INTERVIEW QUESTIONS TAX SECURITIES TRANSACTION TAX DETAILS

Question: What is the difference between Securities Transaction Tax (STT) and Income Tax?

Answer: Taxation on the money made via share market trading depend largely on the purpose for which share transactions are done. An individual can trade shares for business purposes or as an investment activity. In both the cases the STT that is levied by the government, varies. Depending upon this factor, following two heads can be differentiated.

Income from Capital Gains:-

Income from capital gains is applicable when the assesse is a salaried or self-employed person who deals in stock transactions only for investment purposes and trading in securities is not what he does as his main line of profession. Gains of losses in such cases can be grouped as short-term capital gains or long-term capital gains depending upon the period for which the stocks are held. If the holding period is less than a year, then the gains are classified as short-term capital gains whereas for share holdings with a holding period more than one year, the term long-term capital gains is applicable.

Income from Share Trading as a Profession:-

This case arises when the income from trading of stocks is being made as a professional choice and is being carried out from business point of view. In such cases the losses as well as gains from share trading is classified as business income. This is then taxed at the regular income tax rates set by the government. Securities transaction tax paid on income from taxes can then be claimed as deduction under section 36 of the income tax act.

Taxation on the money made via share market trading depend largely on the purpose for which share transactions are done. An individual can trade shares for business purposes or as an investment activity. In both the cases the STT that is levied by the government, varies. Depending upon this factor, following two heads can be differentiated.

Income from Capital Gains:-

Income from capital gains is applicable when the assesse is a salaried or self-employed person who deals in stock transactions only for investment purposes and trading in securities is not what he does as his main line of profession. Gains of losses in such cases can be grouped as short-term capital gains or long-term capital gains depending upon the period for which the stocks are held. If the holding period is less than a year, then the gains are classified as short-term capital gains whereas for share holdings with a holding period more than one year, the term long-term capital gains is applicable.

Income from Share Trading as a Profession:-

This case arises when the income from trading of stocks is being made as a professional choice and is being carried out from business point of view. In such cases the losses as well as gains from share trading is classified as business income. This is then taxed at the regular income tax rates set by the government. Securities transaction tax paid on income from taxes can then be claimed as deduction under section 36 of the income tax act. Source: CoolInterview.com

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