Taxation of Stock Market Transactions

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Taxation of Stock Market Transactions
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• Being in the festival of Income tax where we
  celebrate the filing of Income tax returns. The
  most common and the most complicated query being
  asked from a CA is related to taxation of Stock
  market Transactions. Before learning about the
  taxation part, you will have to find out whether
  you are an investor or trader. It is essential to
  find out because there are different provisions
  for traders and investors. Lets Start the
  discussion, There was a lot of ambiguity
  regarding if the person is a trader or an
  investor before 2016 but the Income tax
  department removed lots of ambiguity by issuing a
  circular on 2nd March 2016 on identifying a
  person as an investor or a trader. Some Common
  points of the circular were as under
• FO trading is considered a non-speculative
  business income.
• Intraday Equity is considered speculative
  business income.
• 3. Equity delivery-based investments are
  considered as LTCG if holding is more than 1 year
  otherwise STCG but if the sale/purchase of
  investments is frequent then it is recommended
  to declare it as non-speculative income instead
  of STCG. 4. If trading is the only source of
  income then classify income as business income
  instead of capital gain.
• 5. This circular classifies that you can be a
  trader and investor both at the same time.
  Frequent is not defined, however in general
  parlance, we take it as 5 crores.
• Now if you have identified yourself as a trader
  or investor, it is good to discuss the taxation
  part.

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• Taxation for Investor If you are an investor,
  there can be only two types of taxation LTCG or
  STCG. Long-term capital gain (LTCG) equity
  delivery-based investments where the holding
  period is more than 1 year Short-term capital
  gain (STCG) equity delivery-based investments
  where the holding period is lesser than 1
  year.Taxes on long-term capital gains for
  equity and mutual funds are discussed below For
  stocks/equity Exempt for 1st 1 lakh and 10
  exceeding 1 lakh if STT is paid. If STT is not
  paid then LTCG is taxed at a flat rate of 20
  Generally, STT is not paid on only those
  transactions which are not from the recognized
  stock exchanges. For mutual fund Exempt for 1st
  1 lakh and 10 exceeding 1 lakh for the
  equity-oriented mutual fund if the fund is
  non-equity oriented then LTCG is taxed at a flat
  rate of 20. A mutual fund is considered
  equity-oriented if at least 65 of the investible
  funds are deployed into equity or shares of
  domestic companies. You have to stay invested for
  3 years for the investment to be considered as
  long-term capital gain in the case of
  non-equity-oriented mutual funds. When
  calculating capital gains in the case of
  non-equity-oriented mutual funds, property, gold,
  and others where you are taxed on LTCG, you get
  the indexation benefit to determine your net
  capital gain

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• Taxes on short-term capital gains for equity and
  mutual funds are discussed below For
  stocks/equity 15 if STT is paid. If STT is not
  paid then STCG is taxed as per the applicable
  slab rate. For mutual funds Similar to STCG for
  equity delivery-based trades, any gain in
  investment in equity-oriented mutual funds held
  for lesser than 1 year is considered STCG and
  taxed at 15 of the gain. However, if the fund is
  non-equity oriented then STCG is taxed as per
  applicable slab rates. Long-term capital
  loss/Short term capital loss can be carried
  forward for 8 years. LTCL can only be set off
  from LTCG however STCL can only be set off from
  LTCG/STCG. Which ITR form is to be used by the
  investor? ITR3 (ITR 4 until 2017) When you have
  business income and capital gains. ITR 2 When
  you have a salary and capital gains or just
  capital gains.
• Taxation for Trader Here we will discuss all
  aspects of taxation when trading is declared as a
  business income, which can be categorized as
  Speculative or Non-speculative business income.
  Speculative business income Income from intraday
  equity trading is considered speculative.
  Non-speculative business income Income from
  trading FO (both intraday and overnight) on all
  the exchanges are considered non-speculative
  business income. Speculative losses can be
  carried forward for 4 years and can be set off
  only against any speculative gains you make in
  that period. Non-speculative losses can be set
  off against any other business income except
  salary income in the same year. So, they can be
  set off against bank interest income, rental
  income, and capital gains, but only in the same
  year. You carry forward non-speculative losses to
  the next 8 years. As a trader has to show his
  income as Business Income so he has to prepare
  proper books of accounts as per section
  44AA.

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• Calculation of Turnover In the case of Equity
  Buy Value Sale Value is considered as Turnover.
  Profit 500, Buy of Reliance 2000, Sale of
  Reliance 2500. Turnover 4500 Loss 500, Buy
  of Reliance 2000, Sale of Reliance 1500.
  Turnover 3500 In the case of Futures Profit
  and Loss is considered as Turnover. Profit 500,
  Buy of Reliance future 2000, Sale of Reliance
  Future 2500. Turnover 500 Loss 500, Buy
  Reliance future 2000, Sale Reliance Future
  1500. Turnover 500 In the case of Options
  Profit and Loss Sales Value is considered as
  Turnover. Profit 500, Lot size 25, Buy of
  Bank Nifty option 300, Sale of Bank Nifty
  Option 320. Turnover 500 (320 25) 8500
  Profit 500, Lot size 25, Buy of Bank Nifty
  option 300, Sale of Bank Nifty Option 280.
  Turnover 500 (280 25) 7500 Audit of the
  Books of Accounts will be compulsory to be done
  if the turnover is more than 10 crores as per
  Section 44AB of the Income tax act 2016. If a
  taxpayer is both trader and investor then all the
  above provisions of trader and investors will
  apply.

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• Which ITR form is to be used by the trader? ITR3
  (ITR 4 until 2017) Because you have only
  business income. In the case of Crypto Profit is
  taxed at 30 flat Set off of loss Set off can
  be from the same script Example- Loss in Bitcoin
  can not be set off from Gain in Ethereum. Loss in
  bitcoin can only be set off by Gain in Bitcoin.
  Disclaimer Do consult a chartered
  accountant (CA) before filing your returns. The
  content above is for your general knowledge only.
  Content meant for Individual retail
  investors/traders in India.
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