Determining Classification of Gains or Losses from Sale of Securities: Business Income vs. Capital Gain

Determining Classification of Gains or Losses from Sale of Securities: Business Income vs. Capital Gain

This blog delves into the nuanced understanding of how gains or losses arising from the sale of securities are classified, whether as ‘Business Income’ or ‘Capital Gain’. The key question here revolves around whether an assessee chooses to categorize the sale of securities as income from business, permitting the deduction of related expenses, or as capital gain, where transfer expenses are deductible.

To comprehend the treatment of sales under each head of income, namely ‘Business Income’ and ‘Capital Gain’, it’s essential to explore the varied scenarios.

Various Treatments of Sale of Securities

While intraday and derivative transactions are clearly settled as Profit and Gain from Business or Profession (PGBP), the treatment of gains or losses from delivery-based transactions remains debatable, whether categorized as “Income from Business” or ‘Capital Gain’.

As the Income Tax Act doesn’t provide explicit criteria for determining this classification, the issue has been subject to significant litigation. However, the Central Board of Direct Taxes (CBDT) has issued several circulars to streamline this matter, including:

These circulars offer crucial insights for taxpayers and authorities alike in determining the appropriate classification of gains or losses from the sale of securities.

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