There is confusion between short time capital gain and business gain in the share trading on daily basis. As the market is moving up and down recently, investors use a simple funda, buying on low and selling on up on daily basis, which results in profit and loss. But these type of transaction attracts income tax. But the problem is that either it is a short time capital gain/loss or business profits/loss. The laws of India mostly believe on the recent tax cases. One of the recent tax case about these type of transaction decided by the income tax tribunal in Mumbai.
In that case, the assesse was dealing in business of share trading. He was using his own money for purchasing and selling the shares and there was not a single transaction in which the assessee sold the purchase share on the same day, means he was taking delivery of the shares. The assessee gained on the share market and it was decided that
- The share which was sold within 30 days of purchase was considered business income.
- The shares which were held more than 30 days of purchase considered the Short time capital gain.
Assessee was unhappy with this decision as he needs to pay more taxes on business income where the regular income slabs apply whereas on STCG assessee needs to pay only 1/3 of income tax compare to business profits. So the assessee appealed to the Tribunal.
Tribunal where the case registered has given the decision in favor of the assessee. The Tribunal also made some observations with which the decision goes in favor of the assesse.
These factors should be considered before deciding that the assesse is dealing in share trading or investment purposing.
- Investor intension at the time of purchasing the shares.
- Source of funds for the investment, either borrowed or self.
- Frequency of purchasing and selling the shares.
- Investor treatment in the books for these transactions.
The Tribunal observed the case with these four factors and gives the decision in favor of investor. The reason of giving the decision in favor of the assesse is as follows.
- Tribunal observed that in this case, the law applied that the shares sold within 30 days is considered business income and after 30 days is considered STCG is not correct.
- Tribunal also observed that the assessee is maintain separate books for both trading and investment, it shows the intension of the assesse as he was investing in the share market for the purpose of investment and not for trading.
- Tribunal also observed that the assessee was using his own money for buying and selling shares which cleared that he is not investing for trading purpose.
- The appeal of the opposite party is that there were a large number of transactions for sale and purchase. But the Tribunal observed that the assessee is dealing with the Demat format of stock exchange in which one order can result of many entries. So it is not correct to say the assessee is investing for trading purposing.
So it was decided that all the profits of the assesse comes under short term capital gain and he needs to pay only tax on STCG basis.