Taxation while trading Stocks/ F&O/ Commodities as an Investor and as a Trader

• Stocks that you hold as an investment for more than 1 year
• Stocks that you buy and sell within 1 year (after taking delivery to your demat account)
• Intraday/Day Trading Stocks (equity)
• While Trading Derivatives or F&O – Equity, Currency and Commodity (NSE, BSE, MCX-SX, MCX)
• Calculation of turnover to determine if you need your books audited or not, by a CA
• Brokerage, Trading Costs STT and other

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Circular No. 4/2007, Dated 15-6-2007 by Income Tax Department clarifies about the distinction between shares held as stock-in-trade and shares held as investment.

i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of
association is not decisive of the nature of transaction;
(ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions;
(iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will  yield capital gain and not revenue receipt.

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Circular No.6/2016, Dated 29-02-2016 further clarifies as follows:

a) Where the assessee itself, irrespective of the holding period, in case of listed shares, opts to treat them as stock-in-trade, the income from them shall be business income.
b) In case of listed shares held more than 12 months, if the assessee desires to treat the income from them as LTCG, the same shall not be put to dispute by AO. But this stand, once taken by the assessee cannot be changed in future.
c) In all other cases, the existing procedures shall continue.

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