Saving on Short term Capital Gains

This circular 6/2016 is bit dicey in nature like all other tax circulars I guess. This gives a minor head room for tax payer although continue to be jurisprudence heavy!

  1. The circular does not challenged the definition of 14(2) which is definition of capital asset. So court or tribunal will continue to abide by objective interpretation of 14(2), unless the section itself amended through a statute. So the celebration is restricted:slightly_smiling:

  2. First clarification says if tax payer treat them as stock in trade income would be business income, the tax guys won’t say anything. This means you continue to pay at higher taxes.

  3. Second clarification if the transfer happens after 12 months (which is a long term capital gain) tax payer can show as capital gain and tax guys won’t dispute. This is perhaps beneficial for guys who were showing under business income for long term holding, tax rate can come down to zero. However you have to show always as capital gain, no flip flop allowed in future. In reality an individual will always show long term capital gain which is anyway tax free.

  4. Finally they put a bomb saying nature of transaction (whether business income or capital gain) where transaction itself questionable itself such as bogus claim of LTCG,STCG or sham transactions. Ha ha, now who will decide “questionable”? Food for thought!

Now imagine if business guys starts classifying under capital gains, in bad years they won’t be left out anything to claim incidental situation. Catch 22 situation!

There is been heated debate going in CA institute over this. If you have a big amount please give it to a consultant unless you are one of them.