Income from Shares - Capital Gains or Business Income?

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  1. vkrma_rt

    vkrma_rt New Member

    I have a major confusion and nobody is able to give a pin-point answer.

    Here is the case-

    1. A person is retired with no pension. Early retirement - NOT A SENIOR CITIZEN.
    2. Such person invests his savings in stocks - lets say 10 lakh (STT paid)
    3. The stocks are sold after 13 months at 5 times the value - 50 lakh (STT paid)
    4. The capital gains are - 40 lakhs
    5. Income from interest (fixed deposits etc) - 1.5 Lakh
    6. Income from dividends - 20,000/-

    Questions (from Income Tax view)-
    1. Is the person an "investor" or a "business man" ?
    2. Is the tax liability ZERO?
    3. Can the income tax be filed on ITR-2 ?
    4. Is there any audit requirement? Total sale being 50 lakh
  2. Piyush Chawla

    Piyush Chawla Active Member

    1. He would be treated as an investor in this case
    2. Yes, his tax liability is Nil
    3. Yes, ITR -2 can be filed
    4. No Tax Audit requirement as this is capital gain and not business profit
  3. vkrma_rt

    vkrma_rt New Member

    Thanks for your time Piyush.

    Then allow me to make a generalized statement -

    Does not matter how much amount shares you buy and sell in a year - if you are buying and selling shares on "DELIVERY" basis (NOT margin trading , futures/options) you are an INVESTOR.

    So, if you buy (and sell) shares worth 10 CRORE in a year, you are still "INVESTOR".
    Since you are "INVESTOR", no audit is required.

    Is this understanding correct?
  4. Piyush Chawla

    Piyush Chawla Active Member

    No - we cant generalise this.

    It depends on a case to case basis
  5. Apurba Shaw

    Apurba Shaw New Member

    It is not clear. Then will that be decided arbitrarily by I T Dept? Is there no clear cut norm?
  6. vkrma_rt

    vkrma_rt New Member

    So, how does a person plan/comply his TAX... no law for this??

    What happens if a person sells shares after 13 months & total capital gain is 1 CRORE -
    1. Business income - TAX 20%
    2. Long Term Capital Gain on Equity - TAX 0%
  7. Yatin Gandhi

    Yatin Gandhi Active Member

    Shares held for more than 1 year are exempted from the levy of any capital gains tax
  8. vkrma_rt

    vkrma_rt New Member

    Dear Yatin and all other experts -

    So if the shares are held for MORE THAN A YEAR before selling,

    then the capital gains are tax free & matter is treated as INVESTMENT (not business) - does not matter how much is the sales amount and the capital gains (1 lakh, 1 crore, 100 crore !!!). Since it is INVESTMENT - No audit is required.

    IT Department might ask questions (scrutiny) BUT can not decide ARBITRARY.

    Is ABOVE understanding correct??

    By contrast - if it is short term sales, then Income TAX department has the ARBITRARY DISCRETION on whether it is investment or business??
  9. Yatin Gandhi

    Yatin Gandhi Active Member

    Yes, your understanding is correct
  10. vkrma_rt

    vkrma_rt New Member

    Thanks for the clarification Yatin.
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