The income-tax department has decided to take up all cases of short-term capital gains tax for scrutiny.

According to market sources, it has been observed that most companies are filing claims under short-term capital gains, irrespective of the volume of transactions.

For a company, if the volume of investments is high, the gains are taxed as business income. This is because in such cases, investment is considered as the main business activity.

Otherwise, sale or purchase under investments is a long-term decision and is undertaken as a one-time activity. Therefore, the income attracts short-term capital gains tax and is not treated as business income.

In many cases, even if the volume of transaction is more, assessees prefer a short-term capital gains tax of 10 per cent. The same profit , if shown as business income, will get taxed at 30 per cent.

Capital gains are classified into long-term and short-term, based on the period for which the asset is held. Investment in immovable property is regarded as long-term if held for more than three years.

However, investments in shares and other financial instruments need to be held for a minimum of one year to classify as long-term.

While short-term capital gains is taxed like any other income, long-term capital gains takes into account the cost of inflation index, and gains are taxed at a flat rate of 20 per cent.

Exemption from capital gains can also be availed by investing in special bonds under Section 54EC. These include three-year redeemable bonds issued by NABARD, National Highways Authority of India and Rural Electrification of Corporation Ltd.

Most companies are filing claims under short-term capital gains, irrespective of the volume of transactions.

In many cases, even if the volume of transaction is more, assessees prefer a short-term capital gains tax of 10 per cent.

The same profit , if shown as business income, will get taxed at 30 per cent.