjay

    Reply
  78. Dear Basavaraj Sir.

    my STCG for the period “Upto 15/9– 0
    “16/9 to 15/12— (+8894, gain)
    “16/12 to 15/3– ( +7531, gain)
    “16/3 to 31/3– (-5345 loss) .

    This has to be filled in CG sec-F in ITR- 2.

    I am not able to enter my loss for the period 16/3 to 31/3.

    Where can I bring this loss to save tax.

    Where to enter short term share capital loss.

    Awaiting your reply.

    Reply
    • Sir
      It is not available .

      Pls help me.

      Reply
      • Selamurit-Please take the help of your nearest place CA or tax consultant.

        Reply
  79. Sir, I am Pensioner. Beside Pension, I have income from Bank Interest and House Property-Rental Income.
    Since July 2013, I have started to trade in shares -Intraday (same day buying & selling). Also, I take delivery
    in my Demat Account and sell after some days. My total income is above Rs.5 lakhs. I wish to do E Filing of
    my Income tax Return as done in previous 2 years. I have incurred some loss in the stock market & want it to
    be included in my E Filed ITR for setting it off against future Profits. Pl. guide me as to which form I have to
    use for E Filing.
    Thanks & Regards

    Kalyanasundaram Raja

    Reply
      • Sir,

        I have registered my Pan Details in I Tax Portal. E Filing provision
        is available through the IT Portal using ITR- 1 OR ITR 4S(SUGAM) only.
        As suggested by you, ITR4 option is not available. Kindly help as I need to
        E-file ASAP.

        Thanks & Regards
        Kalyanasundaram Raja

        Reply
  80. Hi Basu,

    “LTCG is exempted if a transaction done through recognized stock exchange and STT (Security Transaction Tax) paid.”
    I believe the LTCG made from equity still has to be mentioned in the ITR-2 form. Can you please help me to understand in which tab and which row/section of 2014 ITR-2 form ?

    Regards
    Raja

    Reply
    • Raja-Please go through Income Tax Department Portal for filing of ITR2. There is nowhere mention of LTCG from equity (which is tax free) must be mentioned while filing.

      Reply
  81. I made loss of Rs 2 lakh in Intraday ( same day trading) trading in the fy 2013-2014 ,how can I claim this loss in income tax returns? Please give the detailed informations I am a salaried person .

    Reply
    • Nizam-When you are claiming it as intraday then the loss incurred is of business losses but not of STCG. But do remember that business loss can be set off against all income EXCEPT salary income. So if you have any other income sources then you can set off this business loss.

      Reply
  82. Hi, Mr. Basavaraj,

    Can you please clarify:
    (1) If I am doing trading in FnO (Derivative) then my gain/loss will essentially have to be considered under Business Income? Does this mean that any Equity or Equity Mutual Fund I transact say after 8 month’s of purchase will also be treated as Business income only and not STCG?
    (2) What rate of Income Tax will be applicable for the Business Income earned above? Will it be as per my Tax slab (due to salary from the job) or there will be fix rate of 30% on this income as stated in your article above?
    (3) Can I fill return for both the Income (Salary + Business as above) in the same ITR 2 Form Or it has to be filled into different forms? If it is in one form (ITR2) only then under which head Business income has to be shown?

    Your advice on the above will be appreciated a lot. Thanks in advance for all your help.

    Regards,
    Sanjay

    Reply
    • Sanjay-Derivative trading anyhow treated as business but stocks holding less than year may considered as investment also. It depends on your declaration. So if you declare it as investment then definitely STCG will be applicable. Regarding tax slabs you can use this link of Income Tax Dept. Yes you can fill both the incomes in single ITR.

      Reply
  83. Dear Basavaraj Tonagatti Sir
    Pls guide me , Its urgent , I ve to file IT return.
    My bank has deducted the depository charges a lot. Should I pay tax for my (capital gains -depository charges , ie Rs 14000- 7600 = Rs 6400 )or else for (capital gains Rs 14000).

    Its urgent . Pls help Sir.

    Reply
    • Selamurit-What do you mean by depository charges? Is it about Bank Deposit TDS??

      Reply
      • Thanks for your reply.

        When a transaction is completed . ie( buy & sell) . They are charging depository charges.

        Reply
        • Selamirit-Such charges are expenses but not income. So why to tax?

          Reply
  84. Hi Basu,

    I am a regular FnO trader. Your article says the income from FnO is treated as business income, and I agree. Moreover, I use income from FnO to make Long Term investments (maturing after a year or two).

    My question is, can I show these two categories separately and have them taxed accordingly? (To further elaborate, I’d be paying as per the tax slab for my business income from FnO. As for investment income, it will be tax-free as it LTCG).

    I ask because I was told that one cannot be a trader and an investor both. IT-Offices do not allow it. I was told to make investments in my wife’s account and continue trading in my account.

    Reply
    • Amit-You can do so and classify them separately as you are doing it now. There is such rule that a businessman (trader in F&O) can’t be investor in stocks. So go ahead. They are totally two different entities.

      Reply
  85. Should we add other charges like brokerage stt service tax stamp charge etc.. N depository charge to identify actual profit or loss ? What are the components one need to consider.

    Reply
    • Elam-You must include as the law clearly states below lines.
      Deduct the following:-
      a) expenditure incurred wholly and exclusively in connection with such transfer.
      b) cost of acquisition.
      c) cost of improvement (not applicable to equity).
      So it clearly understandable that you must include all expenses which resulted in acquiring or transferring the asset for calculation.

      Reply
  86. Hi Basu,
    In Fin. Year 2012-2013, I got Rs 25K as LTCG and also paid STT Rs 150 but I did not mentioned it in ITR-I by mistake. Please guide me what to do now and in future?

    Reply
      • Thanks Basu for your quick response.

        Reply
    • Hi Basu,

      If STT has been paid, is the assessee required to pay any LTCG? In this case, the 25K in gains should not be taxable, am I right, even if the assessee has taxable income from other sources?

      Reply
  87. Also to summarize if i had incurred loss of 20K (due to selling shares within 1 year of its purchase) and gained some 5K (due to selling of shares within 1 year of its purchase).

    Here i made a loss of 15K in a year by selling shares of some X companies in 1 year (all are within 1 year of purchase). Do i have to pay STCG tax although i had made 15K loss due to that selling ?

    Is the tax liability only if i made any positive returns ? (i.e gains only) ?

    Kindly clarify. Thank you

    Reply
    • krishna-There is no tax on loss. Instead this STCG can be set off against any earning of STCG or LTCG.

      Reply
  88. Hi Basu

    I have a confusion in calculating the short term capital gains.. Firstly although i`m an investor due to the necessity to make the changes in my portfolio i had to sell the shares of a X company before 1 yr from its purchase date, which will make to pay short term capital gains. My question is:
    1) Almost 95% of the times i sold a share before i year of its purchase is due to cut my loss, which is that i had not gained any rupee as gain but i have incurred loss only. – DO i need to pay tax for this buy and sell (loss) transaction ?

    2) Is there any tool to track or the DP (SBICAPSEC) will have any statement for the year end to tell me this is the total gain/loss i have made in this year like that ?

    3) Could you please suggest an external site where i can calculate the STCG tax if at all any ?

    Thank you for the help

    Regards
    Krishna

    Reply
    • Krishna-
      1) When you incurred a STCG loss then it can be set off against any STCG or LTCG upto 8 years. So there is no question of taxing on loss 🙂
      2) All brokers these days generate year end capital gain statement. So ask your broker they will provide you.
      3) Calculating Capital Gain requires some effort from your end. Instead my suggestion will be to get it from your broker ready made and include that earning or loss into your overall return filing. As far as I know there is no such site to calculate this. Also it makes you confuse to enter each time you trade.

      Reply
  89. Is there any provision for the STCG ambiguity that takes into account things such as:
    1. Period of holding of the stock? Something like, if the stock was held in demat account for 2-3 days, it may be construed as business income/loss, whereas if I held it for a month or more, it would be STCG.
    2. Frequency of trading: Whether there are interpretations of if I’m buying/selling stocks on a daily basis, even if I’m holding them in my demat account, they are categorized as business transactions rather than investments?
    3. Primary profession: Whether if a person’s primary profession is proven something else (i.e. where the person receives salary for full time employment), then whether the transactions are still considered a separate business?

    Appreciate any clarifications.

    Reply
    • LuckyOye-1) During my search for information I found that stocks held as delivery based which are usually T+2 days (if bad delivery then T+5) are considered as an investment, where are any margin trading or day trading are considered as business.
      2) My above answer will clear your doubt.
      3) It depends on the job he performs. Because few companies don’t allow to do any other business. But there is no written law that states that you can’t do any other business by being a full time employee. So even if you are full time employee and doing trading on regular basis then it is considered as business income.

      Reply

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