Taxation of Securities: Short Term, Long Term and Intraday gains from Sale of Shares

Stock Market trading has got a different niche in India. Stock Trading is not only a game of sheer luck however, it takes lot of rise and falls and experience to achieve a comfortable status in this trade. Now, while trading in securities one can choose to retain the securities for a year or even more or maybe even a single day. Taxation on gain/loss of securities is different in all these cases. The people who are successful in this area will also be interested in knowing the tax applicable to these transactions. In this article we will discuss about taxation of securities under all these retention periods, i.e. Short Term, Long Term and Intraday Trading.

Table of Content:

What is the meaning of Short Term, Long Term and Intraday Trade?

As an investor we may choose to buy and retain a security for some time and wait for the rise in the prices and then choose to sale it at our wish and earn gains out of such transactions. However, when working as an intraday trader the transactions will be squared off at the end of the day and result of the same will be gain/loss. Let us understand these terms:

  • Short Term- Securities held for less than 1 year are short term capital assets, in case of unlisted shares this period will be 2 years.
  • Long Term- Securities held for more than 1 year are long term capital assets, in case of unlisted shares this period will be 2 years.
  • Intraday Trading- On the basis of above it can be said that income earned from intraday trading will be treated as business income. However, it will be treated as speculative business.

Understanding Taxation of securities: Short Term, Long Term and Intraday Trading

Short Term Capital Gain/Loss

  • Listed Securities The gain on sale of listed securities will be taxable @15%.
  • Unlisted Securities-The gain on sale of Unlisted Securities will be taxable at slab rates as applicable to the assessee.

Points to be noted

  • Deductions under Chapter VI-A can be claimed against these gains
  • Short term capital loss can be carried forward for a period of 8 years, provided the return is filed within due date. Such loss can be set off against any short-term/long-term capital gain.
  • Resident Individual/HUF can adjust STCG to basic exemption limit, once all other incomes are adjusted.

 Long Term Capital Gain/Loss

  • Listed Securities-
    • In case of listed securities the Long Term Capital Gain is taxable @10%, if the amount of gain exceeds Rs.1,00,000/-
    • No indexation benefit is available.
  • Unlisted Securities
    • In case of unlisted securities, gain is taxable @20%., with indexation benefit.
    • In case of Non-residents, rate of 10% is applicable, but indexation benefit is not available to them.

Points to be noted

    • Deductions under Chapter VI-A cannot be claimed against Long Term Capital Gains/Loss.
    • The long term capital loss can be carried forward and set-off against any long term capital gain for subsequent 8 years.
    • In case of securities held for Long Term , FMV will be calculated as follows if shares are acquired before 31.01.2018.The value will be higher of:
      Actual Cost of Acquisition OR Lower of [FMV of shares as on 31.01.2018 and Actual Sales    consideration]
    • Resident Individual/HUF can adjust LTCG to basic exemption limit, once all other incomes are adjusted.

Intra Day Trading

Intra Day trading means where transactions are squared-off on daily basis. This income       is taxed as per applicable slab rates on business income.

How to calculate Income in Intraday Trading?

  • Income under intraday trading is calculated just like any other normal business, i.e. Revenue-Expenses.
  • A Balance Sheet & Profit-Loss Account needs to be maintained.
  • Presumptive income option u/s 44AD of Income Tax Act can also be availed if turnover is less than Rs.2 crores. Under this option, the income will be calculated @6% on turnover and will be liable to tax as per applicable tax rates.
  • If the assessee feels that, if he claims actual expenses against the turnover, then his income will be less than 6%, then he can prepare Balance Sheet and Profit and Loss Account and can pay tax on his actual income.
  • As it is covered under business income, the same may also come under the ambit of tax audit.

When is Tax Audit required?

  • If trading is more than Rs.5 crores, tax audit is mandatory.
  • If losses are incurred and these losses are to be adjusted against income, and total income is more than basic exemption limit, then also tax audit is required.
  • If the income is less than 6% of turnover, but more than basic exemption limit then also tax audit is required.
  • In cases other than above, tax audit is not required, but preparation of Balance Sheet & Profit-Loss account is required.

Carry forward and Set-off of Losses

  • The losses from Intraday trading are considered as speculative business loss and can be carried forward only for 4 assessment years.
  • The losses can be set-off against only speculative business gains.
  • For carry forward and set-off return should be filed within due date i.e. 31.10.2021 (in case of tax audit), 31.07.2021 (if no tax audit)

 Conclusion

The taxation of securities: long term, short term and intraday trading has been discussed in detail in this article. While the taxation of Short Term and Long Term Gains is majorly at specified rates, the taxation of intraday trading is at slab rates. There is a difference in calculating the income under these three types. In short term there is no indexation, in long term there may be indexation, while in intraday it is just comparison of income and expenses.

All those who are keenly involved in stock trading will definitely find this information useful as ultimately what we earn is to be scanned as per income tax provisions and applicable tax has to be paid.

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