Taxation on sale of shares held as stock in trade….

One of the important things you have to concern is that tax provision on your sale is applicable on the basis of purpose of holding. What I am trying to say is shares can be held for different reasons and tax treatment for each reasons is different. For example shares can be held as capital assets or stock in trade.

I believe that you know for what purpose you have been holding the shares, so I will take you to the procedures.

Here in this article I am discussing the tax provisions applicable on the sale of shares held as stock in trade.

So, what is the tax treatment on sale of shares which were held as stock in trade?

If you consider your shares as stock in trade, gain on sale of such shares shall be business income and you have to pay tax as per tax slab. In such case, you can deduct trading related expenses.

What happens if capital assets converted into stock in trade is sold……..???

When you sell your shares, which were held as stock in trade that have been converted from capital assets. What will be the tax treatment?

In such case, the indexed cost of the shares will be deducted from the sale price of the share and the profit amount shall be taxable as business income in the hands of the seller.

 Section 45(2) states that profits or gains arising from the transfer by way of conversion of a capital asset as a stock-in-trade of a business, shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or transferred. The fair market value of the asset on the date of such conversion or treatment shall be deemed to be the consideration received or accruing as a result of the transfer of the capital asset.

The capital gain is deemed on the date of conversion on the basis of market price. However the tax on same is paid in the year of actual sale as year of transfer.