Circular number 4, released on June 15, 2007 offers clarity on the investor and the trader, for share market transactions. It also includes references to an 18 year-old circular and the same rules apply now as far as the difference between investor and trader is concerned.
If you are a trader as per income tax rules, your earnings from share market will be taxed, on the same lines as a normal income. If you are an investor, you pay tax at the rate of 10 per cent, particularly when you invest in the market for the short-term.
To decide whether you are a trader or an investor, you need to take into account various circumstances and facts that may also vary from individual to individual.
So, there can't be any rules and regulations distinguishing the investor from a trader. The circular has examples to suggest differences between a trader and an investor. If you invest in stocks to earn profits, your income will be treated as income from trade, as you are a trader.
But when you invest in stocks to earn dividend, your income is then treated as income from capital gains or short-term capital gains and thus you are an investor.
Besides this, your own books of accounts make it clear how you treat your income ie as income from trade or from investment. You are a trader if the books of account show investment in shares as stocks in trade. If it is shown as investment, you are an investor then.
The circular also clarifies that one can have two types of income-income from business as well as income from investment- in a single year. They will be taxed separately.
You get a tax deduction for if you invest the long-term capital gains in bonds. Under IT section 54 EC, you can invest in REC and NHAI bonds within six months from incurring capital gains. REC bonds are going to be issued very soon and all types of taxpayers will be able to invest in these bonds. You can invest up to Rs 50 lakh (Rs 5 million) in these bonds to save capital gains from tax. It applies to all types of capital gains be it sale of property, land, commercial, residential, jewellery or silver or any other type of items.
How do I file my tax returns? My company has already given me a form 16.
-- Ajay Gayakwad, Pune
You fill the figures that are given in form 16 in the income tax return form. File your tax returns in the income tax form no 1 if there is no income from other sources. And your income tax return is ready.
My NRI son sent me some money with which I bought a car recently. Can I show it as a gift in the income tax form? Is LIC pension scheme taxable?
--Vineet Kumar, Ahmedabad
Money received from son whether he is in the country or abroad is not taxable. But pension will be taxed, as it is income from other sources. Pension provided by the employer is treated as salary income while pension from insurance is income from other sources.
Six months ago I bought 1000 shares of DLF for Rs 30 each. When should I sell it so that I pay minimum tax?
-- Gurupreet, Delhi
There will be no tax on it if you sell it after one year. But if you sell it now, you pay 10 per cent tax.
Do I have to give tax on ESOPs? I work for a software company.
-- Vipin
It will be taxed only the day you sell it. You don't worry. Your company will give FBT on it.
Which court should I approach for the matters related to income tax?
-- Atul Negi, Pune
If taxpayer has a problem with tax assessment he should go into appeal before appellate commissioner. Next he can go to income tax tribunal and later to high court and Supreme Court. This is normal appellate procedure.
Can I file tax returns by March 31, 2008 without having to pay penalty, if not on July 31, 2007?
-- Vivek
You don't pay any penal interest if you have paid all the tax. But if there is tax pending at the time of filing tax returns in March, you have to give penal interest on it.
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