Income tax - CBDT Circular - 6/2016

(Madhavan) #21

Hitesh Bhai,

One CA told me that since my trading is more than 1 crore, it is better to treat it as business income and I need to submit balance sheet etc. in fact this is for the last year and I have not filed yet due to this dilemma.

Is there a guideline based on amount traded? I have not done anything on derivatives. Very small Intra day trading, stopped completely now.

(Gaurav Agarwal) #22


So if you choose to treat securities held for more than 12 months as LTCG, assessing officer cannot dispute it but the condition is if you treat such income as LTCG in AY16-17 you cannot treat it as business income in AY17-18.

(Niraj Kumar) #23

Madhavan i guess trading of 1 cr is not a problem only problem if u have trading profit of more than 1 cr than CA help is needed. Many CAs guys themselves try to scare people with unnecessary jargon to charge higher fees. My personal experience i find IT Dept official utility easier than doing it through CAs or online tax filling sites.

(reacher) #24

my understanding

1.If you treat your stcg as business income you can not change it again next year without valid logic - so once you opt for it it remains.This makes sense only if you have sufficient business expenditure
2.if you categorise as business then you also lose the benefit of zero tax on ltcg
3.If you do derivatives you have no choice but to file itr4 and there you can show all the 3 seperately.(stcg,ltcg,business income )
4.showing holdings of 31.03. as stock in trade means you are showing it as business income.But benefit is you can show interest expenses if you are borrowing to buy these stocks

(Gaurav Agarwal) #25

Hi Madhavan

First I should tell you I not a CA nor I have any relation/connection with any CA or firm but I think you should either spend lot of time researching the topic or talk to a CA you can trust. In your case an audit may also be required.

The classification is like this

  • Delivery based investment - When you take delivery of securities in your demat account.

  • Future & Options

  • Intra-day trading

If you do F & O or intra-day trading that is compulsorily classified as business income and no case of STCG or LTCG.

Tax audit applicability u/s 44AB for share transactions. There are two types of transactions in share trading by business/individual.

  • For investment/Trading purposes.(Delivery Based)

  • For speculation purposes.(Mostly non-delivery based with few delivery based transactions)

Case 1: Delivery based transactions : Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sale is to be considered as turnover. So if the turn-over exceeds one crore, then tax audit is necessary.

Case 2: Speculative transactions : A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically settled otherwise than by the actual delivery or transfer of the commodity or scripts in most cases. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be profitable or loss. As such, in such transaction the difference amount i.e. profit or loss are termed as ‘turnover’. In the case of an assessee doing speculative transactions there can be both positive and negative difference arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive(profit) or negative difference(loss) is an independent transaction. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences(total of profit and total of loss) is to be considered as the turnover of such transaction for determining the liability to audit vide section 44 AB.

In the same way, Derivatives, futures and options, transactions are completed without the delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full value of the asset purchased or sole but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:

The total of profit and loss separately to be totaled in two groups and shall be taken as turnover.

(v4value) #26

Got it thanks Hiteshji.

(Gaurav Agarwal) #27

Hi Reacher

You second point

is contrary to para b) of circular

Point number 3

If you do Derivatives (Future & Options) and no Intra-day you can also file ITR-4S, which is much simpler than ITR-4.

(Atul Joshi) #28

Could you please help understand tax treatment for full time investor, i.e. those not having any other source of income? Investor has delivery based trades (no intra day or derivative), and plans to declare it as an investment income.

  1. Can LTCG be still NILL?
  2. How STCG will be treated? Is it 15% flat or will it get taxed as per applicable slab based upon actual short term profit?

I believe dividend income upto Rs 10lac will continue to be tax free.


(reacher) #29

1.Yes for investors LTCG is nil .
2.STCG is flat 15% and not per slabs - However You get the benefit of minimum income tax exemption of 250000 or 300000 (sr citizen)
3.Yes dividend till 10 lacs is tax exempt

(reacher) #30

If ito classifies you as involved in business of buying and selling shares then you lose not just the concessional tax of 15% on stcg but also the zero tax on ltcg
My view is that ITR 4S is NOT applicable for derivatives - even otherwise it is not allowed when you have carry forward losses or if one has capital gains.In case one uses ITR 4S then he will have to declare the actual profit (and not 8% of turnover ) so there is no benefit.

(Gaurav Agarwal) #31


Most politely, even after reading paragraph b) of the circular, you wish to maintain that if one is involved in business of buying and selling of shares LTCG will not be applicable. I wish to most humble remind you that circular was issued in Feb-16. Below is para b) of circular [quote=“Gaurav_Agarwal, post:1, topic:5983”]
In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;

(reacher) #32

If assessee declares himself as an investor he will enjoy zero tax on ltcg .But then he can not claim any business expenditure and have to pay flat 15% stcg tax .But if he declares (or if ITO decides based on the case ) that he is in the business of shares then he loses both stcg 15% concessional benefit and also the zero tax on ltcg .The circular does not say that you can treat it as business income and simultaneously enjoy zero tax on ltcg at the same time.

One way out is to clearly seperate investment corpus and trading corpus and do the investment in individual name and trading/business in firm name

(Gaurav Agarwal) #33

If the following two conditions are met

  1. Shares and securities are listed

  2. Shares and securities are held for more than 12 months

Assessee can do the following

  1. Treat the income as Capital Gain


Assessing officer shall not do the following

  1. Dispute

Therefore ITO does not have power to take away benefit of LTCG if above two conditions are fulfilled.

I have read the same interpretation in this newspaper article. On the contrary the article express worry that tax official instead dispute treatment of income as business income instead of STCG.

“While this circular is welcome, it only resolves litigation relating to longterm capital gains vis-a-vis business income. Listed shares and securities sold before a 12-month holding period attract a short-term capital gain tax of 15%. Tax officials in such cases could still treat income on sale of short-term investments as business income, which could attract a higher tax rate,” points out Anish Thacker, partner, EY (India).


what is tax treatment if i receive shares from my wife ? how much tax i have to pay? and what tax my wife will be liable to tax department?

(reacher) #35

Not taxable either in your or your wife’s hands as this is gift from “specified relative”.

However when you sell you would have to pay capital gains tax if applicable based on holding period of 1 year or less.For purposes of calculating this 1 year holding period you can also add the time the security was held by your wife.

(Rajive Jamwaal) #36

Last year I filed my It return with LTCG( shares), STCG( Shares0 and Business profit from FNO.
The return was duly accepted and refund also was rvd

(Madhavan) #38


Did you file ITR 4 ?

(Rajive Jamwaal) #39

yes… which was duly accepted and refund was also rvd

(Somenath Paul) #40

I have one query.

I am an individual investor with low volumes just like any other in this forum.
Since this CBDT circular it has been very difficult to trade intraday or on FnO, because this can be treated as Business Income and the LTCG also would be taxed at prevailing tax rates.

Till date I have been occasionally day trading with low volumes (No FnO) and still filing ITR2 and it has been duly accepted and refund also generated.

Now that I also want to start FnO, I have a feeling this might be an issue as IT department can consider my entire income as business income and tax my LTCG also.

So what are the options?

Someone had pointed out earlier in this thread earlier that if we trade on a registered company name than that could be a better option.

Can anyone with real experience tell me if I can continue invest in my own name and trade (day/FnO) in a registered company name and how this would be treated as IT department?

In the case I trade on a separate company name - Will the gains on the registered gains on the company treated as business income and my own long term individual investments on my PAN be treated as LTCG exempt?

(reacher) #41

You can trade in futures and file ITR 4 but still maintain and show seperately short term gains,long term gains and business income - there is no issue on will pay 15% on short term,zero on long term and normal rates on business income.But if your volumes are huge ( say you have an office and employees etc ) then only it makes sense to use a company to park the business income in that name . For most people it makes sense to have just one account one pan and do everything there but keep track seperately as to what is business asset and what is short term and long term.