Trading or Investing in Stock Markets – Profit/Loss to be classified under which Head Of Income?

Before filing your Income Tax Returns, you need to classify yourself as Investor or Trader. You can opt to be both Trader and Investor. CBDT Cir. No. 6/2016 of Income Tax Dept has brought clarity on this.

Important point is whatever stance once taken, the taxpayer will have to continue with the same in the subsequent years

Now Investor is anyone, who invests with the intention of earning through Dividends. Whereas Trader is anyone who buys/sells with the intention of making profits through price rise

Investors can classify their Income from Sale/Purchase of shares as Long Term Capital Gain if the holding period is above 1 year and Short Term Capital Gain if holding period is less than 1 year

Traders need to classify their Income as Business Income. Those trading frequently should ideally classify themselves as Traders

However irrespective of whether you are Investor or Trader, as per sec 43(5) of the Income Tax Act, 1961, Profits earned by Trading Equity or Stocks for Intra-day or Non-Delivery is categorized under Speculative Business income. Income from trading Futures & Options on recognized exchanges(Equity, Commodity) is categorized under Non-Speculative Business Income.

CA Anoop Gupta
Mobile 9999019123

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