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If the shares are purchased for investment, then it would be treated as a capital asset and taxed as capital gains.
But if the shares are bought and sold in a short duration repeatedly, then it would be taxed as business income, explains Amit Gupta.
In FY 2021 the stock market was at all-time high and various investors might have booked their profits in the year.
Apart from that, we remember that salary, rent, and businesses are the taxation part of the income; however, we usually don't pay attention to the gains made from trading in the stock market which comes under the taxation part.
Here, I will explain know how trading gains are taxed and what is the method to express the income from these gains in your ITR form.
Trading gains in concern to shares are indicated towards gains made on the buying or selling of shares typically upon the regular grounds.
What is the method used to tax the trading gains?
Under the Income Tax Act 1961, the taxability of gains relied on factors like holding period and volume of transactions.
If the shares purchased by the assessee are for the purpose of investment, then they would be treated as a capital asset and taxed as capital gains.
But if the shares are bought and sold in a short duration repeatedly it would be taxed as business income.
The gains on which the tax is levied are called capital gains; they are subsequently divided into short-term or long-term capital gains (STCG and LTCG) depending on the duration of holding.
If any shares are held by the taxpayer for more than one year (two years for unlisted shares), then those shares would be classified as long-term, and if not then it comes under short-term.
Under section 112 of the Income Tax Act, long term capital gain (LTCG) from the unlisted shares is taxed at 20% while on the other side STCG is taxed on the prescribed slab rate of the investors.
But if the shares are listed, then it is levied with tax at a concessional rate of 15 per cent/10 per cent beneath Sections 111A/112A, correspondingly (for LTCG and STCG).
The business income is taxable under the slab rate subjected for the individual.
There must be effective classification about the short-term or long-term relied on the grounds of the holding period.
You must note that STCG is to be taxed at a 15% rate whatever be your tax slab.
Before the beginning of Budget 2018, the LTCG on the sale of equity shares or equity-based units of the mutual funds were exempted from the tax.
But this privilege has been taken away by the financial Budget 2018.
From now, an LTCG tax of 10% along with the subject cess would be applicable if the seller makes LTCG exceeding Rs 1 lakh on the sale of the equity shares or equity-based units of the mutual funds.
Indeed, the indexation advantage would also not be given to the seller.
If you are qualified, then you must secure to avail the advantage of the indexation during computation of the cost of acquisition of the shares.
Under the Capital Gain Schedule in the ITR form, the obtained capital gains on share transfer needed to be stated, also to maintain the difference between short term and long term gains.
Beneath ITR-1/ITR-4 the information of the capital gains does not need to be reported.
An assessee would require to utilise ITR-3 or ITR-4 towards declaring the business income.
Amit Gupta is MD, SAG Infotech, a taxation solution firm.
Feature Presentation: Aslam Hunani/Rediff.com