Capital Gains

Iam having a Demat online share trading account. I use to do delivery based short term share trading (no intraday or F&O) with annual turnover (buy & sell) varying from 25-50L  in a year and a variable gains of 5-10 lakhs/ year . CBDT circular on auditing of treatment to given this as business income or capital gains/ investment income based on certain criteria is confusing .Is it covered under compulsory tax audit. Am I liable for tax audit ? How to calculate limit for compulsory tax audit? Iam an individual salaried person in IT company with income under 30% taxable slab..

Replies (1)

Dear Sir,

CBDT itself admits in its circular -

Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade.

I feel -

1) More than "Value", its the "volume" which will have a role to play in deciding whether it Capital Gains or Business

2) Second, - the period of holding in general can also be one of the consideration.

Tax audit will be required only if it is treated as Business & turnover exceeds the threshold limits as specified u/s 44AB.(i:e 60 lacs)

I understand that AO would want to classify it as Business since by doing so he can make you pay more taxes.

Further, CBDT also provides that -

CBDT also wishes to emphasise that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads, i.e., capital gains as well as business income

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