Only 1.5 million entities declared short-term capital gains in FY18

This is less than a fifth of total number of investors and an even smaller fraction of total demat accounts in existence

The number of investors who declared short-term capital gains as of 2017-18 (FY18)-end was less than a fifth of the total number of active investors. It was an even smaller fraction of the total number of demat accounts (investor accounts) in existence.
 
An analysis of data by the income-tax (I-T) department, on short-term capital gains (STCG), showed that the number of investors declaring the same stood at 1.5 million. The latest available data is for FY18. The total number of active investors on the NSE during the year stood at 8.3 million. This indicates that over 80 per cent of active investors had no STCG to declare.
 
The contrast is even more stark against the total number of demat accounts.
 
The Securities and Exchange Board of India’s FY18 annual report shows 31.9 million demat accounts in existence. The number of those filing STCG works out to less than 5 per cent of this figure.
 
A likely reason, according to experts, could be either that the total income is less than taxable limits, or that gains were set off against earlier losses. However, this only partially explains the discrepancy. For example, Business Standard looked at the number of entities to have made such adjustments. The total number of traders rises to 3.4 million, but this also assumes that each of them was able to exactly set off their losses against the exact amount of gains.
 
Traders could also be declaring profits as other than capital gains, according to one broker. “Many people treat it as business income,” said the person.
 
However, there is an inherent disincentive against doing so. Rajesh H Gandhi, partner at Deloitte India, suggested that a higher rate of taxation may make it unlikely for investors to declare gains under business income.

 
















“Declaring income from sale of listed equity as business income, instead of capital gains, would increase the tax rate as capital gains tax rate is still lower than the revised corporation tax rate. However, the classification of income has to be done based on facts of each case and in light of the Central Board of Direct Taxes circulars,” he said.
 
STCG is taxed at 15 per cent. The STCG figure in the tax data also covers other kinds of assets. It includes those who may have bought/sold gold or real estate.
 
The total number of equity traders may reduce further if such instances are removed. In addition, the 1.5 million figure doesn’t only cover individuals but includes all entities that filed such gains such as firms, trusts, co-operative societies, and Hindu Undivided Family.
 
The total number of individuals filing for STCG tax was 1.37 million.
 
The number of those filing for STCG tax rose 36.1 per cent, compared to a 17.7 per cent increase in the total number of those filing their I-T returns.
 
The Sensex was up 11.3 per cent during the time, rising from 29,620.50 to 32,968.68. There may well be a dip in STCG numbers in 2018-19 because of significant wealth destruction during the year, according to the broker cited above.