Tax on share trading

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Querist : Anonymous

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Querist : Anonymous (Querist)
04 March 2017 Can a Partnership open a Demat & Trading account.

what shall be the tax implication on it.

will it be treated as business income or as capital gain.

05 March 2017 DEMAT account can not be opened in the name of partnership firm as it has no legal entity but hey can invest in share & stocks if the partnership deed has the provision for investment in Equity by opening a Trading account in the name of Partnership firm. DEMAT a/c can be opened in the name of any Partner & that partner can be authorised by other partner to issue instruction to the depository to purchase share & stock on behalf of Firm.

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Querist : Anonymous

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Querist : Anonymous (Querist)
20 March 2017 Thank you sir,

can you provide for tax implication on profits...

will it be charged as Short term / Long term gain
or, as business profits..

26 July 2025 Great question! Here’s a detailed explanation on the **tax implications of share trading for a Partnership firm**:

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### 1. **Can a Partnership Firm open Demat & Trading Account?**

* **Demat Account:** Usually, partnership firms **cannot open a Demat account directly in the firm's name** because a partnership is not a separate legal entity.
* Instead, **Demat accounts can be opened in the name of individual partners** who can trade on behalf of the firm.
* Alternatively, a Trading account can be opened in the firm’s name if the partnership deed allows investments in shares.

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### 2. **Tax Implications on Profits from Share Trading**

The tax treatment depends on **nature of transactions** and the **intention behind trading**:

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### A) **Business Income**

* If the firm is actively trading in shares with the intention to earn profits from frequent buying and selling, it will be treated as **business income**.
* **Characteristics:**

* Frequent and regular trading.
* Trading capital invested is part of business capital.
* Accounting done on mercantile basis.
* **Tax Treatment:**

* Profits from trading are taxed as **business income** at the firm’s applicable tax rates.
* Losses can be set off against other business income.
* Audit may be applicable if turnover crosses threshold.

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### B) **Capital Gains**

* If the shares are held as **investment** and not for trading, then gains/losses are treated as **Capital Gains**.
* Tax treatment depends on the holding period:

* **Short Term Capital Gains (STCG):** If shares are held for **less than 12 months**, gains are taxed at **15%** (plus cess).
* **Long Term Capital Gains (LTCG):** If shares are held for **more than 12 months**, gains exceeding Rs. 1 lakh are taxed at **10% without indexation**.
* Losses under capital gains can only be set off against capital gains (not business income).

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### 3. **How to Decide?**

* The **nature of your activity and intention** is the key.
* If trading is regular, substantial and you deal in shares like stock-in-trade, it's **business income**.
* If holding for long term as an investment, it's **capital gains**.

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### 4. **Summary**

| Nature of Activity | Tax Treatment | Tax Rate | Loss Set-off |
| -------------------------- | --------------- | ------------------------------------ | ----------------------------- |
| Trading (Business Income) | Business Income | Taxed as per partnership firm's slab | Against other business income |
| Investment (Capital Gains) | Capital Gains | STCG: 15%, LTCG: 10% (above ₹1L) | Only against capital gains |

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### 5. **Other points**

* Partnership firm is taxed as an **entity** (tax rates applicable to firms).
* Income from share trading must be disclosed under **“Profit & Gains from Business or Profession”** if treated as business income.
* Appropriate bookkeeping and audit may be required.

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If you want, I can help you prepare sample bookkeeping entries or draft the tax return details for share trading income of the partnership firm. Would you like that?


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