Income from Shares Transactions: Few Issues

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Income from Shares Transactions: Few Issues

1. Mr. Smart has purchased shares of the listed company on 13.10.2021 and sold them on 13.10.2022. Whether gain on transfer of shares is Short Term capital gain or long-term capital gain?
Opinion:
  1. For shares of the listed companies, to be reckoned as long term capital asset, it has to be held for more than 12 months. 
  2. In the present case, the shares are purchased on 13.10.2021 & sold on 13.10.2022.
  3. An important issue in the present question is whether for a computing holding period of asset date on which asset is acquired and date on which asset is sold is to be included or excluded? 
  4. It may be noted that the Delhi High Court in the case of Bharti Gupta Ramola v. CIT – (2012) 251 CTR 139 (Delhi) has held that while computing the holding period of an asset both date on which the asset is acquired and the date on which the said asset is sold is to be included. 
  5. With above background, Mr. Smart has held the shares for more than 12 months.
  6. Gain arising from transfer of shares in the hands of Mr. Smart will  be taxable as Long-Term Capital Gain.
2. What is the tax rate in case of Short Term capital gains and long-term capital gains?
Opinion:
  1. Short Term Capital Gain (STCG) on sale of shares through stock exchange is taxable @ 15% U/s 111A.
  2. Long Term Capital Gain (LTCG) on sale of shares through stock exchange is taxable @ 10%  U/s 112A. However only amount above ₹1 lakh is liable for taxation and there is no tax if the amount is not exceeding Rs. 1 Lakh. The limit of Rs. 1 Lakh is an aggregate limit and not individual script wise or transaction wise limi
3. Whether expenses like Petrol Expenses, Salary, Interest, STT paid, rent, rent any other expenses are deductible while computing capital gain?
Opinion:
  1. There is a specific bar on deduction towards STT and it cannot be allowed as deduction.
  2. If the income from share transactions is treated as capital gain income then expenditure incurred wholly and exclusively in connection with such transfer is only allowed as deduction [Section 48 of the Income Tax Act-1961],
  3. As a result, only the brokerage paid shall be allowed as a deduction.
  4. Other expenses like Petrol Expenses, Salary, Interest, rent, etc are not deductible while computing capital gain if the income is taxable as “Capital Gain Income.
  5. It may be noted that if the income from shares transaction is taxable as “Business Income” then all the expenses like Brokerage, Petrol Expenses, Salary, Interest, rent, etc would be eligible for deduction while computing Business Income.
 4. Whether Loss in shares transactions are freely adjustable and can be set off in case of capital loss from sale of shares?
Opinion:
Not everything is freely adjustable as such. There are few rules which one need to carefully note as far as the loss adjustment is concerned. The same is summarized as under:
  1. Short Term capital loss can be set off against both long-term capital gain and Short Term capital gain. 
  2. Long-term capital loss can be set off only against Long-Term capital gain.  
  3. Loss under the head capital gains will not be allowed to be set off against income from any other head.
  4. Loss from speculative transactions can be set off against Gain from speculative transactions.
  5. If shares transaction income is taxable as business income, then business loss can be set off against all income except Salary income. The business of delivery-based share trading is a non-speculative business and so profit or loss from any other business can be set off against the profit or loss from the share trading business.
5. Whether deduction towards LIC. PPF, Tuition fees, as are covered under chapter VI – A will be available income under the head capital gains?
Opinion:
Chapter VI–A deduction which covers deduction u/s 80C towards LIC/PPF/NSC/ etc, Deduction u/s 80D towards mediclaim, Deduction U./s 80G towards donation are not allowable against capital gains income.
6. Given a free choice of flexible parameters in treating the income as capital gain income or business income, what is more beneficial? Whether it is beneficial to offer income from shares market as Business Income or Capital Gain Income?
Opinion:
Ignoring other criteria of classifying the income as business income or capital gain income, the answer varies from person to person depending upon various other factors like own fund or interest bearing borrowed fund, amount of profit, etc. The answer would further depend upon the factors such as the amount of turnover, requirements of carrying out the audit, amount of profit, etc
7. Whether the income from intra-day trading is to be shown separately? Whether it is taxed separately? Whether it will be taxable under the head capital gains or business income?
Opinion:
  1. As per section 43(5) of the Income – tax Act, 1961, intraday trading comes under the purview of speculative transactions
  2. It has to be  offered to tax under the head “income from Business and profession”.
  3. It has to be shown separately as speculative income or loss.
8. Whether expenses incurred are allowed against the speculative business income?
Opinion:
Being a business income. all the expenses related to this speculative business would be eligible for deduction.
9. Whether loss in the F&O transactions can be set off against other business income or other heads of income?
Opinion:
1.  Since the income from F & O transactions is treated as normal business income,  loss can be set off against any other business income
2. Set-off of such loss is allowed against any other head of income except salary. 
3.  The unabsorbed loss can be carried forward maximum up to eight assessment years.
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