What differentiates an investor from one who is doing a business in shares, is it the value or number of transactions? Is an audit necessary if the net profit after STT and other deductions like stamp duty, delivery charges and internet charges, etc, is less than 8 per cent of the sales value?
Sudhin Bathija
It is a combination of underlying factors, such as intent of the person, the volume of transactions, frequency of trades, number of shares in each transaction, source for funding the transactions and the sum value involved in these transactions in a given tax year, which determines the classification of this activity as share trading or investment. Regular purchase and sale of shares with a primary intention of earning profits and continuous monitoring of the stock market movements could give the transaction the colour of business, while the frequency and monitoring would be comparatively less for an investor.
If the transaction is deemed as business, but income declared is less than 8 per cent of gross receipts, maintenance and audit of the books of accounts would be mandatory during the given tax year.
However, in case the income declared is more than 8 per cent of the gross receipts, maintenance of books would be a mandatory requirement only when the total income exceeds ₹1,20,000, or the total turnover/gross receipts exceeds ₹10 lakh in any one of the preceding three tax years. Similarly, the requirement to have the books of accounts audited would arise only when the total sales/turnover or gross receipts exceed ₹1 crore in any previous year.
I have agreed to sell my flat and in March 2015 received 25 per cent of agreed price as advance by cheque. The transfer has taken place in April 2015, i.e. in FY2015-16. How is the advance amount treatedin my IT returns for FY2014-15?
Prabhakar VVS
We understand that you have received 25 per cent of the agreed price as advance from the buyer. Since the possession of the house property has not been handed over to the purchaser before March 31, 2015, the point of taxation would arise only during FY2015-16. Reliance in this regard could be placed on the Delhi High Court ruling in the case of CIT Vs Delhi Apartments Pvt Ltd (ITA 569/2012), wherein it was held that nothing can be brought to tax during the year an advance was received where an agreement was not signed and the possession was also not delivered, as the property has not been transferred. However, if you are considering claiming an exemption by investing the capital gains in another asset, you may have to transfer these funds to a capital gain accounts scheme on or before the due date for filing the return of income for FY2014-15 (July 31, 2015) to claim the exemption for2015-16