Income From shares and liability for getting Tax Audit done

Online Trading has gained immense popularity to attract people to invest their money in share market. Online Share trading has opened up the share market to the general population. It caters for everyday investors with new tools available to help them keep track of market fluctuations to identify profitable trades and build diversified portfolios.

The type of trading you carry out will decide the scope of taxability of your income and liability to get your accounts audited under the Income Tax Act, 1961.

Share trading in cash market i.e. delivery based transaction, the assessee has option of having two portfolios i.e., investment portfolio and trading portfolio. Persons trading in shares under trading portfolio are into business of share trading and disclose the income from share trading under the head business and profession for the purpose of Income tax. Others just make investments in the share market under the investment portfolio and declare short term/long term capital gain/loss on their income, based on the period of holding of the shares.

In case of share trading of non delivery based transaction where transaction is settled otherwise than by actual delivery or transfer, the income shall be treated as speculative business income. However trading in derivatives has been kept away form the ambit of speculative income, and are accordingly treated as normal business profit/loss.

As per provisions of section 44AB of the Income Tax Act, 1961 (“The Act”), any business having a gross turnover exceeding Rs. 60 Lakhs, the entity/individual shall be liable to undergo tax audit. Now the question arises that what shall be the turnover in case of share trading being treated as business Income?

When a person trades in shares in the delivery based cash market under trading portfolio, the actual value of purchase/sale shall be cumulated to arrive at the total turnover for the purpose of the liability of getting tax audit done.

In other cases, where the settlement is done otherwise than through actual delivery, the aggregate of the difference amount, i.e., positive (profit) and negative (loss) difference should be considered as turnover for the purpose of determining the liability to audit under Section 44AB of the IT Act.

The total turnover for intra-day trading in shares will be the aggregate of both positive and negative differences of all the transactions. For example, if there is a profit in one transaction and loss in another, the profit and loss of both the transactions have to be added for determining the turnover. Therefore, books of accounts have to be audited u/s 44AB, if the total turnover of differences exceeds Rs 60 lacs.

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Alok Patnia

Founder and Director at

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