16th September: Is the return from share market being shown as business income or capital gains?
Income from stocks —business income or capital gains.
Well, to remain safe, you may opt for having a separate trading account.
But the fact is that one needs to be act cautiously with regard to showing his or her stock income or stock returns as business gain versus Capital gains. One needs to know the vital difference since the tax liability of a person simply depend on the way the stock market return is shown(as capital gain or as business income). Any wrong characterization is going to affect your tax liability. So, act accordingly to safeguard yourself from paying extra income tax.
What is business income?—Business income, as per the income tax department, is any shares purchased with the motive of reaping profits.
What is capital gain?—Capital gain means any money invested with the sole purpose of getting income through dividends.
Subjective issue—As per Rakesh Nangia (Nangia and Company), any income from share market transactions needs to be considered by several cumulative trades undertaken as well as the intent(whether motive was business or otherwise).
Share stock returns
And, it gets known in the manner the trade transactions were carried. Consider, for example, the case of any investor who purchased shares of Rs. I lakh and sold it in the period of eight months if he reaped 25 percent profits though his intent happened to be an investment. So, in which category does such income fall—in business income or in capital gains category? It seems a tricky situation.
But, managing director of Amplus Consulting, Praveen Nigam, adds his views in this regard. According to Praveen, each case is different and there is a really thin line. So, we need to see is that whether the returns(profits) reaped happen to be short-term capital gains or income from profession and business.
So, the conclusion with regard to whether any income is to be considered as capital gain or business income depends solely on the intent of the person. That is, whether the individual trades in shares for earning day-to-day profits(it is considered as business income) or keeps shares for a longer duration of time for getting profits(in this case, any income from shares is capital gain).