Your Taxes

I do day trading in the F&O segment. How is this taxed?

Durai

In case of stock market transactions, whether income is chargeable as business income or capital gains will depend on the facts and circumstances of each case.

One needs to take into consideration the nature of the transaction, frequency and volume of transactions, etc.

Assuming that your transactions are frequent in nature and unrelated to your portfolio held for investment, such transactions may be regarded as having been carried out for earning short-term profits.

Accordingly, income from such transactions would be taxable as business income under the head, ‘Profits and Gains of Business and Profession’, at applicable tax slab rates.

A guidance note on tax audit issued by The Institute of Chartered Accountants of India specifies the rules relating to the calculation of turnover in case of derivatives, futures and options.

Since the said guidance note is for tax audit purposes , the turnover would be for a particular financial year or part of a financial year ending on March 31 (for the first year). Further, please note that a person is required to get his accounts audited u/s 44AB if turnover of business exceeds ₹1 crore for FY2014-15.

I want to sell some Tamilnad Mercantile Bank unlisted shares that were owned by my father for more than 80 years and transferred to me as his heir in July 2014. How will this be taxed?

Louisa Arulanandam

Shares are treated as a capital asset and any gain or loss incurred on sale of such an asset will be regarded as income under the head, capital gain.

If an individual holds the unlisted shares for more than 36 months from the acquisition date, then the gains shall be termed as long-term capital gains (LTCG).

With respect to determining the period of holding of such an asset, the period for which the asset was held by the previous owner should also be included.

In your case, since you (together with your father’s holding period) hold the unlisted shares for more than 36 months from the acquisition date, the gains shall be termed as LTCG.

The LTCG on transfer shall be computed by deducting from the gross sale consideration received, the indexed cost of acquisition of the asset and the indexed cost of improvement, besides expenditure incurred wholly and exclusively in connection with such transfer.

Capital gains so computed will be taxed at the special rate of 20 per cent, but you will also be liable to pay education cess and secondary and higher secondary education cess.

You may claim exemption from payment of whole or part of tax on the capital gains that arise from such a sale by investing in specified asset/securities, provided the conditions mentioned for claiming such exemption are met.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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