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Income from Trading in shares

Satpal Singh (Manager Finance & Accounts) (287 Points)

28 August 2008

Can any body tell me what is the tratment of income from tarding shares, futures and option.

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13 Replies

CA L. Ram Kumar (asst manager) (42 Points)
Replied 28 August 2008

It will come under speculation income.
we can include it under the head income from business or profession.

parthasarathy (Practising, C.A) (188 Points)
Replied 28 August 2008

Originally posted by :satpalca
"	Can any body tell me what is the tratment of income from tarding shares, futures and option.	"

IF YOU ARE HAVING INTRA DAY TRANSACTIONS - IT WILL BE TREATED AS SPECULATION BUSINESS.

IF YOU HAVE DELIVERY TRANSACTIONS - YOU HAVE AN OPTION TO TREAT IT AS SECURITIES TRADING - DELIVERY TYPE AND TREAT IT AS BUSINESS INCOME OR TREAT IT AS SHORT TERM CAPITAL GAIN..

IF YOU HAVE TRANSACTIONS RELATING TO SALE OF SECURITIES WITH HOLDING PERIOD OF MORE THAN 12 MONTHS -LONG TERM CAPITAL GAIN ON SECURITIES EXEMPTED U/S 112.

Satpal Singh (Manager Finance & Accounts) (287 Points)
Replied 29 August 2008

Originally posted by :parthasarathy

Originally posted by :satpalca

"
Can any body tell me what is the tratment of income from tarding shares, futures and option.
"

IF YOU ARE HAVING INTRA DAY TRANSACTIONS - IT WILL BE TREATED AS SPECULATION BUSINESS.
IF YOU HAVE DELIVERY TRANSACTIONS - YOU HAVE AN OPTION TO TREAT IT AS SECURITIES TRADING - DELIVERY TYPE AND TREAT IT AS BUSINESS INCOME OR TREAT IT AS SHORT TERM CAPITAL GAIN..
IF YOU HAVE TRANSACTIONS RELATING TO SALE OF SECURITIES WITH HOLDING PERIOD OF MORE THAN 12 MONTHS -LONG TERM CAPITAL GAIN ON SECURITIES EXEMPTED U/S 112.

First thanks for replying my query. According to my knowledge there is one circular of the CBDT, do you know the no. of the if yes then please let me know.

(Guest)

Yes, if u are trading daily in shares, then it can be treated as ur bussiness and if in the whole year from daily trading, u make sale of more than 40 lak, then audit becomes necessary.

I had made complete accounts of a person doing share trading regularly and his sale is above 1 crores. so its ur choice.

sridhar jorapur (Articleship) (41 Points)
Replied 01 September 2008

If intra Day trading is done it will be speculation income & if on delivary basis it would be long term or short term as the period of holding my be ie less than 1 year short term less than 1 Yr short term

malathy (Auditor) (20 Points)
Replied 01 September 2008

Originally posted by :satpalca
"	Can any body tell me what is the tratment of income from tarding shares, futures and option.	"

(Guest)

IF YOU ARE HAVING INTRA DAY TRANSACTIONS - IT WILL BE TREATED AS SPECULATION BUSINESS.
IF YOU HAVE DELIVERY TRANSACTIONS - YOU HAVE AN OPTION TO TREAT IT AS SECURITIES TRADING - DELIVERY TYPE AND TREAT IT AS BUSINESS INCOME OR TREAT IT AS SHORT TERM CAPITAL GAIN..
IF YOU HAVE TRANSACTIONS RELATING TO SALE OF SECURITIES WITH HOLDING PERIOD OF MORE THAN 12 MONTHS -LONG TERM CAPITAL GAIN ON SECURITIES EXEMPTED U/S 112.

(Guest)

any ctr against share investment sale showing short term capital gain

MANI THYAGARAJAN (CEO) (48 Points)
Replied 13 October 2010

Short Capital Gain Tax V/s Intra day Tax	Share Trading is not speculation but Day Trading Square off the transaction in same day in Shares in speculation. Profit from delivery transactions and derivative trades is Non-speculative while profit or loss from jobbing is speculative in nature. - section 111A Intraday trading in Cash segment is deemed as speculation, same as lottery or betting on horse racing.The tax rate applicable on profits from speculation income is flat 30%. https://www.incometaxindia.gov.in/acts/income%20tax%20act/73.asp
BUSINESS INCOME OR CAPITAL GAINS	However circular has been issued by CBDT in this regard specifying that the assessee can have two portfolio one is Investment in shares and second one is of Business Stock. Principles laid down by CBDT in circular 04/2007 dated 15.06.2007 “(i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/ adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt”. Also MUST READ attachment: Income from Share Trading : Business Gain or capital Gain
Details as per decision given by ITAT (Mum) in the case of Management Structure & Systems Pvt. Ltd. (ITA No. 6966/Mum/2007 – AY: 2004-05)	See attachment BUSINESS INCOME OR CAPITAL GAINS Informative – must read
Tax Matters: Is income from day trading clubbed with total income and taxed accordingly?	Income from day trading will have to be shown under the head, 'Business income', and sub-head 'Speculative business'. Income from day trading will have to be shown under the head, ‘Business income', and sub-head, ‘Speculative business'. Subsequently, this income will be added with other taxable income under other heads and will result in your gross total income. This will be taxed as per the normal tax slabs. Also read attachment : Is income from day trading clubbed with total income and taxed accordingly
If intraday trading exceeds Rs. 40 lacs, is it liable to Tax Audit u/s 44AB of Income Tax Act, 1961	In case of intra day trading turnover for tax audit is considered as the sum of positive and negative differences i. e. sum of profit + loss. For eg: if you have profit of Rs. 25 lacs and loss of Rs. 20 lacs in day trading then turnover will be considered as Rs. 45 lacs and liable for audit u/s 44AB.
Sale of shares held as investment, Sale of bonus shares	investment company holding shares of various companies as investment S.28 and s.45 of the Income Tax Act 1961 see attachment investment company holding shares of various companies as investment
Definitions of certain terms relevant to income from profits and gains of business or profession. sections 28 to 41	) ⁶⁴“speculative transaction”⁶⁵ means a transaction in which a contract⁶⁵ for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery⁶⁵ or transfer of the commodity or scrips: see attachment sections 28 to 41 to share trading income

PS: If anyone wants the attachments, please send request to
mtrajan06 @ gmail.com	best regards M. T. RAJAN

malkeet singh (CA in Practice) (45 Points)
Replied 03 March 2011

I want to ask that where to show the short term capital gain in shares.

I am showing the purchase of shares as drawings in my capital account for which i have paid by cheque.

shall i delete the purchase of shares from capital account and only show the profit??

Please respond .

Thank you

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 03 March 2011

purchased shares are "capital asset", not drawings

Ashok (Not applicable) (86 Points)
Replied 03 March 2011

Which ITR form should be filled ITR 2 or ITR 4 ?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 03 March 2011

if speculation income then ITR 4, other than it select your principal income from salary/ partnership firm etc and file accordingly, capital gains are in each form.