Comment on Zerodha - your tax aide while you trade

Mitesh Lad commented on 19 May 2015, 08:36 AM

Here is the link to the circular

Primary importance is given to who the stock are treated in books of accounts, If treated as stock-in-trade than sale is treated as business income, if the stocks are shown as investments in books of account than sale is treated as Capital Gains.

This is the first step towards distinction between business income and capital gains. Second step followed is to look at frequency of trades and purpose of buying and selling shares. If frequency of trades are higher for a particular case and shares were bought & sold for the sole purpose of making profits, then such income will be treated as business income. While if shares were bought to derive income from dividends and frequency of trades were not high enough than sale of such shares will be treated as capital gains.

It is advised to the investors that they maintain proper books of accounts by clearly distinguishing their portfolios as stock in trade and investments. So that during a case of inquiry they can explain their case to the authorities and prevent unnecessary scrutiny. It is further advisable if portfolios are completely separated from each other in different DEMAT accounts so that trading and investment activities are completely separated and it is easier for the investor to present their case.

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