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.
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 🙂
EPF Scheme 2026 explained fully: EPF withdrawal, EPS pension, and EDLI insurance changes with examples,…
Chasing financial freedom? Do health, time, relationships and contentment matter just as much? Sadly, we…
Your "safe" SIPs, SGBs, PPF, or Index Funds are secretly sabotaging your wealth. Peltzman Effect…
Thinking your retirement plan is foolproof? Why LUCK - not asset or fund selection or…
Nifty 50 Index Funds Vs Active Large Cap Funds — Can we really compare them…
Should you pick Nifty 500 Multicap 50:25:25, Nifty 500, or Nifty LargeMidcap 250 Index Fund?…
View Comments
There are people who are Qualified CAs writing articles on income tax sec 54 LTCG/ STCG
question arises as below needs clarification.
When assessee reinvested in the properties again noone income tax authorities enquire whether the apartments yielded LTCG or STCG was properly registered under stamps act and registration act and what was the value of property assessed by the stamp authority and the same value are allowed by the income tax authorities for LTCG exemptions under sec 54 of the income tax act.
The stamp duty act differs from state to state and stamp duty authorities not following uniform evaluation of property value.
For instance in karnataka stamp act regulations are typically valued only on the land guidence value where stamp authorities not even registering the construction value of the apartment when builders enter into agreement with the buyers two agreements one UDS of land and the other agreement for cost of construction of apartments.
When the individual tax payers sold the apartment and claim LTCG because of the reason that the apartment was more than 3-4 years old held by the owner before selling the apartment and deposited entire sale proceeds into LTCG deposit opened in
If such owners is not JDA TRANSACTION AT ALL.
They are not either developer builders or builders to entered into MOU for our owned property land or land building demolition and reconstruction to multiple apartments on sharing % of profit.
As an individual we booked apartment paid adv on booking and as per builder upcoming at that point of time booking the new apartments
Builder entered with the customer two agreement one for UDS land and another for construction agreement and there are about 350+ buyers booked the apartment on different times during the time of on going project stage .
On completing the project after taking completion certificate by BDA, BBMP, authorities and after bifurcation of KHATTA of earlier owner/ developer land into multiple apartments the builder started handing over the pocession of apartments to individual customer and started registering the sale deed of individual apartments owners.
The sub registrar and builders registered the UDS land portion for which under karnataka stamp act paid stamp duty on Gov't guidance value which is more than the agreement value of UDS of land.
On construction agreement builder collected service tax VAT-GST etc etc considering the construction activity are services and its works contract transaction.
The legal implication of undivided land share makes it an intrinsic part of any real estate deal. Suppose the building in which you reside is to be demolished for reconstruction ten years down the line or comes under a government acquisition project and made available for demolition, the compensation administered to the flat owner will depend on the percentage of the undivided land share in the property.
The sum of all the undivided shares for each apartment owner must be proportionate to the area of the land in which the apartment has been constructed. In case of co-operative housing societies, the UDS must legally be in the name of the society since the flat owners are the shareholders of the society.
[Nowadays there are no face to face appearance and all submission are to be made thru efiling only.
Already two submissions made and the ACIT yet to open and view and to give his views.
The Assessing officer ACIT still hvg time to take this mater on his hand to give his reopening asst order.
If we give preassure at times officers get hesitated and pass the adverse order then its difficult for individual person to fight the case appeal, tribunal and highcourt till heigher supreme court stages.
Pre deposit demands are to be paid if appeals are to be paid.
All sorts of hurdles are there. Individually to fight the case engaging CA, ADVOCATe etc are very costly.
in thevincome tax department genrally the seniors designated as ADDITIONAL COMMISSIONER, JOINT COMMISSIONER Level instigating their juniors asst.commissioner level to make the case alleged confirm the demands so that they complete their targets creating the heighr revenues.
But at the end those are the cases taking long time to settle and at time taxpayers get fed up..
Whereas if the litigation are there the company provides liability for the taxes. Then they agitate the cases engaging big big CA OR ADVOCATE S, THRU FAMILIAR legal forms etc fight the case till the highest court.
Anyhow it's the systems that are in Gov't offices..
But that doesn't mean that honest taxpayer are victimized.
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.
Dear Raj,
Use ITR3.
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 ?
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.
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
Nivas-YES.
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?
Arya-You not paid any STT while selling?
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 ??
Arya-In that case you can set off against loss as I said above.
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...
Arya-1) Refer THIS.
2) It is you to decide.
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 ??
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.
thanks for reply..
you mean in itr
full value of consideration is 250
cost of acquisition 220
profit 30.
Rajesh-What I mean to say is each trade is considered as separately for taxation. You no need to club both.
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.
Rajesh-You can search for the same.
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
Faraz-Each stocks you purchased and sold is considered for taxation rather than your re-investment.
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
Faraz-It is the rule and you have to follow of paying advance tax. No, there are no such challenges.
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
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.
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
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.
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.
Nikhil-Yes, taxed paid can be considered as business expenses.
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?
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.