Trading in stock markets has increased a lot in the past few years with the increasing interest and knowledge of people in the field of Investment; thus, it has become essential to understand how various incomes from the stock market are taxed under the income tax act, 1961.
Various Incomes from the stock market and taxability thereof
Intraday share trading Intraday trading refers to buying and selling of stocks by a trader on the same trading day for drawing profits by the fluctuation of prices of stocks within a day. There is no actual delivery in such transactions as the buying and selling of stocks from the trading account on the same date.Such transactions happen to be like Speculative Transactions as per “The Income Tax Act, 1961” hereinafter referred to as “The Act” since, as per section 43(5), the speculative transaction is a transaction in which a contract for the purchase or sale of any commodity is resolved otherwise than by the actual delivery/transfer of the commodity; Income from intraday trading is taxable under the head “Income From Business and Profession”, and the tax thereon is calculated at the slab rate.Unabsorbed speculative business loss can be set off only against profit from speculation business. It can be carried forward for set-off against the subsequent year’s income from speculation business only for not more than four assessment years.
Income from delivery based share trading: Income from delivery-based transactions can either be under the head “Income from business and profession” or under the head “Income from capital gain” depending on various factors such as nature and frequency of transactions, holding period of shares and at the option of the assessee.
If income is like capital gain & the transaction takes place through the recognized stock exchange, then:
Long term capital gain is exempt up to Rs. 1 lakh, and amounts above Rs. 1 lakh shall be taxable @ 10% as per section 112A;
Short term capital gain would be taxable @ 15% as per section 111A.
If income is in nature of business income, then the entire income would be taxable in accordance with the applicable tax slab.
Tax audit shall be mandatory for individual / HUF if;
The turnover is more than Rs. 10 crores or
If presumptive taxation is opted for and income offered for taxation is less than 8% of turnover or in case of a loss.
Income from future & options (derivative) transactions A derivative refers to an instrument that has no value of its own. Its value is derived based on the value of the underlying asset.Transactions in derivatives are precisely excluded from the “Speculative transaction” category if the transaction is made through a recognized stock exchange, the payment of STT is made, and a contract note supports the transaction. In such cases, profit/loss from such transactions shall be considered regular business income & loss and taxable at the slab rate.
In the case of incomes from the stock market, there is a dire need to observe the nature of transactions so that tax can be assessed correctly and under the correct head of income.
At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the taxation of income from the stock market, kindly contact us.
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