In trading and investing, income classification as capital gains or business income has significant tax implications. Capital gains arise from sale of capital assets like shares and mutual funds. If held for more than a year, they are long-term gains; otherwise, short-term. Business income typically comes from frequent and large-volume trading — such as intraday trades, derivatives, or speculative positions. The classification depends on factors like trade volume, intent, holding period, and source of livelihood. While capital gains enjoy favorable tax treatment and simple reporting, business income is taxed at slab rates and allows for expense deductions. For traders, especially those in F&O, reporting as business income is mandatory. This classification also determines the need for maintaining books of accounts, GST compliance, and audit requirements. Misclassification can lead to scrutiny by the Income Tax Department. Traders should assess their trading style annually and consult a tax expert to ensure the right classification is chosen for returns filing.