Taxation for Traders and Investors | Bigul

Indians are becoming more interested in investing in stock market instruments rather than traditional investment choices such as gold and fixed deposits. In the modern world, every financial transaction, whether involving buying or selling goods/services, attracts taxation.

Taxation similarly applies to investments and may influence your choice of instruments. For instance, the period for which you held your investment is a good indicator of taxes applicable and the manner of handling taxes normally. Due to the same reason, the rate of taxation applicable to an investor holding securities for a long period might not be equally applicable to his friend who occasionally engages in intra-day trading.

Though we have some knowledge of the taxes levied on salary, business income, and other sources, among other things still, there is a lot of obscurities regarding taxation levied on stock market investments such as equity instruments, mutual funds, debt securities, and derivatives, etc. for which the length of time you have held an investment is a good indicator of the tax you might owe and how you might handle taxes in general. Investors need to constantly track fluctuations in the stock market to modify their portfolios following the latest regulations. As a result, understanding the concept of capital gains taxes and implementing methods for minimising taxes, which can affect portfolio growth, is continuously critical.

Whether you are a trader or an investor, you should have noted that every investment involves various aspects such as calculation of turnover, taxability of profits/gains, the applicability of tax audit, manner of filling the ITR, and many more.

First, Identify yourself either as an investor/trader or both

It’s a known fact that every person with taxable income is under the obligation to calculate his tax liability, submit taxes and file ITR for the same. However, before that, it would be necessary to determine whether you are a trader, an investor, or maybe both. Though, in common parlance, the terms’ trader and investors are used alike, there are some key differences between them.

While traders are the person who participates in the stock market by continuously entering and leaving the market, buying and selling securities, and benefitting from the opportunity to make smaller but frequent gains out of the price fluctuations and deduction of business expenses, which is the opposite to ‘investor’, who purchase securities and hold it over a long period during which their wealth increases and benefit from lower capital gains taxes while selling them.

According to a circular from the income-tax department, regardless of when a person has owned the listed shares and securities, they can identify themselves as traders or investors by reporting their stock investments as capital gains or as business income (trading). However, once chosen, the taxpayer must stick with it in the coming years.

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