Once the income has been classified as either business income or capital gains, be consistent
In a move that is likely to reduce litigations between investors and the income-tax department, the Central Board of Direct Taxes recently allowed investors to decide whether income from sale of securities is to be treated asbusiness income or capital gains. Earlier, the assessing officer (AO) was used to make this decision. So, if there were a large number of trades or profit-booking, the AO could classify it as business income and tax it at the highest rate of 30 per cent plus applicable cess.If the gain is classified as capital gains, there is no tax.
Henceforth, if the assessee wants the income from sale of security after 12 months to be treated as capital gain, the assessing officer (AO) cannot dispute it. An important caveat: Once an assessee has chosen a certain mode of tax treatment, he can’t change it in subsequent years. Says Suresh Surana, founder, RSM Astute Consulting Group: “This is a serious statement from the government towards its commitment to reducing litigation.”
However, there is still scope for AOs to dispute the treatment of short-term gains. High-frequency traders, day traders and others who churn their portfolios a lot might still find themselves embroiled in disputes.