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Intra-day transactions in shares

The reader is correct in his suspicion that his brother-in-law is mistaken in paying tax by treating the income from intra-day transactions as short-term capital gains.

In fact, frequency of transactions vests the transactions with the character of trade and not investments.

Investments are those, which are acquired with the intent to hold on to them for earning income therefrom by way of rent, interest or dividend.

In the case of intra-day buying and selling of shares, there is liability for treatment of the surplus or a loss as income from business, notwithstanding the fact that the activity of the assessee may not relate to his regular business or for that matter even if he has no other business or profession or employment.

Though the rate of tax on short-term capital gains is the same as for business income, the incidence of tax may vary.

Current business loss can be adjusted against other income, but the loss under the head capital gains can only be carried forward to be adjusted against future capital gains.

Carried forward business loss can be set off against current business profits, but not against capital gains.

It follows that it would be advantageous to treat the income in such cases as raised by the reader as business income, which it really is.

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