Profit from Sale of Listed Shares – Whether Business Income or Capital Gain?

Query. I have earned profit from sale of listed shares which were kept for more than 12 months. Whether it will be treated as capital gain or business profit?

Reply :– Vide Circular No. 6/2016, dated 29-2-2016, the CBDT has instructed the Assessing Officers to consider the following while deciding whether surplus generated from sale of listed shares or other securities is taxable as capital gains or business income:

The above principles have been formulated by the CBDT with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities.

CBDT has decided that the income arising from transfer of unlisted shares would be considered under the head ‘Capital gains’, irrespective of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach – Letter F.No.225/12/2016/ ITA.II, dated May 2, 2016.

Query. I have earned a profit of Rs. 2 lakhs from sale of long-term listed equity shares in the month of June 2018. Is this gain exempt from tax? Whether I have to report this gain in ITR form?

Reply :-The Finance Act, 2018 introduced a new Section 112A to withdraw Section 10(38) exemption for the long-term capital gains arising from transfer of listed securities, being equity shares, units of equity oriented funds or units of business trusts. As per section 112A, long-term capital gains arising from transfer of listed securities, being equity share, units of an equity oriented fund or a units of a business trust shall be taxed at 10% in excess of Rs. 1 lakh.

The new Section 112A is applicable from Assessment Year 2019-20. Thus, you are required to report the long-term capital gain arising from sale of listed shares in ‘Schedule CG’ of Income-tax Form and pay tax at the rate of 10% on the gain exceeding Rs. 1 lakh.

Query. I have earned profit from intra-day trading. Is it taxable as business profit or capital gain?

Reply :- Intra-day trading is considered as speculation business and the income therefrom would either be speculation gain or speculation loss. Income from speculation gain is taxed at the normal rates. However, any losses arising from speculation business are to be set off only against profit of any other speculative business.

Query. I have earned long-term capital gain of Rs. 10 lakhs which is taxable at 10% under Section 112A. I have made eligible investment of Rs. 1 lakh for Section 80C deductions. How much tax do I need to pay on such income?

Reply :- The benefit of maximum exemption limit shall be available from long-term capital gains taxable under Section 112A. However, assessee cannot take the benefit of deduction available under Chapter VI-A. The taxable income and tax liability thereon shall be calculated as under: