If you have recently made money from share trading, you may be wondering about the income tax implications. The good news is that the tax code allows investors to defer paying income tax on their share trading profits for up to one year. If you have held the shares for less than a year, the surplus is taxed as short-term capital gain. The tax is added to your regular income. To learn more about income tax on share trading, keep reading!
Listed shares can be treated as business income for tax purposes. However, if you are involved in significant stock trading, you should treat the activity as a business. This will help you reduce your expenses as incurred in running the business. This method, known as capital gains treatment, is the most common method used by individuals. The income from the sale of listed shares will be treated as business income. However, the IRS has issued court judgments and circulars that may make it difficult for you to know how to treat your trading activities.
Although the tax laws do not specifically define what constitutes “sales”, the AO believes that “sales” are an integral part of turnover. In share trading, your profits and losses are the sum of small amounts against large-scale purchases. Therefore, the IRS will classify your trading income as business income. And, if you do choose to use the stock-in-trade tax treatment, your income will be treated as business income.
The income tax on share trading varies depending on the period of holding and the medium of sale. However, if your turnover exceeds Rs. 2 Crore in a year, you can claim the deductions as either business income or capital gain. You will have to file separate tax returns for each of these types of transactions, but there are some ways to defer income tax and get a higher deduction. If you are interested, contact CA Rishabh Maheshwari today.
Until recently, long-term capital losses on equity shares were considered dead losses. However, since they are not taxed, you can use them as a tax offset against other long-term capital gains. However, it is important to note that you cannot carry forward short-term capital losses from listed equities. This means you have to file your tax return before the deadline. And if you do manage to defer income tax on share trading profits, be sure to claim your long-term capital losses.
The short-term capital gains from share trading are also exempted from tax, as long as the equity shares are purchased on a recognised exchange. If you sell your stock in the middle of the year, the gains from this are taxed at your normal income tax rate. However, you can claim losses from speculative trading for up to four years. For non-speculative business income, it is taxed at a slab rate.