this is a guest post by taxadda.com – please consult a CA before you file your returns, I am not vouching for the accuracy. thanks.

Capital Gain on share market (Including futures and options)

Share market consists of trading in cash market i.e shares and also in futures and options. For long term investment, a person can buy shares of a listed company while futures and options are traded with a view of short term.

Taxability in Income tax for Cash market

Cash market means purchase and sale of equity shared through a recognized stock exchange. Taxability for cash market is very simple and it depends on the time period for which the shares are held. Their taxability is as under

• Shares held for less than one year – If the shares are held with the investor for a period of less than 12 months then it is considered as short term capital gain (STCG). In case of STCG, capital gain is taxable at flat 15%. Education cess and SHEC @ 3% is extra on it.

This rate is applicable irrespective of the income tax slab in which the person falls. Even if the person falls in 30% slab, such capital gain is taxable at the rate of 15% only. But if the income of person comes below the taxable limit then such exemption is available to him.

For example – A person earns Rs. 1,80,000 as salary and Rs. 1,00,000 as short term capital gain from shares. Now his total income is Rs. 2.8 lakhs and Income tax slab starts from Rs. 2.5 lakh therefore 15% capital gain is payable on Rs. 30,000 only.
No indexation benefit is available.

• Shares held for more than one year – Capital gain arises from shares which are held for more than one year are considered as long term capital gain and is completely exempted from income tax. The only condition being that Securities Transaction Tax (STT) is being paid on such sales and on all transaction carried out by any recognized stock exchange (NSE, BSE etc) are liable for STT. So if you had purchased and sold shares through NSE or BSE and held shares for more than one year then it is totally exempted from income tax.

In case of shares outside stock exchange, STCG is taxable as per income tax slab and LTCG is taxable at 20% with indexation benefit or 10% without indexation benefit whichever is lower.

• Intra day trading – Intra day trading (i.e purchasing and selling in same day) is considered as speculation and thus all profit/loss is considered as profit/loss from speculation business.

Taxability in Income Tax for Futures and Options

All trading in futures and options is considered as  speculation business. Any profit along with other income is taxable as per the income tax slabs at 10% or 20% or 30%.

Speculation business loss can be carried forward for 4 years as against 8 years for non-speculation businesses and can be set off against speculation profit only.

Audit of accounts

Audit of accounts under section 44AB of income tax act is required if turnover goes higher than specified limit. Such specified limit is Rs. 1 crore for the Financial years 2016-17 and 2017-18. Also audit is required if profit is less than 8% of the turnover and profit is more than the taxable limit.

http://taxadda.com/income-tax/business-or-profession/audit-of-accounts-sec-44ab/

In case of cash market, turnover is equal to the sales value of shares.

In case of futures and options, the turnover is calculated in a specific manner as described below.

The turnover will be total of the following:-

1) Speculation Business – The aggregate of both positive and negative differences is to be considered as the turnover.

2) Intra day trading of shares –  The aggregate of both positive and negative differences is to be considered as the turnover.

3) Delivery based trading of shares – Sale value or purchase value whichever is high is considered as turnover.

4) Futures – The aggregate of both positive and negative differences is to be considered as the turnover.

5) Options – Premium received on sale of options is also to be included in turnover.

Eg:-