Skip to main content

Tax trouble for aggressive/short term Investors

If you have invested in stocks or IPOs by taking a loan, the tax liability can go up substantially

Enthused with the success of COAL India, people want to invest in the upcoming initial public offerings (IPOs) and follow-on public offerings (FPOs). He is even willing to borrow to invest in these. But this excitement can cost him dear.

Classified as business income

Buying and selling equities frequently can bring you on the taxman's radar. Consequently, the capital gains made from the transactions will be added to your income and taxed, according to the income-tax (IT) slab.

Income tax experts believe as there are no hard and fast rules on this, and it differs on a case-to-case basis, one runs the risk of paying tax under business income if the amount is reasonably high. For instance, the I-T department will not bother for a gain of `50,000 or `1lakh. But if the capital gains are substantial, say `10 lakh in a financial year, there is a strong chance that it will be classified under 'business income'.

The clincher for the taxman: If you borrow regularly to make investments in IPOs and FPOs. Or, if you avail of margin funding to do daily trading in shares or indices.

If these conditions are applicable to you, your profits are re-categorised as business profit, according to the I-T Act. Interestingly, the Act refers to regular trading in shares as 'an adventure in the form of trade'.

According to the Act, capital gains are proceeds received from selling capital assets, which were bought to hold and not make immediate profit. Say you bought and sold shares within six months, the capital gains would be considered passive income and taxed accordingly.

For a broker, the classification of his/her income under 'business income' is fine. But for a salaried individual, it could hurt badly. Say one makes capital gains of `10 lakh. In addition, his taxable salary is `6lakh. The tax officer can club these two incomes and tax him at the rate of 33 per cent. That would mean a flat tax of `5.3 lakh.

However, if the two incomes were to be divided – capital gains and taxation –his tax liability would be much lesser.

You would have paid `1.5 lakh for capital gains and `1.2 lakh, according to the 20 per cent slab. His outgo, therefore, increases by `2.6 lakh or almost 50 per cent.

Even gains from intra-day trade are termed as speculative gains and come under business income, because the shares are not delivered to you on that particular day.

There is respite, though

Those who want to pursue this aggressively may get some tax benefits as well. One can set-off their business income against expenditure you incur to gain the income.

For instance, if you took a personal loan to buy shares and paid interest of 12 per cent, you can request the officer to take the cost into account and reduce the tax liability accordingly. However, you will not be allowed, if you are earning tax-free income from the expenditure you incur such as dividends from shares.

Buying and selling equities frequently can bring you on taxman's radar

The capital gains made from the transactions get added to your income and taxed, according to the income tax slab

You run the risk of paying tax under 'business income' if the amount is high

If you borrow regularly to make investments in IPOs and FPOs, your profits are categorised as 'business profit'

Also, if you avail of margin funding to do daily trading in shares or indices

For salaried individuals, classification of income under 'business income' can hurt badly

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
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