Understanding why stock market losses cannot be set off against salary income

Income through the stock market is taxed as 'Capital gains’ or ‘Profits and gains of business and profession’ depending on whether the trades are considered as an investment or arising out of trade exercise. Whether the income would be taxed as trade income or capital gains will depend on several factors such as the holding period of the investments, the size of the transactions, the source of money invested, the aim in the making of assets and more.

Whereas, intraday transactions (where the transactions are squared up without actual delivery) in shares are speculative transactions, and any failure on intraday transactions can only be set off against any other speculative transaction on commodity or on shares.

From your continuous business activity, this could not even be settled against profits. If there is any loss in share transactions, apart from the intraday transaction, it can set off against profits from any other head except against your salary income — when this kind of transaction is seen as a trade and not as an investment.

However, if the trades are considered assets, any loss from these transactions can only be set off from capital gains and not from any other head.

Therefore, if there's any loss in your transactions within the 'Capital gains' and 'Profits and Gains of business or profession’ you won't be gaining anything apart from your salary earnings in the present year. But any loss under both the segments which can’t be set off in one year can be forwarded to the subsequent years to be set off against the income then, subject to a specific time period.

(The writer is Managing Director, SAG Infotech)