Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: empanelment :: VAT RATES :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: VAT Audit :: due date for vat payment :: form 3cd :: TDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: articles on VAT and GST in India
 
 
News Headlines »
 Reforming the income tax tribunal
 How the new system might impact consumers and businesses
 10 ways you get benefited from filing your tax return
 Returns under CGST Act,2017 with Rules
 Ten facts to know about filing income tax return this year
 The Ten Commandments of Tax Filing
 How to claim income tax refund
 How to time your buys to have best of two tax regimes
 Here's why you must always check Form 26AS before filing tax return
 Want to file your income tax return after June 30? Having Aadhaar card is a must
 Timeline for filing of tax returns extended by two months

Do you trade or invest? It makes a lot of difference
June, 22nd 2007
The distinction between equity holdings of an investor to be classified as either stock in trade or as an investment can have major implications on the tax paid on the transaction. The Central Board of Direct Taxes has come out with a circular that will guide both investors and tax officers in making the right classification. ET lists out the impact of this move on equity markets.

What is the importance of classification of equity holdings into different heads?

There is great importance attached to the way in which a certain equity holding is considered because this determines the taxation on the particular share. If the share is considered as a stock in trade for a person, then the gain and loss will be calculated as a business gain or loss.

If there is a gain, then the tax rate applicable will be the one that is relevant for the entity and this can go up to 34% for a company. On the other hand if the share is considered as a capital asset then the gains or losses here will be considered as capital gains.

There is a beneficial tax rate applicable for capital gains and this can even be zero for long-term capital gains where the transaction takes place on a recognised stock exchange and securities transaction tax is paid.

What is the importance of the new circular?

The issue of classification of gains from stock transactions into either business income or capital gains has a long history. A lot of judgements have been given on the matter and there was even a draft circular to deal with the issue. This issue affects a lot of investors and hence any change or clarification in this area assumes importance.

Both the investor and the tax authorities can use the guideline given in the new circular in order to arrive at the correct position. It is important to know that an investor in this case will refer to all kinds of investors, be they individuals carrying on activities under their own name to even foreign institutional investors.

What is the most notable thing mentioned in the circular?

One of the most important points that has been mentioned in the circular is that the investor has the option to classify shares into different categories. This means that the investor can have some shares that are in the nature of long-term investments and are hence classified as capital assets.

At the same time they can also have some holdings that are in the nature of trading assets, where the idea is to earn quick capital gains by moving in and out of the company.

This is a change because now a person can have investments falling into both categories, while earlier there was a good chance that if there were some trading assets with the investor then all the holdings would be classified as trading assets and then taxed accordingly.

How will this impact the equity markets?

According to a preliminary analysis of tax experts, this circular will not solve the existing problem faced by various investors because each case would still have to be considered according to the facts present.

Thus the overall question of giving a certain position to a class of investors based on the circular will not be possible. At the same time this is not expected to have a material impact on all those foreign institutional investors who are registered in tax-friendly places like Mauritius.

The direct impact of the move on the equity markets is not expected to be very high because there is nothing new in the circular and the ambiguity regarding the taxation is yet to be resolved.

ARNAV PANDYA
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Multi-level Marketing MLM India Affiliate Marketing Affiliate Marketing Software MLM Software MLM Solutions Multi level marketing solutions MLM Servi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions