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I have been filing my ITR showing income from equities as Capital gains. This source of income includes profits from equity investments including intraday transaction and transaction in Futures and Options. Now I want to show this income under the head “Profits and gains of business". Can I do this? If it is doable are there any implications for the past returns filed showing this income under the head Capital Gains? As per my understanding Securities Transaction Tax (STT) is deductible only if I show this as business income. Is this correct? Can I claim the deduction for STT if I continue to show this income under the head capital gains? If I decide to show this income under the business head, can I declare even delivery based transactions under business head or it has to has to be shown under capital gains only?

The transactions of intraday trading and those under future and options are business transactions and in my opinion cannot be shown under the head “Capital Gains. As far as delivery based transactions are concerned, prima facie these are taxable under the head “Capital gains". Whether the delivery-based transactions become taxable as business income or capital gains would depend on various factors like volume of transactions, source of money for investment, average holding period of the investments and intention of the tax payer. So whether these transactions are to be taxed under capital gains or as business income would depend on facts of each case and a readymade answer cannot be given.

Since the transactions of Future and Options (F & O) and intraday constitute business transactions and the profit/loss on such transactions should have been offered as business income in the past. It is never too late to correct a mistake. So start showing these transactions as business transactions for the ITR to be filed. It is very difficult to state whether changing the treatment of these transactions from capital gains to business income will have any implications for your past income tax returns. In my opinion, the chances of your past ITR reopened are minimal unless the income tax return being filed now is selected for detailed scrutiny.

You cannot claim STT paid against your capital gains. However, you can claim STT as business expenditure in respect of the transactions treated as business. Please note for intraday and F & O transactions, you will have to show minimum 6% profits on the turnover of the year. In case you claim that your net profits are lower, you will have to get your accounts audited irrespective of the quantum of the turnover. In case your turnover exceeds specified limits, you have to get your accounts audited irrespective of the percentage of turnover as net profits you declare.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter

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