If you have been involved in the stock market, you must have realized the risks associated with trading. This activity requires the filing of returns of income and claims for losses before the deadline. You must file a return of income and claim for losses for every trade that you make in a year. This type of business falls under the category of Share Trading, which is classified as a financial activity. This type of business requires that you have a Demat account, which must be separate from the one where the trading takes place.
You should know that share trading and investment are two different things, and they require different tax treatment. A trader pays a fixed tax rate while an investor pays a slab rate. If you fall in a higher tax slab, you should declare your stock market income as investment income, while if you fall in a lower tax bracket, you can show your trading activity as a business. This will mean you will pay a lower tax rate than the average taxpayer.
There is a threshold limit for share trading, which is Rs 10 crore. Besides, you must have a separate account for every trade that you make. This is a requirement if you earn over 10 lakhs in a year. In addition, if you don’t have a separate bank account for your shares, you’re not required to pay for an audit. If you don’t pay tax, you’ll lose money!
To become a shareholder in a company, you must first determine how much you make on a daily basis. If you don’t have a separate bank account, your profit will be taxed. But don’t worry, a small loss won’t affect your liability, and it’s unlikely you’ll get audited. A person carrying on a business needs to have his or her accounts audited.
A small business can qualify as a share trading company if it’s profitable and has a turnover threshold. In FY 2016-17, the threshold for a business owner is Rs 2 crore. For investors, this amount is higher than the minimum required to be a stock broker. However, this threshold isn’t the only criterion for eligibility. You must determine the nature of your trading business before you file your income tax returns.
If your turnover is below the threshold for filing an ITR, your business is considered a small-scale company. Its profits are generally low, so filing an ITR is not necessary if your income is below this threshold. But, if you do, then you’ll have to pay taxes. Your tax return will look like a large number of numbers, which is what you want. You should also make sure that your business is profitable and that you are not overstating it.