Capital Gains or Business Income

Taxation
1

I was showing equity trading as Capital Gains earlier when my trading frequency was low. Since last couple of years I am doing equity trading as full time profession.

  1. Can I now switch from showing equity trading(especially short term equity trades) as Business Income instead of Capital Gains?

  2. I do both frequent trading (short term ) and also have portfolio for long term. Can I show short term trades as business income and Long term holdings under LTCG?

3

@Quicko pls help us with the query

1 Like
4

Hello @Amar2 ,

The classification of trading income depends on your intent and trading pattern. If you previously reported equity trading as Capital Gains due to low trading frequency but have now transitioned to full-time trading, you can report short-term equity trades as Business Income .
However, once classified as business income, it’s advisable to maintain consistency in subsequent years to avoid scrutiny. Frequent changes in reporting methods may lead to tax disputes.
You can continue to classify long-term holdings as Capital Gains (LTCG) , as they are held for investment purposes. Additionally, income from bonds and mutual funds must be reported as Capital Gains, not Business Income, as these are considered investments rather than trading activities.

5

Can you share an official document to verify this, that we can claim short term equity trades as Business income, i’m asking for it bcoz if IT dept sends demand notice in future then we can provide a proof.

6

@Meher_Smaran @Quicko

7

@Passionate_trader

You can check this link to understand and refer the circular.

8

@Quicko the circular mentioned in the link is about LTCG or equity trades held for more than 12 months, do you have any official document which mentioned about short term equity trades held for less than 12 months?

9

@Quicko If I trade with very high frequency and declare my profits under capital gains instead of business income.

Does the income tax department has the power to tax me in “business income” category, against my wish?

@Quicko

1 Like
10

Hello @Passionate_trader ,

If you read this circular, it mentions “Irrespective of the holding period the listed shares and securities opts to treat them as stock-in-trade, the income arising from transfer of such shares will be treated as business income” .

This also includes short term equity trades held for less than 12 months. Thus you can report them as business income if you are a full time trader and invest regularly in equity markets.

Hope this clears your doubt!

1 Like
11

Hello @KD61 ,

The Income Tax Department can reclassify your income if it finds your tax treatment incorrect. Even if you report profits as capital gains, they may be taxed as business income based on the nature of your transactions.
Key factors for classification:

  • Volume & Frequency – Frequent trading may indicate a business rather than an investment.
  • Intent & Source – If trading is your primary income source, it strengthens the case for business income.
  • Holding Period – Short-term holdings, especially intraday and derivatives, are more likely to be classified as business income.

Under Sections 143(1) or 143(3), the department can review and reclassify your income during assessment. CBDT Circular No. 6/2016 offers flexibility but allows tax officers to intervene if the classification is incorrect.