Income tax implications of trading in shares and F&O explained

livemint.com:

I have investments in listed shares, which have become long-term investments. I also trade in Future & Options (F&O). I understand that the gains from investment get taxed at a flat rate of 10% beyond the initial one lakh. My tax advisor thinks that due to my trading in F&O, all my transactions in the stock exchange will be treated as business transactions, and even my long-term gains on investment in listed shares will be added to my business income. So, I feel that I can treat the stock market activity as a business activity or an investment, but not both. Is he right?

The activity of buying and selling shares on the same day without taking delivery, as well as all the transactions in Futures and Options (F&O), must be treated as business activity, and any profit and loss on these transactions will be business income. There is no provision under the income stipulating that all share transactions can either be treated as business activities or investments, and one does not have both options.

So, you can showcapital gains, whether short-term or long-term, under the head capital gains while showing the profits and loss under F&O as business income simultaneously. In order to claim the profits and losses on your share transactions as capital gains, you have to classify your investments in shares as investments instead of showing them as stock in trade in the books of accounts maintained.

Please note that your profits on the sale of shares can also be treated as business income if the volume of transactions is very high and the holding period of your investments is very short. Likewise, source funds for making such investments are also considered to determine whether the same is to be treated as business income or capital