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

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...

Sundaram Mutual Fund new plan Sundaram Fixed Term Plan CJ

Sundaram Mutual Fund has announced the launch of a new fund named as Sundaram Fixed Term Plan CJ. The new issue will be closed for subscription on January 30. --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available are: 1. HDFC TaxSaver 2. ICICI Prudential Tax Plan 3. DSP BlackRock Tax Saver Fund 4. Birla Sun Life Tax Relief '96 5. Reliance Tax Saver (ELSS) Fund 6. IDFC Tax Advantage (ELSS) Fund 7. SBI Magnum Tax Gain Scheme 1993 8. Sundaram Tax Saver   -...

Group Health Insurance

Buy Group Health Insurance Online   For Human Resources, the biggest challenge today is to decide whether medical benefits should be offered to employees or not, what type of plans should be offered, what will be the cost and how will the cost be split between employees and employer. Well, most of these are subjective and would depend on a lot of factors including company size, average employee salary, etc. However, this article will give you a fair idea on how you should go about deciding these factors: 1. Why offer group health insurance benefit to employees : Studies have proved that retention rates among employers offering GHI are much higher than the ones who are not offering. Moreover, the cost of providing this benefit as a percentage of salary is very low as compared to the perceived value. As an example, say if average salary of an employee in your organization is 4 LPA. If you decide to offer a health insurance benefit to him for a Sum insured of ...
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