Income from delivery-based share trading is business profit

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Updated: August 15, 2017 2:38:32 AM

The profit from sale of shares where deliveries have been effected shall be in the nature of non-speculative business income if shares are held as stock-in-trade.

Income from share trading, business profit, share trading, speculative business, CBDT, intra-day trading, Capital GainThe loss of a speculation business shall be set off only against the profits and gains of another speculation business.

I do intra-day and delivery-based share trading. The delivery based trading is done with an intention to buy shares and sell the next day or in 3-4 days. Will profit from such delivery-based trading be taxed as short-term capital gain or as business profit? If it is treated as business profit, will it be a speculative business?
– Ram Kumar Gupta
Regarding characterisation of income from transactions in listed shares and securities, which we understand you deal in, the CBDT had issued a clarificatory Circular no. 6/2016 dated February 29, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than 12 months would be taxed under the head ‘Capital Gain’ unless the taxpayer itself treats these as its stock- in-trade and transfer thereof as its business income.

In your case, it appears that the intention is to treat the shares as stock-in-trade as your intention is to sell the shares either next day or in 3-4 days, i.e., a very short period of holding. Therefore, profit from sale shall be business profit and you need to follow this treatment consistently. The profit from sale of shares where deliveries have been effected shall be in the nature of non-speculative business income if shares are held as stock-in-trade.
Non-delivery based transactions, i.e., intra-trading where the transaction of purchase / sale is squared off on the same day or next day, where delivery is not given is speculation business.

Thus, loss from intra-day trading is assessable as speculation loss. The loss of a speculation business shall be set off only against the profits and gains of another speculation business and not delivery based income from business. The loss from speculation business can be carried forward for four assessment years.

A gifts to his son B (major), 10,000 equity shares of a listed company on January 1, 2012. B gives the same quantity of shares after five years to his mother C. Will the gift be treated as circular gift in the hands of C (wife) from A (husband)? Further, will any income from such equity shares be clubbed in the hands of A?
—IK Singhal
Since gift in the form of listed equity shares was transferred to C (spouse of A) after a substantial period of five years, practically this cannot be treated as circular gift. Hence, the capital gain on sale of equity shares may not be clubbed in the hands of A.

The writer is the founder of RSM Astute Consulting Group. Send your queries to fepersonalfinance@expressindia.com

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