Skip to main content

Investors get tax relief on investment gains

By
Once the income has been classified as either business income or capital gains, be consistent
In a move that is likely to reduce litigations between investors and the income- tax department, the Central Board of Direct Taxes recently allowed investors to decide whether income from sale of securities is to be treated as business income or capital gains. Earlier, the assessing officer ( AO) was used to make this decision. So, if there were a large number of trades or profit- booking, the AO could classify it as business income and tax it at the highest rate of 30 per cent plus applicable cess. If the gain is classified as capital gains, there is no tax.
Henceforth, if the assessee wants the income from sale of security after 12 months to be treated as capital gain, the assessing officer ( AO) cannot dispute it. An important caveat: Once an assessee has chosen a certain mode of tax treatment, he can’t change it in subsequent years. Says Suresh Surana, founder, RSM Astute Consulting Group: “This is a serious statement from the government towards its commitment to reducing litigation.” However, there is still scope for AOs to dispute the treatment of short- term gains. High- frequency traders, day traders and others who churn their portfolios a lot might still find themselves embroiled in disputes.
A large number of disputes arise on the subject of treatment of gains from sale of securities as capital gains versus business income due to two key reasons. One, the income tax Act does not contain specific guidelines on how to classify an investment - as capital asset or as stock- in- trade. A lot is left to case- by- case interpretation. Two, there is a wide difference in tax rate between the two modes of treatment, which provides incentive for litigation. If income is classified as long- term capital gain, the applicable tax rate is zero. On short- term capital gain ( for securities held for less than a year) the rate is 15 per cent ( plus cess and surcharge). On the other hand, if the AO treats it as business income, he can impose a tax rate of 30 per cent ( plus surcharge and cess).
Investors can take a few precautions to reduce the possibility of disputes. One way is to invest in equities for the long term (more than a year). Second, as Rajesh H Gandhi, partner, Deloitte Haskins & Sells, suggests: “ There should be no disparity between how an income is treated in your books and the tax treatment you ask for it.” That is, don’t indulge in opportunistic flip- flops, asking for the income to be treated as capital gain when you make gains ( so you pay zero tax) and as business income when you make losses ( so you can offset the loss against business gains, or carry them forward). Three, if you have invested your own funds, have documentary proof to back up your claim. If you have multiple.
Business Standard, New Delhi, 10th March 2016

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more