Skip to main content

Are You A Stock Trader Or An Investor?

INDIVIDUALS, both salaried and those in business, invest a portion of their income in bank deposits, mutual funds and shares. There are people who buy and sell securities on a regular basis while another category comprises those who continue to hold on to their investments for a longer period. There are a few others who do both — invest in shares and earn dividends besides buying and selling securities on a daily basis. People who deal in securities listed in a stock market can broadly be categorised as traders and investors. So, how does one find out which category he fits into?


   The tax department has issued a circular to help in this process. One of the scenarios given in the circular is where a person deals in securities with an intent to earn profit; he would be termed a "trader". A trader plays with the short-term swings in the stock market to make profits. Such a person does not tend to retain his securities for long. The circular could serve as a guide though the final decision on whether a person would qualify as a trader or investor would depend on individual fact patterns and events surrounding the securities transactions. In some instances such as the one cited earlier where a person does both, he could be a trader as well as an investor. Such individuals would do well to have a clear demarcation between their investment portfolios and trading securities to avoid any tussles with the taxman. So where does tax come into picture in all this and how does it impact?


   Let's try and understand.


   In the case of an investor, only the profit arising out of a securities sale is taxable in his hands. This profit is taxable as capital gains — short-term if the security is held for less than one year and long-term otherwise. An investor has to pay taxes at the rate of 15% in the case of short-term gains on which Securities Transaction Tax (STT) has been charged while long-term gains are completely exempt when the trans-actions are subject to STT. The Income-Tax Act does not allow for deduction of STT while computing gains in the hands of an investor.


   On the contrary, income from purchase and sale of securities is taxable as business income for a trader. Besides, it is the net income that is taxable. In other words, a trader can reduce all expenses incurred in the course of and incidental to the trading activity though these have to be duly supported by documentary evidence. This includes STT paid on taxable securities transactions. An individual trader's net business income will be taxed at progressive rates with a maximum slab rate of 30%. Consequently, individuals who are in the minimum slab rate may find it beneficial to declare the income from investments as business income since their average tax rate may be lower than the 15% for short-term gains. However, this may not be suitable for the higher income category. Besides, people who sell shares which are held for more than one year will prefer to avail complete tax exemption rather than the same being treated as business income. The trader is also subject to additional compliance requirements such as maintenance of books of account and obtaining a tax audit report when the income crosses a particular threshold level.


   So, wouldn't it be worthwhile to spend some time understanding how you will be taxed on your investments before the taxman knocks at your door?

 

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Max Life Monthly Income Advantage Plan

Money back policies are highly expensive, they mostly don't offer adequate insurance cover and they don't offer good returns Max Life Monthly Income Advantage Plan is a traditional money back policy. Money back policies are similar to endowment insurance plans where the policy provides for partial survival benefits during the term of the policy. These type of products are expensive, they mostly fail to offer adequate insurance cover and they don't offer good returns. What the agent has told you isn't correct. In this policy, the money back is in the form of regular income after completion of 10 years. At the end of premium paying term, you will get a guaranteed monthly income for 10 years which will be 1/12th of 10 percent of the sum assured.  So for instance, if your sum assured is R 10 Lakhs, then the guaranteed monthly income will be R 8333 (100000/12). The reversionary and terminal bonuses mentioned are not guaranteed. You will pay a very high pr
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now