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