Photo: Mint
Photo: Mint

Taxpayer can classify gains from share sale

Tax department says determination whether a particular investment in shares or other securities is in the nature of a capital asset or stock-in-trade has led to a lot of uncertainty

New Delhi: In a move that will bring down one of the most common tax disputes, the income tax (I-T) department has clarified that the taxpayer can decide how to classify the gains from sale of shares—as capital gains or as business income.

In a notification dated 29 February, the tax department said the determination whether a particular investment in shares or other securities is in the nature of a capital asset or stock-in-trade has led to a lot of uncertainty and litigation in the past, compounded by different interpretations of the law by courts.

Therefore, the tax department has decided to take the interpretation away from the assessing officer’s hands and leave it to the taxpayer to make the classification. This means that a taxpayer dealing in equities can decide if it is an investment or his business. However, a classification once made in an assessment year cannot be changed in subsequent years.

“Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income. In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the assessing officer," the notification said.

However, it will not be applicable in “cases where the genuineness of the transaction itself is questionable, such as bogus claims of long-term capital gain/short-term capital loss or any other sham transactions," the notification said.

Close