Tax on share trading

This query is : Resolved

Querist : Anonymous

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.

CA S K MISHRA

CA S K MISHRA (Expert)
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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.

Querist : Anonymous

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..

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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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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