Business Income or Capital Gains? Understanding CBDT Guidelines for Stock Market Profits

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Deciding if share trading profits are business income or capital gains remains a major point of debate between taxpayers and the tax department. On February 15, 2026, experts clarified that both treatments are possible depending on specific factors. The Central Board of Direct Taxes has issued guidelines to reduce fights over these rules. The main takeaway is that your intent and consistency matter more than a fixed timeline.

There is no specific rule saying that holding a stock for a week or a month makes it a business. Instead, the tax office looks at your behavior. If you buy shares to earn dividends and long-term growth, it is usually capital gains. If you trade frequently with high volume, it is treated as business income. Factors like your organizational setup and whether you used borrowed funds also play a role in this classification.

For listed shares held over twelve months, the CBDT circular 6/2016 is very clear. If a taxpayer calls these capital assets, the assessing officer must accept that stand. For shorter periods, the taxpayer can choose to treat the profit as either business income or short-term capital gains. However, once you pick a method, you must follow it every year. You cannot switch back and forth just to reduce your tax bill.

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Unlisted shares are generally taxed as capital gains regardless of how long you hold them. Business treatment for unlisted stocks only happens if the facts clearly show a business operation. For most retail investors, marking shares as "investments" in their books is the safest way to claim capital gains rates. If they are marked as "stock in trade," they will be taxed at the regular slab rates. Understanding these nuances is vital for anyone trading in the Indian markets to avoid legal trouble later.