Whether profits on delivery-based transactions will be taxed as business income or capital gains will depend on factors like transaction volume, frequency, average holding period, etc.
I have been doing intraday trading in the stock market. In some cases, I do delivery-based transactions for a shorter period, but the holding period does not exceed a month or so. Are profits made on such transactions taxable? If yes, how will the same be taxed?
All the profits earned on dealing in shares are taxable whether the profits arise on intraday trading or delivery-based transactions. If the net of your intraday profits and loss is a profit, the same will be taxed as speculative transactions as no delivery is taken. However, if there is a net loss for all intraday transactions taken together, the same cannot be adjusted against any other income, including your business income. Such loss can only be adjusted against other speculative profits for the year. In case there are no other speculative profits during the year, the same shall have to be carried forward for set off against speculative profits in four subsequent years.
The question as to whether the profits on delivery-based transactions will be taxed as business income or capital gains shall depend on various factors like volume of transactions, frequency of transactions, the average holding period of the securities, other activity carried out by you for your living, source of investment in shares and value of the total transactions, etc. during the year. Since your holding period is not more than one month and the frequency of your share transaction is also very high, the same is likely to be treated as business income and not capital gains. The ultimate answer will depend on evaluating the various factors mentioned above.
I want to understand whether there is any difference in the tax treatment of Tier I and Tier II of NPS at the time of investment and withdrawal.
Under NPS, a person has to open a Tier I account mandatorily, whereas opening a Tier II account is voluntary. You get tax benefits for your contribution towards Tier I NPS under Section 80 CCD (1) along with Section 80C and 80CCC up to Rs 1.50 lakh. You can also claim an exclusive deduction of Rs 50,000 regarding the contribution made to the Tier I account under Section 80CCD(1B). In respect of the contribution made by your employer to your NPS Tier I account, you can claim up to 10 per cent of your salary under Section 80CCD(2). Please note the aggregate deduction in respect of the employer’s contribution to your Employee Provident Fund, NPS, and superannuation beyond 7.50 lakhs in a year shall be treated as your perquisite.
No tax deduction is available for the contribution made to a Tier II account except for central government employees with three-year lock-in under Section 80 C.
After reaching 60 years, you can withdraw up to 60 per cent of the accumulated corpus at the time of withdrawal from the Tier I account. For the balance of 40 per cent, you have to buy an annuity from a life insurance company mandatorily. The amount of annuity received periodically in respect of the annuity purchased is taxed in the year of receipt. So effectively, the 40 per cent becomes taxable in your hand though not immediately but year after year.
Though there are no specific provisions for taxation on withdrawals from Tier II accounts but going by the general provisions for taxation of capital gains, the same should be treated as a capital asset and should be taxed under the head capital gains treating your investments in Tier II account long term after three years.