Page 334 - DCOM301_INCOME_TAX_LAWS_I

Unit 12: Income under the Head Capital Gains

2. The capital asset must have been transferred. Notes
3. The transfer must have been affected in the previous year.
4. There must be a gain arising on such transfer of a capital asset. These requisites are
briefly analysed below.
5. Such capital gain should not be exempt under Sections 54, 54B, 54D, 54EC, 54ED, 54F,
54G, or 54GA.

The capital gain is chargeable to income tax if the following conditions are satisfied:
1. There is a capital asset.
2. Assessee should transfer the capital asset.
3. Transfer of capital assets should take place during the previous year.

4. There should be gain or loss on account of such transfer of capital asset.

Caselet Share Trading Income: Business Gain or Capital Gain?

hare trading has grown significantly in the last decade due to rise of the stock
market and rapid adoption of technology. It is seen as a way to make quick bucks by
Sa lot of people. However there is a lot of confusion among on how to treat the
income earned from trading shares viz. Business gain or a capital gain. It is very important
to know the difference because the tax liability of an individual will depend on this, as the
tax treatment of Capital gains and Business income are completely different.
As per the income tax department, any purchase of shares made with the motive of earning
profit is considered to be Business income, whereas investments made with the intent of
earning income through dividends will amount to capital gain.

For Example, if Mr. Saket has earned ` 1,00,000 by trading in shares for a short-term i.e. by
intraday trading or trading in F&O, it is taxable under the head Income from Business or
Profession as per the tax slab applicable to him. While if he holds the shares for a considerable
period time to accumulate wealth then it comes under head Income from Capital gains
(if it is for period exceeding 12 months then no tax is levied provided STT paid. If it is for
a period not exceeding 12 months then he will charged at 15% on his net gain).
It also mentions that an individual can have two portfolios under the head Capital Gains
and Business income, which means that if an individual earns income from intraday
trading and F&O and also from investment in shares for considerable time to accumulate
wealth then he can have portfolios under both the heads of income i.e. income from
intraday Trading and F&O comes under Business Income while Investment in shares with
the intent of accumulating profits comes under Capital Gains.
Thus, what matters is the intention of an individual whether he holds for a longer period
of time to accumulate profits which constitutes the capital gain or does trading to earn
profit (day to day) which constitutes the same to be treated as the business income.
Conclusion
Every individual should be very careful in characterization of income from share trading
as capital gain or Business income because this characterization will affect the tax liability
of the individual to a great extent. Suppose if you wrongly characterize your Long-term
Contd...

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