New Delhi, June 15: The finance ministry today asked the tax authorities to decide on the liabilities of investors in the share market.

The ministry said investors who held shares for long-term gains should be taxed under the rules for capital gains. Those who indulge in short-term trades should be taxed at higher rates.

There are a class of investors who invest for long-term gains and do short-term trades as well. They hold separate accounts, and their incomes from these two accounts should be taxed separately.

Investors pay a capital gains tax of 10 per cent on shares held for less than a year. Shares held for a longer term attract no tax.

If income from share trade is taken as business income, it attracts a higher tax.

A circular issued by the Central Board of Direct Taxes today said the Authority for Advance Rulings, based on Supreme Court decisions, has culled out a set of principles. If a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of the transaction.