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What is the Yard Stick to decide whether a person’s Share Income
i.e.
(i) Long Term capital Gain/Loss
(ii)Short Term Capital Gain Loss &
(iii) Speculation Profit ,
should be shown under (i) Head – Business Profit or (ii) Capital Gains ?
What are important Court judgements regarding the same ?

2 Answers

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1 justgrowmymoney November 26, 2011 at 3:47 pm

Put simply – Trading in Futires and Options, even if done only for hedging purposes, are Business profts and losses. In India since none of the F&O are never beyond 3 months all such income/loss will be ST Business gain/loss and will be added to your income and taxed at your tax rate.

Capital gains; Any share bought and sold after 12 months from the date of purchase will be Long term capital gain/loss. Else it is STCG/STCL.The important point to note here is that the sell txn in LTCG should have been done in a recognized exchange and STT paid [means, should not be a private transaction]. Else the gain is not tax free.

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2 ashal jauhari November 27, 2011 at 8:17 am

Dear Jigneshdesai, what I understood from your query, when the income from shares ‘ll be classified under the head capital gain/loss & when the income ‘ll be classified under the head income from business?

if my understanding is correct for your query – it’s a grey area & most of the time it depends upon the assessing officer to decide. You may challenge the decision of your AO.

Interestingly if you are holding 2 demat accounts say 1 in ICICI DIRECT & another one in Sharekhan & you are using I-Direct for buy & hold & S’khan for day trading or frequent trading, you may claim partial income in capital gain from I-direct account & partial income from S’khan account in business income.

Thanks

Ashal

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