Capital gain tax on stocks
QI have purchased shares of some stocks. I plan to sell these shares after holding them for more than 12 months. If I make a profit, will the profit be a taxable income? If I make a loss, will the loss be a dead loss or will I be able to carry forward the loss? SUNDAR Via mail
A) Profit arising to an assessee from the transaction of sale and purchase of shares can be treated either as business income or capital gains.
The profit would be treated as business income if shares and securities constitute a trading asset and the assessee is a trader of shares and securities. However, the profit would be taxable under the head “Capital Gains”, if the shares and securities are held as an investment i. e., a capital asset.
The original purpose or intention is crucial. If the original intention was to hold the shares as investment, the gains resulting from the sale of such shares will be capital gains. On the other hand, if the original intention was to carry on the activities of purchase and sale as a systematic activity and hold the shares as stock- in- trade, the gains resulting from the sale of such shares will be assessable as business income. The magnitude of purchase and sale, the ratio between the purchase and sale of the shares, and holding period of the same can be considered for determining the purpose.
Therefore, if the shares are purchased with an intention to hold, the shares as investment, the sale of the same after holding it for 12 months will result in long term capital gains which is taxed at the rate of 10 per cent, if the amount of capital gains exceed ` 1 lakh. Similarly, loss on such transactions can be carried forward for set off in subsequent 8 years.
QI am a retired officer drawing a pension of approximately ` 18,000 per month. Now I am working as a consultant in a private firm, where I get ` 24,000 as consultancy fees and ` 3,000 towards conveyance charges. Please suggest how to calculate the income- tax on pension, consultancy fees, and conveyance charges. BIPUL Via mail
A) The consultancy fees received by you as a consultant will be taxed under the head “Profits and Gains from Business or Profession”. You will be eligible to claim any expenditure incurred wholly and exclusively for the purpose of carrying your business or profession. However, the excess of conveyance amount to the extent not incurred also needs to be included in your total income since the amount is already claimed as expenditure by the concerned firm. The pension amount received shall be taxed under the head “Salaries”. You need to calculate your income tax liability after claiming the deductions under under Section 80C, 80D, 80G etc. The total income arrived after claiming the above deductions will be taxed depending on the threshold limit applicable to you for the financial year.
( The writer is a chartered accountant. You can your send queries to info@ rathiandmalani. com)