CBDT issues norms for stock gainsBS Reporter / New Delhi June 15, 2007The Central Board of Direct Taxes (CBDT) today directed tax assessingofficials to calculate tax liability on those transacting in shares on thebasis of principles laid down by the Authority of Advance Rulings (AAR).These principles distinguish between shares held as stock-in-trade (tradingassets) and those held as investments.The clarification is important as income from trading assets is treated asbusiness income, attracting a tax of slightly over 30%. Income frominvestments attracts capital gains tax - 10% for short-term (lessthan twelve months) and no tax on long-term gains.The circular implies that tax assessing officers will henceforth have tolook into the holding pattern of the securities bought and sold, thesale-purchase ratio, the time involved, the funding sources and the overalltrade volume when determining the tax liability involved among others.The circular, which supplements an 18-year old one, provides clarity on acontroversial issue that has seen massive litigation by many includingFIIs.The circular directs assessing officers to three principles culled out byAAR from Supreme Court decisions for determining tax liability. AAR hassaid ordinarily, the purchase and sale of shares with a motive of earningprofits amounts to business income, while investments made for earningincome through dividend may be treated as capital gains.CBDT has also said taxpayers can have two portfolios - an investmentone, comprising securities treated as capital assets, and a trading one,comprising stock-in-trade, treated as trading assets.Amarjeet Singh, partner, KPMG, said:
