News

20th June, 2006

I-T to take a call on share transaction incomes soon

The issue of whether to treat income from transaction in shares as investment or as trade income, will dominate the forthcoming meeting of finance minister P Chidambaram with the chief commissioners of income tax next week.

The annual meeting with the chief commissioners will give an opportunity to the finance minister to explain to the top revenue officials, how to assess the income earned from share market transactions. While the finance ministry has put out the circular as a draft, the norms are expected to be finalised within this fiscal. The tax authorities will have to send out tax notices accordingly.

The meeting will also discuss the new tax returns form-2F, introduced by the income tax department this year, as an alternative to the Saral form.

The two measures have created a lot of stir among the tax payers. The revenue department has, however, clarified that the draft circular on share trading, is not aimed at taxing the FIIs. This message is also expected to be reiterated at the meeting.

The government feels that a large number of people, other than FIIs and brokers, indulge in trading of shares. They do not buy shares for long term investment. It is keen to ensure that the income derived from this activity is reflected in the income tax paid to the government.

The meeting is usually held in April or May every year, to set the annual tax realisation goals for the year. But, because of assembly elections there has been a delay this year. The zone-wise targets have already been communicated to the field formations.

These meetings also decide on the thrust for scrutiny and survey operations, for the year, for companies and individuals. For the last two years, the government has been emphasising on identifying the expenditure trails of high net worth individuals to realise more income tax.

The strategy has proved successful, and the government expects to expand the Annual Information Network to more commodities this year.