The Central Board of Direct Taxes (CBDT) has issued Circular No. 6/2016 dated February 29, 2016, providing clear guidance on how taxpayers can treat share market profits as business income. According to the circular, for listed shares sold after 12 months, taxpayers can claim investments as capital assets, and the assessing officer must accept this stand. Additionally, irrespective of the holding period, taxpayers can treat their investment in listed shares and securities as stock in trade, with tax officers required to accept this classification. This framework has been further clarified with the Income Tax Act, 1961, as amended by the Finance Act, 2022, establishing a comprehensive regulatory framework for Virtual Digital Assets (VDAs) including cryptocurrencies and NFTs.
The CBDT has introduced the Annual Information Statement (AIS), providing taxpayers with comprehensive access to their tax-related information. As per the latest CBDT guidelines, the AIS covers multiple categories of information including details about bank accounts, PAN, income tax returns, tax deducted at source (TDS), tax credit, refunds, and tax payments. Key information includes details about dividends reported by Registrar and Transfer Agent (RTA), purchase of mutual funds reported by RTA, and information received from any other person deemed fit in revenue interest. The Director General of Income-tax (Systems) has been authorised to upload information relating to these categories within 3 months from the end of the month in which the information is received. Taxpayers can access this information through their income-tax e-filing account or the mobile app 'AIS for Taxpayer'.
Taxpayers with total income less than ₹12 lakh can potentially treat share market profits as business income, provided certain conditions are met. As reported by Upstox, the major factors to be considered include frequency and volume of transactions, source of funds used for investing, purpose of making the investment, and accounting treatment of transactions in the taxpayer's books of accounts. The circular emphasizes that the stand once taken must be consistently followed year after year and cannot be changed without adequate reasons. This approach aligns with the Income Tax Act's provision that allows taxpayers to treat VDA profits as business income, though losses from VDA transfers cannot be set off against other income sources.
For share market profits treated as business income, taxpayers face a flat 30% tax rate on capital gains, similar to the flat 30% rate applicable to VDA gains under the Income Tax Act, 1961. According to official guidelines, no deduction for expenses is allowed except the cost of acquisition for both share market profits and VDA transactions. While the CBDT guidelines provide flexibility, taxpayers must consider significant risks before adopting this approach. The income tax officer may not accept the choice to treat share market profits as business income if the case is selected for detailed scrutiny, making consistent documentation and justification essential for avoiding potential litigation.
