Question regarding profit on sale of shares

Option A: Not reporting off-market transactions and showing ₹6.65 lakhs as PGBP

If you do not report the off-market transactions and show ₹6.65 lakhs as PGBP, you might be in violation of tax regulations if the transactions are discovered later. Not reporting could result in penalties and interest if detected during an audit. Given the transparency and data sharing initiatives of tax authorities, it’s risky to omit significant transactions.

Option B: Showing this year's profit as capital gain and paying 15% on ₹6.65 lakhs

If you decide to treat this year’s profit as a capital gain, you would pay 15% tax on ₹6.65 lakhs. This might seem simpler, but since you have been showing this income as PGBP recently, it could be inconsistent with your previous filings, leading to scrutiny by tax authorities. Consistency in reporting is crucial to avoid red flags.

Option C: Showing off-market transactions as actual sales

You mentioned transferring shares as gifts via the CDSL Easiest portal. If these transactions are shown as sales with corresponding money transfers, it could legitimize the transfers as business transactions. This would align with treating the income as PGBP, but you need to ensure the money transfers back and forth are properly documented and justifiable as sales, not just circular transactions to avoid tax.

Best Approach:

Considering the complexities and potential risks of each option, here is a possible course of action:

1. 
   Document all transactions clearly: If you choose to show off-market transactions as sales, ensure that every transaction is well-documented with proper invoices or transaction records.
2. 
   Consistency in Reporting: Given that you have shifted to PGBP for your share profits, continuing with PGBP might be the most consistent approach. However, you must account for the off-market transactions properly.

Section 56 Implications:

Section 56(2)(x) of the Income-tax Act states that any property received without consideration exceeding ₹50,000 in aggregate during a year is taxable under 'Income from Other Sources', unless received from a relative. Since the shares from your brother and mother qualify as gifts from relatives, they are exempt under this section if treated as capital assets. If these are shown as business transactions, they might be taxed under PGBP, increasing your taxable income significantly.

Best regards,

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

- Firstly you should maintain the consistency in selecting the head of income for gain on sale of shares. Either you can opt to show the gain under the head CG or PGBP but you can not change as per your tax benefit

- STCG is taxable at special rate of 15% which is a concessional rate. If you opt to show under the head PGBP, you can save tax now due to the low amount of gain but in future if you have large gain then it will result in more tax outlow compared to STCG

- Your understanding about taxability of gift transaction is correct

For detailed discussion you may opt for phone consultation

Hi,

The fact that you are doing business of shares does not mean you cannot hold shares as capital asset also. For example, a house builder for whom all properties are stock in trade may also have some a registered for self consumption purposes and not for sale.

These properties come separately under Capital assets. 

Similarly, all your shares need not be for sale purpose. You may treat them as receipt of capital asset only and therefore, no need to include in Business income.

If you do this, there are two options, 

1. Hold on to those shares received as gift for at least 12 months, then it will fall under long term capital asset. After that, any sale made can be treated as capital gains and not business income as they were held by you for capital gain and not for sale. Even though you have business of selling of shares.

2. Sell the shares before 12 months, then you will have to first convert those assets into business stocks, pay income taxes for this conversion as it falls under definition of transfer under capital gain, then sell them as business stock.

In all cases here, you may file current year ITR showing receipt of gift of capital assets. 

Note: the assets should be held as capital assets by the transferor as well.

I am hopeful that your query is answered.