Equity trading as Business Income

[Amar Gandhi]

I was earlier filing share trading activities as STCG or LTCG as applicable. But since last two years I am doing share trading as full time activity and have frequent transactions (Intraday/FnO/cash positional/long term). As per my knowledge. I have to show FnO trading as Business income. But Can I show my cash trading activities as Business income and not as STCG/LTCG? I have read somewhere that if I shown cash segment trading as STCG/LTCG earlier, I cannot change it to Business income. Please guide

[YAGAY andSUN]

Yes, you can show cash segment trading activities as Business Income even if you were earlier reporting them as Short-Term or Long-Term Capital Gains, provided you are consistent going forward and the intention behind trading supports it.

Here’s a detailed breakdown to clarify your situation and the flexibility available:

✅ What the Income Tax Department Says:

The CBDT Circular No. 6/2016 clearly allows the taxpayer the option to treat share trading as either Capital Gains or Business Income, based on intention and consistency. In fact, it states:

“A taxpayer may have two portfolios—one for investment and the other for trading. Income from investments would be capital gains, and income from trading would be business income.”

🧾 Can You Switch from STCG to Business Income for Cash Segment?

Yes, you can switch, even if you previously showed gains from the cash segment (delivery-based) as capital gains. The key is:

1. 🔁 Once you switch, be consistent going forward.
2. 📉 If trading is frequent, involves substantial volume, and is your main source of income, reporting under Business Income is more appropriate (and safer in case of scrutiny).
3. ✅ F&O and Intraday trading must always be shown as Business Income (as per Income Tax rules), so clubbing positional or delivery trades under the same head can simplify taxation and compliance.

⚠️ When It’s Not Advised to Switch:

If your cash segment is largely long-term investment-oriented, and you hold for >12 months, switching to business income may not benefit you due to:

• Loss of LTCG tax benefits (10% beyond ₹1 lakh)
• Complication in exemptions under Section 54, etc.

But in your case, since you said:

“I am doing share trading as full-time activity with frequent transactions…”

That gives enough basis to treat entire activity as Business Income, including:

• Delivery-based trading (Cash Segment)
• Intraday
• F&O

🧮 Tax Implications if You Treat All as Business Income:

Parameter	Business Income
Tax Rate	Slab Rate (based on total income)
Setoff of losses	Can be set off against other business income (F&O, intraday)
Books of Accounts	Mandatory if income > ₹2.5 lakh (presumptive not opted)
Audit requirement	If turnover > ₹10 crore (non-cash), or > ₹1 crore with profit < 6%
Presumptive Tax	Can be opted under 44AD for small traders (not F&O)

📌 Practical Tip: Maintain a Trading Note

• Create two clear portfolios if needed:
  • Investment Portfolio (rare trades, >12 months holding)
  • Trading Portfolio (frequent, short-term, intraday, F&O)
• Declare Business Income for the trading portfolio consistently from this year onwards.
• File using ITR-3.

🧾 Documentation to Keep:

• Broker's contract notes
• Trading summary
• Ledger from demat account
• Profit & Loss report (including intraday, F&O, cash trades)

✅ Conclusion:

Yes, you can treat cash segment trading as Business Income, even if shown earlier as STCG/LTCG. The key is:

• Clearly justify your intention
• Be consistent in reporting from this year forward
• Keep supporting documents to defend your stance if queried

***

[Ankit Kumar Mittal]

Hi, Thanks for the explaination above.

Could you please let me know if your team assist in filing the Income tax return based on above approach

AI Summary

Changing from Capital Gains to Business Income for Frequent Stock and F&O Trading: When Cash Trades Qualify, Reporting Steps A taxpayer reports switching from treating share transactions as capital gains to conducting frequent, full-time trading including F&O and asks whether cash-segment trades can now be classified as business income and whether prior STCG/LTCG reporting precludes the change. Classification depends on facts: frequency, volume, intention, level of organization and reliance on trading for income; courts and tax authorities recharacterize if facts support business activity. Changing treatment is possible but requires consistent records, justification, disclosure (or revised returns) and may attract scrutiny or adjustments by tax authorities. A respondent inquired about assistance filing returns under the new approach.