When we talk about stock market transactions, the first question that comes to mind is How income tax is levied on such stock market transaction.
Let’s start with the basic question whether the Income from the sale of shares is taxable or not?
Answer to this question is “YES”, subject to certain exceptions.
Now we know that the Income from the sale of shares is taxable, next question that comes to mind is that whether to treat such income as Capital Gains or Business Income??
This Blog will help you to clear doubts related to Taxability of income from Shares. So, let’s discuss in brief about How income tax is levied on such stock market transaction.
Whether the Income from shares is Capital Gains or Business income?
The answer to this question is ‘BOTH’. Income from the sale of equity shares listed on the stock exchange can be either treated as Capital Gain or Business Income depends on certain conditions.
Before categorizing the income from shares one should know what is capital gain and what is business income.
Capital Gain – Capital gain is the profit that a person earns on sale of shares or any other asset. Basically it’s the difference between the sale price and purchase price of the asset. Capital gain can be categorized in two head i.e. Long term Capital Gain and Short Term Capital Gain.
Long Term Capital Gain is the gain earned on selling the shares which was held for more than 12 months at the time of sale.
Short Term Capital Gain is the gain earned by selling the shares which was held for 12 months or less than 12 months at the time of sale.
Business Income – Briefly, we can say that business income in terms of shares can be reffred to that income which is calculated by deducting the purchase value of shares and expenses from the total sales of shares.
Now we can discuss in brief as to when income from shares is Capital Gains or Business income.
When Income from shares is treated as Capital Gains?
Investor who trade in shares for investment purpose and mostly holds it for a certain period of time as investments, such transactions comes under the head capital gain.
Rate of taxation on Capital Gain from Sale of Shares
For Short term Capital Gains – The special tax rate of 15% is applicable on short term capital gain irrespective of the tax slab applicable on assessee.
For Long Term Capital Gains – Till FY 2017-18, capital gains on sale of shares and securities which were held for more than 12 months and STT was paid were totally exempt under section 10(38) of IT Act.
From FY 2018-19, such long-term capital gain exceeding Rs. 1,00,000/-will be taxable @ of 10%, without indexation.
Rates of Taxation on Capital Gain earned of sale of shares can be summarized as under:
|Short Term Capital Gain
|Long Term Capital Gain ≤ 1 Lakh
|Long Term Capital Gain > Rs. 1 Lakh
NOTE:- If the total taxable income of the assesse after excluding this short term capital gain is less than maximum amount not chargeable to tax, then the assessee can adjust the short term & long term capital gain to the extent of shortfall and thereafter the remaining capital gain shall be taxed accordingly.
When Income from Shares is treated as Business Income?
Investors who trade in shares on daily basis and are involved mainly in intra day transactions, such transactions are covered as business income. Moreover, when an investor holds the shares as Stock-in-trade then any income earned from the transfer of such shares shall be treated as Business income.
Taxability of Shares Income as Business Income
When an assessee treats the Income received from the transfer of shares listed on stock exchange as business income then he is allowed to reduce the expenses incurred for earning such income. Thereafter the profits earned through the sale of shares shall be added to the total business income for the financial year. Lastly, the total business income shall be taxed at the slab rates applicable on business income.
TAX SLAB RATES AS PER EXISTING TAX REGIME
For Individuals, NRI & HUF
Age Group – below 60 Years
|Up-to 2.5 Lakhs
|5Above Rs. 2.5 Lakhs to Rs. 5 Lakhs
|Above Rs. 5 Lakhs to Rs. 10 Lakhs
|Above Rs. 10 Lakhs
TAX SLAB RATES AS PER SECTION 115BAC OF INCOME TAX ACT, 1961
|Up-to Rs.2.5 Lakh
|Above Rs.2.5 Lakh to Rs. 5 Lakh
|Above 5 Lakh to Rs. 7.5 Lakh
|Above 7.5 Lakh to Rs.10 Lakh
|Above Rs. 10 Lakh to Rs. 12.5 Lakh
|Above Rs.12.5 Lakh to Rs. 15 Lakh
|Above Rs.15 Lakh