23- Jan Tax Talk :: Business Line

I am currently living in the UK. I trade in Spreads & Contract for difference (CFD). For the financial year 2012-13, I am an ordinary resident and need to club my UK income with India income. What is the rate of tax applied on Spreads & CFD according to Indian laws? Can I claim the tax deducted in UK when I file my returns in India?

— Rajanikanth

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In case of stock market transactions, income from the same will be chargeable as business income or capital gains depending on the nature of the transaction, frequency and volume of transactions.

In case such transactions are for the purpose of investment or to hedge the investments or to safeguard against fall in share prices of existing portfolio, the income arising there from may be computed under the head ‘Capital Gains’. If the transactions are frequent in nature and unrelated to the shareholding or the share transactions, generally such transactions would be regarded as having been carried out for earning short-term profits and income from such transactions would, therefore, be taxable as business income at applicable tax slab rates.

We understand that the trades have been carried out on a stock exchange outside India. Therefore, income from trading in derivatives in stock exchange outside India will be considered as a speculative business income. The speculative business income shall be taxed in India at the applicable slab rates (maximum marginal rate being 30.9 per cent).

We understand that tax deducted at source in the UK is in respect of income earned by sources within the UK. The same income will be subject to tax in India also due to your Resident and Ordinarily Resident Status according to the Indian tax law. Hence, the credit of the UK tax paid shall be allowed against the Indian tax payable in respect of such income. The minimum of the two shall be allowed as a tax credit:

The actual tax deducted at source in the UK

That proportion of Indian tax which such foreign income bears to the entire income chargeable to Indian tax.

Suppose I invest Rs 1 lakh in some equity stock or an equity linked MF, which when sold after a period of one year becomes, say 1.5 lakh. Will this gain be added to my taxable income?

— Prabha Sharma

According to the Income-tax provisions, any equity share or unit of mutual fund shall be a long term asset if it is held for more than one year. Further, any gain from the sale of a long term listed equity share or specified equity oriented mutual fund will be exempt from income tax if the sale is made on or after October 1, 2004 and; Security Transaction Tax (STT) has been paid on such sale.

Therefore, if you have invested Rs 1 lakh in an equity stock or equity oriented mutual fund and sold the same after holding it for a period of one year, the gain derived on such a sale shall be exempt from Income tax and will not be added to your taxable income, provided the above two conditions are satisfied.