Taxation Simplified
“Check out our detailed module on taxation while trading/investing on varsity.“
Traders,
I have been trading personally for a very long time and the tax filing times have always been the most painful part, sitting with a CA and accounting for profits, losses, expenses and others. I was in similar shoes as most of you would probably be in right now when it comes to taxation, “Confused”. There are a bunch of reasons for writing this post:
- Discussing the best practices filing returns when trading the markets, important because there are divergent views on many topics among traders and CA’s.
- Simplifying all the financial jargon CA’s use.
- Letting know the importance of filing returns on time and implications of misfiling or not declaring trading profits or losses.
Om Prakash Jain a brilliant Chartered accountant who is a Zerodha client and also runs TaxIQ will be assisting us in putting up the blog and also in answering queries. We will together try to keep the post and the answer to the queries as simple as possible. We would appreciate if the post and the queries are pertaining to Income tax and related topics while trading stocks, futures and options, currency and commodity. Do note that this is our view and recommend you to consult your CA before taking any decision.
To begin, couple of important things to know:
Due Dates for filing your returns:
Irrespective of the nature of trades you carry out your income tax returns have to be filed before July 31 for individuals and September 30 for companies. In case your turnover exceeds Rs. 1 crore in a financial year, by turnover I mean the sum of settlement profits and losses in your trading account, then the book of accounts needs to be audited or if any other reasons for having the books audited the due date is September 30 to file your returns. Under section 271 B, failure to submit the tax audit in time has a penalty of 0.5% of turnover or Rs 1.5 lakhs, whichever is lesser.
Tax Slabs:
The slabs for individuals/HUF are as mentioned below; all persons above the age of 60 are considered as senior citizens.
| Upto age 60(M/F) | Age 60-80 | Age 80 > | |||||
| Income Range(Yr) | Tax | Income Range(Yr) | Tax | Income Range(Yr) | Tax | ||
| 0-2.5lks | 0% | 0-3lks | 0 | 0-5lks | 0 | ||
| 2-5lks | 10% | 2.5-5lks | 10% | 5-10lks | 20% | ||
| 5-10lks | 20% | 5-10lks | 20% | 10lks> | 30% | ||
| 10lks> | 30% | 10lks> | 30% |
These slabs are on your total income as an individual which is the sum of all your incomes, this may include salary, rental, trading profits and etc.
An example: If I am a 35-year-old person whose net income is Rs 800,000/yr, my income tax liability would be Rs 85,000 (0-2.5lks : Rs 0, 2.5-5lk : Rs 25,000 @10% of 2.5lks, 5lks-8lks: Rs 60,000 @ 20% of 3lks).
In case of companies, income tax is a flat 30% and no tax slabs exist.
Taxation while trading Stocks/F&O/Commodities
First most important thing to do for every trader is take a stance on your trading activity because the tax liability would change based on this. Following are couple of options you have
- You are an investor, who buys/sells stocks once in a while and you typically would hold the investments you make for a longer period of time.
- You are a trader, you either actively trade stocks or f&o or currency or commodity.
It is your prerogative on if you call yourself as a trader or an investor, but if your actively trading on stocks or even if occasionally dabbling in f&o,currency or commodity my advice would be to declare yourself as a trader.
While trading equity or Stocks
Stocks that you hold as an investment for more than 1 year:
a. In Case of Profits
Investor
Any profit you make by sale of shares that you have held for more than 1 year is considered as long-term capital gain and if this transaction is done through recognized stock exchanges for which the STT (Security Transaction Tax) is already paid, is exempt from Income tax under section 10 (38).
So what this means is that if you had bought 100 Reliance shares 2 years back at Rs 700 and sell it today at Rs 1000, you don’t have to pay any tax on the profit of Rs 30,000.
Note: To prove this as long term capital gain, you can attach the contract notes for the buy/sell trades and the Demat statement which shows the credit/debit of shares, if required.
Trader
Any income from buying and selling shares even if more than a year is considered as a business income. This gets added to your income and then taxes paid according to the above mentioned slabs . But since it is a business income you can show expenses in terms of internet, advisory charges etc, any charge that you have incurred for the business of trading and reduce your income liable to be taxed.
Note: Long term capital gain tax for shares which are not trading on the exchanges is 20%.
b. In Case of Losses
Investor
long term capital loss from shares where STT is paid cannot be adjusted against any long or short term capital gain from any source.
An interesting thing to note is that if you do the same transaction without stock exchange( off the market transaction), i.e transfer of shares with demat slip, you can get your long term capital loss set off against long term capital gain of other asset. This is a loop hole that exists in the system presently.
Trader
Your long term loss is considered as a business loss and this could be set off against other business income which is explained below in the f&o section.
Stocks that you buy and sell within 1 year (after taking delivery to your demat account)
a. In case of Profits
Investor
Any gain made by sale of shares through a recognized exchange is considered as a short term capital gain if bought and sold within 1 year. Please note that it is considered short term capital gain only if you take delivery of the shares to your demat account and then sell the shares. Short term capital gain tax presently is at 15%.
Trader
As a business/active trading, any such gain is considered as a business income. This will have to be added to your other income and you will be charged taxes based on the slabs mentioned in the table above. Since it is a business income you can show business expenses to reduce the taxable income, for the business of trading some of the expenses can be broadband charges, rental charges, advisory charges, computer charges, electricity bill, professional fees and etc.
Note that as a trader you are probably paying higher taxes than an investor, but this is the right approach to take. The benefit you get as a trader or trading as a business is that you can set off your expenses from the profit and also carry forward your losses to net off against any future profits, explained in the f&o section below.
b. In case of losses
Investor
Any short term loss arising from the sale of shares can be net off against any short term capital gain or long term capital gain in the future (upto 8 years) provided you have declared the loss while filing the income tax.
Trader
If you are trading as a business/active trading, such a short term capital gain loss can be considered as a business loss and net off against any income other than salary for upto the next 8 years. What this means is that if you made a loss of Rs 100,000 doing short term trading and you made Rs 800,000 in a property transaction, your net tax liability would be only on Rs 700,000.
What this means is a trader if you make a profit, you need to pay the income tax the same year and if you make a loss you can carry forward the loss for the next 8 years and keep netting it off with any profits you make be it trading or otherwise, provided you declare the losses when filing your returns within due date.
Intraday/Day Trading Stocks (equity)
While day trading the rules stay the same if you have declared yourself as an investor or trader.
Any profits or losses from day trading is called Speculative; either Speculative Profits or Speculative Losses. A person intraday trading is automatically considered as someone who is either an active trader or trading as a business.
a. In case of Profits
Profits from intraday trading is considered as a business income, so this will have to be added to your other income and pay the tax accordingly. So if you have earned a profit of Rs 1lk from day trading and Rs 4lks from your salary and other sources, your total income would be Rs 5lks and taxes has the be paid accordingly. But you can show the expenses you incur towards trading to reduce the net tax outgo.
b. In case of Losses
Speculative losses or loss from intraday trading can be carry forwarded for the next 4 years provided you have declared the same while filing your returns within due date. Important to note with speculative losses is that it can be net off only against any other speculative profit you make within the next 4 years and not against any other profits (Section 73(1) of the Income Tax Act, 1961). So assuming while trading this year you made profit of Rs 1lk from short term trading and Rs 1lk loss from intraday trading, you cannot net off both these. You will have to pay taxes for the Rs 1lk profit and carry forward this loss of Rs 1lk for intraday and net it off against any other intraday profit you make in the next 4 years.
While Trading Derivatives or F&O – Equity, Currency and Commodity (NSE, BSE, MCX-SX, MCX)
If you are trading F&O on any recognized stock or commodity exchange, profits or losses have to be considered as business profits or business losses respectively. What this basically means is that if you trade F&O, you have to compulsorily consider yourself as a ” Trader” and not an investor.
a. In case of Profits
Any profit made from trading derivatives is considered as a business profit. You would have to add this income with all your other income and pay tax according to the slabs mentioned above. But since trading income is now considered as a business income, you can show all expenses that you incur to earn this income and reduce your net tax outgo. Expenses like computer depreciation, internet bills, advisory bill, software tool, salary you pay to people whom you have hired and more.
b. In case of Losses
Any loss is a business loss and this can be net off against any income other than salary either in the same year or if you file your losses in time anytime in the next 8 years. This loss would include the trading loss and sum of all expenses that you have incurred towards trading.
What this means is that if you have had a Rs 10lk loss trading derivatives and earned Rs 20lks in any other business (other than your salary), your taxable income would be only Rs 10lk (Rs 20lk – Rs 10lk)
Turnover Calculation
Calculation of turnover is to determine if you need your books audited or not, so audit by a CA is required if:
-
- Turnover for financial year is > ₹1 crore
- If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB)
- Also note that if your total gross total income (trading + Salary or other business) is lesser than Rs 2lks, you don’t need an audit even if your profit is less than 8% of your turnover or if turnover for the year is > ₹1 crore
-
TURNOVER
Turnover is being calculated here just to determine if you need a tax audit or not. As per the guidance note from ICAI ( section 5.12, page 23).
- For Intraday equity — absolute sum of settlement profits and losses per scrip
- For Delivery equity — sell side value of the stock
- For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts
Turnover calculation is quite simple for delivery based trades and it can either be done scripwise or tradewise for intraday equity and F&O. By scripwise I mean you consider the profit or loss made on that particular scrip in the financial year as turnover, and you sum up the absolute values of individual P&L of all the scrips to have a consolidated turnover for the year. By tradewise I mean you consider the total sum of profit and loss of each trade that you have done during the financial as your turnover. Tradewise is a more compliant way, and Zerodha is the only broker to currently give both these turnover reports on your tax p&l on Q.
Brokerage, Trading Costs STT and other
Security Transaction Tax (STT)
STT is what we pay as taxes when trading stocks & derivatives on the stock exchanges to the central government. Back in 2004 Mr. P. Chidambaram our Finance Minister made the long term capital gain tax zero to attract investments in the country and to make up for this revenue loss to the exchequer STT was introduced.
Until the assessment year 2008-2009, STT was given as a rebate and was omitted from the assesment year 2009-2010. What this meant to traders like us was that until 2008-09, any STT paid could be deducted from our tax liability, but today paying STT gives us no such advantage. Hence the trading community has been pushing the finance ministry to reduce STT or atleast give a rebate like before.
Brokerage and other Trading Costs
All your trading costs including brokerage can be shown as an expense on your gross income.
Which ITR Form to use
Investor: Either ITR 1 (for individuals having income from Salary and Interest) or ITR 2 (for individuals having income from salary, Interest and Rental)
Trader: Either ITR3 (ITR 4 until 2016) or ITR4(S) (for individuals and HUF’s having income from a propreitory business or profession)
Companies: ITR 6
*There has been a sudden rush of notices that traders have received from the income tax department recently, if you are one of them do read this blog ” Notice under Section 139(9)? – Possible Reason”.
____________________________________________
I have tried my best to keep this blog simple and do away with all the financial lingo that chartered accountants use. To end this very serious topic with a little rhyme and humor:
Profits or losses, make sure you declare it every year.
Otherwise there could be implications in the very near.
If you haven’t started filing returns better late than never.
Post your questions here, Om and I will try to answer it at the earliest. Please note that the post and the answers to the queries are our personal view and advise you to consult your chartered accountant before taking any decision.
Happy Trading,
The article is very educative for every trader/invester and provide solution for tax related queries. please update it if possible.
THANKS
The article is not updated since 2013
Pls Update year by year so the Zerodha user can updated.
Great Job, Keep it up!
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Hi,
Does this year’s budget have any proposal to do away LTCG on listed debentures?
Thanks,
Yuvaraj
My F&O loss is Rs.7,00,000
Consisting of Positive settlements of Rs.15,00,000/- and Negative settlements of Rs.22,00,000/- and Turnover as per F&O calculations is Rs.2,95,00,000/-
Whether my case is Tax audit or not?
In ITR 3 , which turnover should report i.e. Positive settlements of Rs.15,00,000/- or Turnover as per F&O calculations is Rs.2,95,00,000/-
If I report Positive settlements of Rs.15,00,000/- as turnover in ITR 3 than what is the use of Calculation of turnover as per F&O calculations, is it only deciding factor of Tax audit?
If I report turnover of Rs.2,95,00,000/-.as per F&O calculations in ITR 3 than how I arrive my Net loss of Rs.7,00,000/-? shall I put balance figure as purchases.
You have helped me to understand taxation easily and the comment thread also has helped me lear a lot of new things. Thanks for sharing
Now as the delivery is compulsory in stock options, if I choose to only write the calls and let them either expire or settle in delivery what shall be the tax liability. Will it still be considered business income though I am choosing option route to just take/ provide delivery at a later date and get benefitted from the premium if it expires without getting in the money. what shall be the tax liability on such transactions.
How much tax to be paid if one earns a profit of 12lcs (long term capital gains) with an initial investment of 3lcs. and if a person’s salary is less than 4lcs?
Best check out the taxation module on Varsity.
If I buy a share (delivery based) and then sell the share on the same day and earn profit, will it be treated as speculative business income or whether be treated as non speculative/ STCG.
Hi,
I have a query on LTCG. Is indexation benefit allowed on Sale of Equity Share in calculation of Long Term Capital gain/Loss?
regards
Rahul
Hello Team,
Greetings of the day.
Thank you for putting this amazing blog together. I just have one question. I have borrowed 90K from a friend and made 15k profit with it within 5 months. I have no income as i am a student. Am I exempted from filing tax as i have no salary? Please guide.
Hi,
Could you please clarify on the following
1. I have got Bonus shares 1,000 Unit on 23-Jul-18 and the purchase price is 0(Zero)
2. I have sold 1,000 Bonus shares on 24-Sep-18 @ Rs180(1,000*180=1,80,000)
3. I have purchased the same share on 1,000 Unit @ Rs 167 on 22-Oct-18 .
In the above scenario how the P&L should be calculated? In my case P&L it showing Rs 1,80,000 as Profit.
Thanks and Regards
PV Balaji
Hey Balaji,
The P&L is calculated on a FIFO (First In First Out) basis. In your case, the P&L is correctly calculated. Now you must be holding 1000 units at Rs. 167 itself. You can go through this support article for more information on how buy average and P&L is calculated.
Deal Nakul,
Thanks a lot for the clarification. I will go through the support article .
Thanks and Regards
Balaji
In reports section, there are two kinds of statements P&L and Tax P&L with different figures. Need some clarification on this. Please guide which statement to be presented for Tax filing.
You should use the Tax P&L statement for filing your tax return. This report has your trades segregated into speculative, short term and long term transactions.
Hello Sir,
I have started using Zerodha for trading in FNO-intraday this year. Can you please suggest some CA service to file incometax for trading in FNO and Commodity.
We are in talks with a couple of online tax filing platforms to help provide CA assisted services at discounted rates for our clients. We’ll announce the partnership in the coming week. Stay tuned for the updates.
KINDLY REPLY, THANKS
Due to physical shares no longer valid, my father transferred his 530 shares of State Bank of India to my demat account through request to RTA and I have 530 shares of SBI credited to my demat account. Roughly, the value is 530*300=Rs159000. He had acquired these shares around 19 years back, the exact purchase price not known. How do I show this in my ITR3 return. Should i show this “income from other sources” or should I show this as “Exempt Income.” I read that any gift above 50000 in a FY is taxable, but this is from father to son, comes under relative category, is the full amount exempt? Kindly give your inputs
Father to son gift is exempt. You don’t have to pay any taxes on the gift. Btw the long term capital gain tax is 10% if above 1lk per year. So whenever you sell, you can consider the price of the stock as on Jan 31st 2018 as the cost to calculate the gain. Check this
https://support.zerodha.com/category/account-opening/getting-started/articles/how-does-the-new-long-term-capital-gain-tax-made-applicable-work
i am salaried person in psu. my salary 600000.and i have loss arrond 17000 in intrday and 2000 in short term. and 7000 loss in fno. in FY 2018-19.
which itr i have to file . do i need tax audit.
my turn over EQ arround 19000 and fno turnove 17000 arrond
please help.
Hey Rakesh,
You will have to use ITR 3. Also, an audit is required in case your business turnover is greater than 2 cr or your net profit is less than 6% of your business turnover. However, an audit is not required in case your profit is less than 6% of the turnover and your tax liability for the year is zero. But it is advised that if losses are substantial, file the return with an audit. Do check out the Markets and Taxation module on Varsity to understand taxation better. Also, it is advised you consult a CA for filing your ITR.
Hello, I started trading from last year and lost couple of lakhs, and started profit sharing with other expert who manages my account and takes x percentage from profit. Can we file the amount that I give to expert as expenses in my filing? I don’t get a receipt for that, but it is through bank transfer and it would be more than a lakh per year based on profit.
Hi Deep. Yes, you can show this as an expense.
Hi,
What is the procedure of Audit? I mean, how it is conducted and do i need a CA?
Can you please explain what docs do I need during Audit.
Thanks.
Penalty amount will be decided on 30 jan or after. They are insisting on 1.5 lakh,as their method of calculating commodity turnover is not correct.
For previous FYs, date of audit is passed,hence no point in doing audit now.
Audit related informations are available in earlier replies thread . u may go through.
Regards
Ravi
Ok Ravi, Thanks for the valuable replies.
But according to act, Penalty is .5% of your turnover or 1.5 lacs whichever is less. In your case (90 lacs turnover), Penalty should be (90 Lacs * 0.5)/100 = 45 Thousands.
Regards,
Raj
How much did they charge you Ravi
Actually they dropped penalty proceedings recently,after I met officials and gave detailed explanation in writing, along with tribunal orders,ICAI guidlines regarding turnover calculation etc.
During AY 2016-17, I did derivative trading and lost 3-4 lakhs.my turnover was around 91 lakhs
I filled ITR1 instead ITR 3. I also did not get my account audited as I was not aware of these requirements.
Now IT department has sent notice under 142(1) asking why I submitted ITR 1.
Also they are asking for detailed audited account, P and L Account, Balance sheet etc.
They have given just 3 days till 12/12/2018 in E-proceeding option to submit reply.
Please help ,how to respond .
What is worst ,They can do. I heard there is penalty of 1.5 lakh for not doing audit.
Regards
Ravi
Hi Ravi,
What happened next?
did you get your account audited or did they charge you with penalty?
Regards,
Raj
They have initiated penalty proceedings under 274/271B and given time to explain my defence till 31st jan 2019, by meeting them in their office. I will go next week.
regards
Ravi
Oh,
How much they are going to charge you?
I’m afraid it may happen to me as I have filled ITR 1 instead of ITR 3, and I have same Tax condition as you.
I am really scared.
Please reply asap.
Regards,
Raj
Hey I am an day trader lost ₹340000 in equity cash day trading and made profit of ₹122000 in FNO
So my question is my income is less than 250000 what if I only show profit from FNO and don’t declare the loss of cash intraday
You need to show everything in ITR 3. Do go through this chapter on Varsity for more information – https://zerodha.com/varsity/module/markets-and-taxation/
I am asking this because, one of my colleagues has taken loan from bank keeping shares as collateral and bought some shares with some percentage of loan which is more than 10 Lakhs. He paid back the loan with interest from salary and other business income. But it seems he has not paid any TAX on the shares bought because he hasn’t sold them and keep them as long term investment.
Hi, Zerodha. Firstly i thank for the lowest brokerage and futuristic technological services that you offered for trading.
I have a broker (Account 1) who is offering 4 times leverage for delivery of equity. I bought Rs. 25 Lakh worth of Shares.
I traded for the whole year and with the profits gained from Zerodha (Account 2) i have cleared all the Loan with interest to the broker in installments.
After using ELSS, LIC and House Loans for tax cuts, i was remained with Rs. 25 Lakh worth of Shares approximately (Not sold and all out of the money from broker’s leverage include my capital Rs. 7 Lakh) which i have seen long term investment opportunity and little cash of Rs. 50,000.
Question:
Do i have to pay tax on the Rs. 25 Lakh worth of shares and Rs. 50,000? if yes, why? Please explain.
Thanks in advance.
Hi sir,
i have intraday gain and short term gain both. Can i show short term gain as a investor and intraday gain as a trader in one itr? if yes, then during calculation of turnover, should i use only intraday turnover or both ( delivery based and intraday)?
one of my friend has account with u and as per his statuemnt his turnover from f&0 is around 26lacs but as to my knwledge i hv taken sales value of F&o which is around 9 crores . just want to be as\\confirm whcih is right method of computation of turnover , he has loss in f&o if his turnover as per u is 26lacs ,does he need tax audit
Hi Nithin,
My wife is trading only in equity (intraday) and has incurred a loss of Rs. 3 lk.
Her turnover is less than Rs. 1 crore
Her income from all sources is less than Rs. 2 lk (after eligible deductions) and not liable to pay any tax.
Is she liable for Tax Audit?
Thanks
Hi! I had earned some money by selling shares of a company in the year 2013-14. At that time I did not disclose the income to the Income Tax Department. Within a few months of the income I invested 75% of the money to purchase a residential flat. In the year 2016 I decided to disclose the balance 25% in the IDS 2016 and paid taxes. Now my case has been reopened. Can you suggest whether that 75% is exempted u/s 54F or will be taxed as undisclosed income. In the return filed u/s 148 I didnot show the capital gain (75%) and also didnot claim the exemption u/s 54f. Please suggest.
Dear Team,
Thanks for the beautiful platform. It is gaving me more clarity.
In zerodha, back office, Tax P&L, combined amount of brokerage is provided.
At the request of our auditors, I need the split of brokerage for: intraday, short term & long term for the particular year.
Regards
S.Venkatesh Kumar
Hey Venkatesh, we’re working on this. Should be available soon.
Dear Nitin Sir,
I am f&o trader and i have loss 6lakh against 21 lakh turnover..I have no other income. Can I fill ITR without audit. Which form is applicable for f&o trading. Can i fill ITR-3 directly at income tax department website.
Hey Sunil, best check out the taxation module on Varsity.
Hi,
I did trading first time last year for short term turnover for Rs. 63146.95 and got short term profit of 1104.95. Whether i am liable to file the income tax for this, if so how should i file and pay the tax amount to government.
Please let me know and guide me.
Regards
Renukaprasad
Hi Renuka, best declare all your trading activity while filing taxes. More details on taxation while trading can be found in the taxation module on Varsity.
hi
i have bought shares of few companies in 17-18, sold them in same period after few weeks holding each time.
i ended up having shares of them companies in 18-19, but bought in 17-18 period for 3rd or 4th time. now in tax P/L statement it is showing averaged price of all time holding for 17-18, while some shares have dropped to all time low in 18 fy and some has split. it (tax p/l for 17-18) is showing loss while i have made profit and also deposited advance tax as per my earnings. now i am having some problems in filing ITR 2 as i will have to calculate every buy/sale manually.
tax p/l is showing average price whether i bought them in FY 17 or 18.
example- i bought shares of Phillips carbon black under rs.1000 in FY 17 and sold them in same period for profit.
then i bought the same share again under rs. 250 in FY 18 after the split of share (1/5) .now it is showing loss after average.
Any ideas i can get tax report for 17-18 period exclusive??
Sir,
I have a STCG of Rs.75,000.00 by trading in Index ETFs (i.e. Niftybees, Juniorbees, Bankbees etc.). In the ITR 2, under Section 111A, it says “gains from sale of equity share or unit of equity oriented Mutual Fund (MF) or unit of a business trust on which STT is paid”.
While trading in ETFs, STT is not deducted/paid. As such where else can I show this STCG in ITR 2.
i have earned a dividend of rs.7400 from uttam deal and i am also a salaried person, can i get relief 7400/- u/s 80TTA?
Hi,
Can you please clarify which ITR form i have to use and do i need to get audit & need to main tain any books for below details.
Futures realized profit -8820.00
Options realized profit 1225.00
Total realized profit -7595.00
Futures unrealized profit 0.00
Options unrealized profit 0.00
Total unrealized profit 0.00
Futures turnover 8820.00
Options turnover 16975.00
Total turnover 25795.00
Intra-day / Speculative profit 0.00
Intra-day / Speculative turnover 0.00
Short-term profit 6719.50
Short-term turnover 75814.50
Long-term profit 0.00
Long-term turnover 0.00
hello sir,
1)my F&O turnover in zerodha tax P&L statement is show to be more than 1 crore and in trade wise turnover xl sheet it shown as 0/zero (accroding to zerodha helpline it’s a mistake) , so what is it ???
2) though F&O turnover is more than 1 cr. the are over all losses of 70k rupees , so do this needs audit or nor not , i asked a CA and according to him 70k would be considered as turnover not 1 CR and so no audit is required ??? is this right ???
3) the equity turnover is 49 lacs, and profit is 55k rupees, so does this requires audir or not or paying taxes on the profit is good enough ????
Sir,
I have traded in F&O. if i calculate my turnover script-wise then it is below 1 cr. and profit is more than 8%, hence no audit is required, but if i calculate the turnover trade-wise than it will be more than 1 cr. and profit become less than 8%.
Kindly suggest, audit required or not ?
Why consider as gift show it as loan what ever you earn would be your increased capital.
return then with some interest or without interest.
next time invest in their name if they dont have any taxable income. Why moving here and there?
Plan it well. Call if more help required. Personal finances matters must be discussed offline
Dear Sir,
I am salaried person and doing trading and futures. My trading and futures has been as per below:
Intra-day / Speculative profit 1290.60
Intra-day / Speculative turnover 4282.40
Short-term profit 37226.50
Short-term turnover 1925325.75
Total realized profit -279300.00 (loss)
Futures turnover 402000.00
Can you please suggest which ITR is to be filled ( ITR 4s OR ITR 3) Which section in ITR 4s OR ITR 3? I want to include expense towards trading as well in ITR.
Do I need audit or not ?
Waiting for your reply..
THanks in advance !
Hi nithin,
Can you pls suggest how to compute profit/loss in intraday transactions( speculative)
As per my knowledge we have to add all positive and negitive differences and show it as a difference and what to enter on debit side and also pls confirm about tax audit limit of that turnover
Hi Nitin
I have bought shares in my account.When i was in a profit of around 40k , I transfered these shares to dad , mom & spouse through off market transcations as gift.
Do these transcations attract LTCG or STCG ?
Regards
Suresh
Dear Sir,
MY account details are below
My salary and other income sourcr es are nearly 200000
Short-term profit 6719.50
Short-term turnover 75814.50
Long-term profit 0.00
Long-term turnover 0.00
Futures realized profit -8820.00
Options realized profit 1225.00
Total realized profit -7595.00
Futures turnover 8820.00
Options turnover 16975.00
Total turnover 25795.00
Which ITR form is suit for me . I dont want to audit the books.
Hey Vishwanath, I suggest you check out the taxation module on Varsity.
I checked but i got confused with ITR3 & ITR4 and turnover, So Kindly suggest which can i use and am i taxable?
I have made many investments in Mutual Funds, Debt funds using Coin portal. I need to get my P&L report, but I could not find it anywhere in Zerodha portal. Pls guide on how to get this.
We’re working on a P&L reports for mutual funds. Should be available soon.
Hi Nitin,
I cannot find P&L reports for mutual funds,
Were can I download the same.
Hey Vishal,
You can now download the profit and loss statement for FY 2017-18 on Console – our new reporting platform. Currently, only the Tax P&L statement for mutual funds is available on Console. For the Tax P&L statement of all the other segments, you will have to check Q for the time being.
Though dividends are tax free(upto 10 Lakhs), we need to disclose them under schedule EI(exempt income) right?
From where do I get these dividend numbers(From equity and MF)? Only from bank statements or can we also get it from Zerodha q(if Zerodha is the my only broker)? Getting it from bank statement is very tedious since the naming convention for different companies are different. Is there any other easier way to get it if not from Zerodha q?
For now, I’m afraid you’ll have to do it manually. We’re working on a report for this, but it’ll take some time.
Sir
My income is from interest.
From dec 2017 i started trading
and my intraday profit is 527 and short term loss of 2882.5 on turnover of 259990.
Pls assist me to file ITR
1 which form to be used.
2. Short term loss can be set off against interest income or not
add sale premium to abs P/L figures for T.O.
The Backoffice Reports are incorrect.
FnO turnover has to be calculated as absolute sum of Profit Loss each contract pricewise.
Buy = 200 Bank Nifty Options xyz strike at Rs.20.
Sale= 40 at Rs.25, 40 at Rs.30, 120 at Rs.12 (avg=18.20).
If all Sale is taken as avg the the T.O. = 360 (this is what Zerodha does) > Incorrect.
Each sale (and buy) has to be calculated separately pricewise & absolute Profit or Loss figure thus arrived has to be added, in this case correct T.O. is = 1560 !
Zerodha, right ?
Hi,
I have not withdrawn the profit and have reinvested it. Do I still have to pay tax and file return.
This article needs to be updated. LTCGs are no more exempted.
Hey Guys..
A quick question can STT be shown/added as expense?
Hey Gautam, I suggest you check out this module on Varsity.
Hi,
I am a salaried person and falls under 30% TDS bracket and this is the first time I’m trading. So need some help in filing the ITR.
These are my losses:
———————————————–
Intra-day / Speculative profit -6274.30
Intra-day / Speculative turnover 9614.30
Short-term profit -3499.15
Short-term turnover 599428.60
Total charges
Brokerage 80.53
Turnover charges 66.30
STT 1340.00
Service tax 26.04
Stamp duty 61.19
SEBI charges 3.07
Total charges 1577.23
———————————————–
Futures realized profit -112035.00
Total realized profit -112035.00
Futures turnover 526245.00
Total turnover 526245.00
Total charges
Brokerage 3380.00
Turnover charges 3165.23
STT 7529.00
Service tax 1178.16
Stamp duty 4521.74
Service tax 226.10
Total charges 20000.22
———————————————–
My total turnover is less than 1 Cr (Intraday + Short Term + FnO) = 9614.30 + 599428.60 + 526245.00 = 1135287.9
My net losses(excluding brokerage + STT and other changes) = (Intraday + Short Term + FnO) = -6274.30 -3499.15 -112035.00 = -121808.45
I think I need to file ITR using ITR4 form.
1. Do I need to get this audited by a CA? If yes, then what all documents are needed to do it?
2. Can I carry forward the losses to the next year? Does my net losses should include charges like brokerage, STT, Turnover charges, Service tax, Service tax while filing the ITR?
Dear Nitin ji,
If a student gets money from his salaried parents and they file their return.
Student trade in market intraday and sometimes f&O & very short terms equity with some of the money given by them If he is net loss after in the 1st year of trading (say 20000/-), In this case
1.Can he attach his loss in parent’s return to get benifit of offsetting of their other taxable incomes?or only he is entitled to his profit/losses?
2.If he doesn’t want the benefit of offsetting taxable income in future & also being lazy to file something ,is it mandatory to file return?
Dear Nithin,
Kudos to you for such a wonderful initiative!
Request you to please help answer below scenarios:
1) Intraday profit – 20k with 30k as turnover, Short term loss – 30k with 400k as turnover, Rental income – 100k, Interest income – 100k
Question – is there a need to file Income Tax Return at all? If yes, which one? Is audit required?
2) F&O profit – 200k with 400k as turnover, Other income 40k
Question – is there a need to file Income Tax Return at all? If yes, which one? Is audit required?
Thanks,
MG
Hey. I suggest you check out the taxation module on Varsity.
SIr
I forgot to ask one more question is balance sheet needed for filing ITR 3
Sir
I have started F and o trading 1 year back but as a result of shorting Sbi bank but due to the recapitalization of banks my trade went wrong and I suffered a huge loss of approx 80000. I am doing research and earning a scholarship of 15000 only. Now my question is I have a huge loss compared to my income so is there any chance for notice regarding it secondly I am not able to face any professional since everyone will laugh at the losses and the income I am earning so is it possible for me to file my return myself.
DEAR SIR, I HAVE ONE DOUBT
M total turnover is 20 lacs and i have made loss of about 1 lk, my business incme is less than 2 lacs but my agriculture is income is around 4 lacks . so whether tax audit is applicable for me/?
Hi,
In my turnover report it is showing turnover amount in positive even i have sold those share on loss.
Ex.. Xyz stock total buy value 2000 Total sell value 1000 but Turnover is coming as 1000.
I want to know turnover should be in negative in this case or positive.
I also want to know for tax filing which amount i have to show.
Consider these Tax P&L value
INTRADAY TURNOVER ₹247.80
SHORT TERM GROSS PROFIT less than 15k
SHORT TERM TURNOVER approx 2 lakh
do i have to show my turnover value or SHORT TERM GROSS PROFIT value for tax filing.
Thanks,
The turnover calculation is done only to determine if the there is a necessity of a Tax Audit and we follow the guidance note on Tax audit under section 44AB.
The turnover for short-term trades is calculated as the sell side value of the stock and is not affected by the profit or loss made. Read more here.
Can HUF get tax benefit under section 80c by investing in ELSS mutual fund?
Sir I am 62 years.
In 2017-18 my Term Deposit interest is Rs.7.22L, My Rental income is Rs. 160000/-
My trading with Zerodha for 2017-18 is as follows:
INTRADAY GROSS PROFIT ₹26,289.00 (PROFIT)
INTRADAY TURNOVER ₹56,089.00
SHORT TERM GROSS PROFIT -97,474.39 (LOSS)
SHORT TERM TURNOVER ₹1,56,68,296.51
LONG TERM GROSS PROFIT N/A
LONG TERM TURNOVER N/A
TOTAL CHARGES ₹37,345.63
F&O
FUTURES GROSS PROFIT ₹-10,26,892.10 (LOSS)
OPTIONS GROSS PROFIT N/A
TOTAL GROSS PROFIT ₹-10,26,892.10 (LOSS)
FUTURES TURNOVER ₹ 17,79,434.80
OPTIONS TURNOVER N/A
TOTAL TURNOVER ₹17,79,434.80
TOTAL CHARGES ₹44,549.87
Please clarify the following points:
1.Should i submit an audited balance sheet?
2. How much amount of loss i can reduce from my income while computing Tax?
Can i take the entire loss in one stretch in this year and balance next year ?
3. Which form should I use?
4. Do i need an auditor?
Thanks in advance.
Regards
Vasudevan T.S.
9840851964
Dear Nitin
1- a very good morning
2-i want to buy a property worth 1.2 cr .for tat i can avail eider home loan or laon against property(ihave oder one too) or say i can pledge my shares and can get tat loan.
3-i do futures trading and short term capital gain too
4-my query is ifi go for loan den would d interest payable i can show as expense on my business income?
5-if i take loan augainst property or say i get loan from pledging my shares and from that i buy a new house how d interest payable on the loan i can claim as expense??
regards
One correction ITR-3 was submitted not ITR-4
Hello Nithin,
I was using SBICAP from dec 2016 to september 2017, I made a switch to zerodha at that time and continuing with zerodha. Though I was not able to completely empty my stocks in SBICAP, I am waiting for the right time. Whenever I See opportunity I sell my shares from my portfolio. Since I was new So didn’t know about the cumbersome tax process and SBICAP simply is not good enough with this.
My biggest doubt is weather to go for audit or not.
Last Year, I was at loss (Mostly Intraday) so I have shown the loss as LossesOfCurrentYearCarriedFwd).
I took a help from CA, he filled it and I have submitted the form.
But I think the calculations might be a bit wrong, because the broker itself is giving very meaning less P/L statement from which differentiating Intraday and equity was a pain and then the brokerage and other taxes is nightmare. under no circumstances my turnover ever went above 50 lakhs
Here are some stats
ITR-4 – Submitted last year before the last date without CA audit.
So somehow based on the P/L statement, I claimed a loss of 1,37,000
annual income :-744078
Tax Saving Deduction :- 148400
capital gain :- 21802 (Taxd at 15% paid)
Intraday loss :- 137071 (added here :- LossesOfCurrentYearCarriedFwd)
Interest income :- added in total also claimed 10000 deduction
Now this year it is quite complicated because of Zerodha and SBI Cap both
I have the following scenario.
Annual Income :- 8,94,000
Tax saving deduction :- 150,000
SBICAP Profits in equity (Long term and short term) :-
Long term profit(LTCG) :- 42500 (after deducting brokerage taxes still apply)
Short Term profit(STCG) :- 38552 (after deducting brokerage taxes still apply)
Not able to Distinguish between intraday and STCG
Futures Loss :- 75566 (added brokerage not sure of taxes) 591227 (Without Brokerage)
Zerodha losses :-
Only Intraday loss for the current year :- 3871 (Everything included brokerage and taxes)
Futures Loss :- 42975 (Everything Included brokerage and taxes)
Started building Portpolio in Zerodha
Also I want to set off my long term and short term gains with the future losses (Futures also include BTST now brain capacity is not enough to handle this scenerio)
This completes the background, here are the queries :-
1) Not sure of what was filled last year I could only see some (losses of current Year Carried fwd), Since mostly my income will always be above the losses since I trade in that way.
So I am above 8% profit or Do I need to get an audit since in business income I was at loss last year and this year too but since I am a salaried Employee, I most likely will be getting money for livelyhood It will not fall below 8 % of my total earnings. This year also for business income i am at loss but not in total income. Please suggest if audit is required for my scenario, turnover is less than 50 lakhs, i am just confused of what 8% off total income (Since I am a salaried person) or just business income?
2) Can I square of interest income and LTCG and STCG profits to Future losses?
3) Can we claim tax benefit on brokerages also ?
4) Did we correctly claim the loss of intraday with the tax column :- LossesOfCurrentYearCarriedFwd ?
5) And is this ok/legal to be a trader and working in IT industry ?
6) Also the numbers I put in are very close approximates, will that be fine for returns?
7) It will be awesome if you could put an article showing where to put all profits and losses of various segments under ITR2 and ITR3 and how to setoff the previous year losses as well.
I m a salaried person & i was filing ITR 1 for Tax.but previous year opened account at zerodha.for FY 2017-18 my salary about 5 lac and intraday gain Rs. 100 ( turn over 13000)and short term loss 25000 ( turn over 4.8 lac)
Please suggest me which ITR form and carry forward of loss without CA audit is possible?
Dear Nithin,
Please clearify my doubt as I understand, all EQ P& L report should show total profit from all means like STP,LTP and intra day profit say for 1.4.2017 to 1.3.2018. However for tax purpose it is shown separately as different head.
But in my report as shown below is not so please clearify.
My all
EQ P& L report: Realized profit=5211.32,total charge=3673.63,Net RP=1537.69
Tax P&L report: Intra Day GP=5544.92, STGP=2070.25, Total Charge=3222.38, LTP=0
TQ
I have open F&O positions taken in Mar-18. Do I need to show UNREALIZED profit / loss while filing return for FY17-18 year?
Now if I close them in Apr-18, can I show entire REALIZED profit / loss while filing return for FY18-19?
Hey Jignesh. The ideal thing to do would be to close positions and book profit/loss on the last day of the financial year and reopen the position on the 1st day of the next financial year. But if you have carried forward the position across financial years, best speak to your CA for the best course of action.
Please help me to calculate tax on below data.
For last 4 years here are profit/loss details on equity/f&o
Intraday -> 10886
Short Term -> 169644
Long -> (-)8804
Future -> (-)60000
Option -> (-)67840
Total Charges -> Equity -> 8804 F&O -> 6918
Considering all the overall profit coming around 21650, for four years.
Please let me know which ITR I have to file and what should be estimated tax.
Hey Anirban, if you haven’t filed taxes and have been trading for the past 4 years, best get in touch with a CA.
PLEASE GUIDE ME WHICH ITR I SHOULD USE AND AUDIT REQUIREMENT OR NOT F.Y. 2017-18 (A.Y.18-19)
MY SALARY IS RS. 360000.00
BANK INTEREST RS. 60000.00
80C DEDUCTION RS. 125000.00 AND
SHARE MARKET DETAILS BELLOW:
Profits INTRADAY/SPECULATIVE PROFIT₹1,736.90 INTRADAY/SPECULATIVE TURNOVER₹2,779.60 (TOTAL OF PROFIT AND LOSS AMOUNT) fox ex PURCHASE VALUE RS. 1000000 AND SALE VALUE 1002779.60
SHORT-TERM PROFIT ₹-210.95
SHORT-TERM TURNOVER ₹34,795.30
LONG-TERM PROFIT0
LONG-TERM TURNOVER0
Total charges BROKERAGE₹235.48
TURNOVER CHARGES₹182.33
STT₹418.00
SERVICE TAX₹75.18
STAMP DUTY₹74.33
SEBI CHARGES₹3.74
TOTAL CHARGES₹989.06
Thanks
Sandip Kumar Das
Hey Sandip, explained here.
Sir,
I am an Individual aged 64 years.
My income is exclusively from LTCG, STCG and F&O.
I do not have any other source of income.
My total income is between 0-3lakhs.
Some times I meet losses
My question is :
1-Which ITR form I should I use to file my tax returns?
2- Should I pay tax?
I thank you much in advance for your kind help.
Regards,
Nagaraj
Hi Nithin,
I am not sure if these query has been replied already in this forum. I tried to find the answer but not unable to do so.
I have trading in F&O. I have made net losses for last financial year. Do I need to file Income Tax return? Is there a implication even if I have made losses and not filed return. Your urgent reply will be highly appreciated.
Thank You
Mave
I have been a Tax payer till 2008. I have not filed IT returns from 2008 ,I have/had no other income.
I have been trading in FnO from 2012 and never made any profits from 2012 -2017. Also have never filed to carry forward the losses and expenses.
From 2017-2018, I have started to make small profits in FnO. I understand, FnO trading has to be filed as “Business”. I have following queries in this regard.
1. Do I have to get Company registration for filing the FnO related Profit/Loss? I guess NOT required. Correct?
2. Can I file returns, when after detecting expenses from FnO profits is negative (loss)?
3. Can I use carry forwarded expenses and losses of previous 3 years ( whose Income Tax filling was not done) for this year to reduce the Tax payable?
4. What to do if my profit ‘minus’ expenses result in less than 6 % of the turnover for the present financial year ?
You should check out this module on Varsity.
Hi Nithin you are doing a great job by solving traders and investors queries.
I have one query:
I bought 100 shares of Infosys on Monday @1000
I sell 100 shares of Infosys on Tuesday morning @1020 and again buy them before market closes @1010
I sell 100 shares of Infosys on Wednesday @1020
What will be Speculative Income and Short-Term Gain?
Does the tax profit/loss statement provided in Q backoffice takes into account the charges incurred (such as DP charges and other charges). are these charges taxable ?
I have given order for purchase of mutual funds. Order placed one day before still it takes more time to allot the equity funds. Funds were sufficient. Why it takes more time. Please give me procedure from order placed till allotment.
Hey Narendra, if you’ve placed the order after 1:30 on Friday, it’ll only be processed Monday afternoon and you’ll receive confirmation by Tuesday.
Hello sir
I am 20 years old trading and investing for short term.
I had Invested 2.3Lkhs and now i am making a gain of 60k almost.
I forgot to tell you that I am trading by using my dad’s money i don’t have any income.
how can i pay tax and if i can which form should i fill and what documents required please help me.
Hey Abhishek, you can show the money received from your dad as gift. No taxes on that. Whenever you decide to sell the stock and book this profit, you can use the ITR2 form and show this as capital gains. You can check this: https://zerodha.com/varsity/module/markets-and-taxation/
dear nitin
1-a very good evening
2-Governemnt has taxed ltcg at 10 percent.lets say i was holding a stock for last two year and i wish to sell it tomorrow would ltcg apply on me?? or it will be appplicable to the stocks which are bought after 31 march 2018??
3-kindly elaborate wen governemnt says index benefit wont be there anymore?wat does dis mean as far as tax filing is concerned??
4-thnx in advance
regards
Are following allowed as expense in FnO Trading:
1) Fees paid to Non-SEBI registered Advisor/Consultant.
2) Invoice is available but without GST.
Yes, you can show both these expenses.
1) If my short term capital gain turnover is 85 lakh and Intraday Equity Turnover is 20 lakh then what is my total turnover? is it sum of both turnover? is it require to be audited?
2) is it require to pay taxable amount before 31 march? when to pay income tax, before filling return or after filling return?
3) if my salary is 240000, my total short term profit is 80000, intraday equity profit is 60000 then which form use for filling return?
4) is it possible to show short term profit in short term capital gain tax and intraday profit with my salary as business income?
Hello Sir,
Some quotes from this URL and from Varsity. I have my question towards the end:
https://zerodha.com/z-connect/traders-zone/taxation-for-traders/taxation-simplified
“You are a trader, you either actively trade stocks or f&o or currency or commodity.”
“Any income from buying and selling shares even if more than a year is considered as a business income.”
http://www.incometaxindia.gov.in/communications/circular/circular-no-6.pdf
“In respect of listed shares and securities held for a period of more than 12 months
immediately preceding the date of its transfer, if the assessee desires to treat the
income arising from the transfer thereof as Capital Gain, the same shall not be put
to dispute by the Assessing Officer. However, this stand, once taken by the
assessee in a particular Assessment Year, shall remain applicable in subsequent
Assessment Years also and the taxpayers shall not be allowed to adopt a
different/contrary stand in this regard in subsequent years;”
https://zerodha.com/varsity/chapter/classifying-your-market-activity/
“Thankfully one thing that the circular clarified was that you can be a trader and investor both at the same time.
So you can have stocks meant as investment for long term, and stocks meant for shorter term trades.
Just because you indulge in a lot of shorter term trades, wouldn’t necessarily convert all your longer term holdings or investments
into trades and therefore bring those long term gains under business income.”
“Similarly, if you are trading F&O or intraday equity trading, you compulsorily have to classify yourself as a trader,
but you can still show your long term investments under the capital gains head to get the benefit of LTCG being exempt from taxes.”
My Questions:
1. If we have long term investments, and at the same time engage in FO/Intraday/short-term – looks like we can take the advantage of long term capital gain. Is that assumption correct? If yes, it would be helpful to update this page with latest information.
2. In such cases, folks who are in long-term and FO/intraday/BTST/short-term (actual delivery), can we take advantage of short term capital gain also in case of delivery ?
3. What about BTST, can it considered under STCG as STT is paid?
Thank you for educating and helping us to take an informed decision.
Best,
Kiran H
Kiran, Can you go through this: https://zerodha.com/varsity/module/markets-and-taxation/. We have moved all content on taxes here.
1. Yes
2. Yes
3. Yes
Hi,
1. will trading expenses and F&O ,intraday losses can be adjusted against my salary income also ?
for ex my salary income is 12 lakh, trading expenses 2 lakh, F&O losses 5000, intraday equity losses 38000, short term capital gain 30000, then what will be my taxable income ? explain the calculation for above example, It will be helpful in calculating tax and my understanding, though i will need audit through CA
2. What all documents will i need to submit to file ITR 3 form for above given example, can i attach P & L reports, will it be sufficient ?
This is covered in the Varsity module on taxation, Ajinkya. Best check it out here.
hi sir,
my only income is from share market. my total turnover is 1.2 crores. i have done mostly delivery based transactions and 3 intraday with profit of 300 rs. my profit is 9.7 lakhs, should i need to audit books as profit is greater than 8%. which itr form is to be used and which package to be used for these from cleartax.in . please help
I HAVE FILED ITR-3 WITH SALARY INCOME RS 340068.
INTRADAY LOSS RS 63961.
BUT INCOME TAX DEPARTMENT HAD GIVEN ME NOTICE BY COMPUTING MY TAXABLE INCOME AS
(340068+63961)=404029
DOES INTRADAY LOSS ATTRACTS TAX?
PLEASE EARLY SOLUTION , I HAVE 3 DAYS LEFT TO REPLY…
Hmmm… Seems there’s an issue with either the AO’s understanding or the way you’ve filed. This should be easily resolved. Best check with a CA though.
My bad. I thought this was F&O trading. For equity intraday, the trades are considered speculative and the loss cannot be offset against IT. Best check out the taxation module on Varsity.
Hi Sir,
I’m not a regular investor and a salaried Individual ( 12 Lacs Income taxable from salary ). For this year, I traded as below.
Delivery: INR 260000 ( Buy ) and INR 265000 ( Sell )
Delivery Net Profit: INR 5000
BTST: INR 345000 (Buy ) and INR 351000( Sell)
BTST Net Profit: INR 6000
Intraday: INR 500000 (Buy) and INR 501700 (Sell )
Intraday Net Profit: INR 1700
1) Kindly Help to calculate the turnover as i don’t fully understand how to do.
2) Kindly advice if i need to file both ITR1 and ITR4 forms ?
2) Can i show the Delivery/BTST turnover and its profit under Short Term Gain and only show the Intraday Turnover & Profit as Business ?
3) Audit is required ?
Sir,
I searched for my query i did not find anyone asking this.
I only do intraday past 2 months and my details are
INTRADAY GROSS PROFIT ₹ -17,149.85
INTRADAY TURNOVER ₹ 34,133.65
SHORT TERM GROSS PROFIT ₹ -305.55
SHORT TERM TURNOVER ₹ 84,538.40
Can you please tell me do i need to pay tax for this or any audit required ? and should i mention in my taxable income for this year. ?
Sir,
I am new to trading and my only source of income is profit from trading.If my yearly profit is 10 lacs do i need to file returns separately…if so approx how much tax should i pay?
Yes, you need to file your income tax returns. You have to pay taxes as per income tax slabs. Check this module, has all details.
sir ,
if a investor buy a nse listed equity stock today and sell it after 1 week than you said as per short term capital gain tax 15% is applicable right.so i want to know that this 15% is automatically deducted as in STT ….etc forms or the investor has to fill some tax form and give 15% to goverment himself ?
This 15% is over and above the STT and other charges. Check out the taxation module on Varsity.
I’m a student and do intraday trade daily , earning 100 to 500 rupees daily.
1. Is it mandatory to me to file income tax return, and what if i do not file return?
2. When do i have to file income tax return?
Nithin,
The loss I mentioned above is completely from Intraday trading of Futures derivative ONLY, which obviously means this is a business loss and does not qualify as speculative loss since this is not loss from trading equity.
Hence I can set of this business loss against another business income right ?
this business income is not a salary income since this is not employee-employer relationship but the income as retainer fees due to contract.
if I can set off this contract income against the massive loss I have incurred I can save a huge tax burden .
please help clarify, thanks!!
Hi Nithin,
I have a trading loss of 11L, but I have my consultancy income of 10L for the FY 2017-18.
Can I balance both and declare 1L Loss OR is it mandatory to show trading loss separately and consequently requirement of Audit, I am not interested in carrying forward the loss for future years.
Thanks!
Hi Nithin,
I have annual salary of 4lkhs.
Along with that,my turnover for intraday is 1lk and and profit is 5000.As it below 8% of turnover, Is it necessary to have an audit for itr4?
I have done all my trades in F&O and currencies and if i calculate for a particular year overall it was net loss in both the segments. But the overall turnover is 4 crore. So do we have to pay taxes only in case of profits or do have to pay any kind of taxes for the turnovers. As few days back i got notice from income tax saying “Scrutiny assessment proceedings in your case for A.Y. 2015-16” and i have a tax liability that i need to pay. Please clear my concern that do we need to pay any kind of taxes to IT dept against turnover.
hello sir,
i have some points, may pl. clarify,
1. what is net profit?
take a F&NO, turnover is 25000, total gross profit is 25000, the total charges incurred is 18000(3000 brokerage and rest are taxes)
These 18000 paid to zerodha, in the form brokerage, SST etc, .
from this case what is net profit?
1) is it 25000-18000=7000 or more
2)is it 25000-3000 = 22000 or less
may pl. reply…
I am salaried income tax payer. But also I trade in FnO section. Basically I trade Index futures and Option. In the FY 2015-16 I have incurred a loss in in FnO trading.
Also I had a land (PLOT) which I bought in the year Fy2006-07 and sold in the Fy 2016-17.
This year (FY2016-17) while filing Tax return my CA has not setoff capital gain (Long Term ) from land transaction against loss carried forward from FnO business. Is it correct.
Kindly give your suggestion
It is a bit lengthy artcile but tax is always a typical process. Simple and informative post. Thanks for sharing it.
Dear Nitin ji,
Last time i have discussed regarding ITR. I am intra-day trader in F&O section. I have no other income and had loss 3.6 lakh. I have filled ITR 3 with 3.6 lakh loss. Last time you told me that audit is not required because my turnover was 20lakh and loss was 3.6 lakh. My tax liability was zero. Now today i have received a letter by mail from income tax department that audit is required and my ITR is now defective. They have given 15 days for resolution. Now please suggest best solution.
Thanks in advance.
Suneel Kumar
Had you previously, before this year also filed under 44AD? Can you share the error code and description on that notice.
Dear Nitin ji,
Error code is 33 and error description is ” tax payer has claimed loss under the head profit and loss in business or profession. however he is not filled profit and loss account, balance sheet and audit report.
Now please suggest best solution. I have filled ITR 3 without audit report because last time you have suggested audit is not required because my tax liability is zero. I have no other income and having loss 3.6 lakh against 11 lakh turnover.
suneel kumar
Dear nitin ji,
I have started trading this year and this is my first ITR-3. CPC has given 15 days for reply. please suggest best solution.
thanks in advance.
suneel kumar
Dear Nitin ji,
waiting for your reply. Please suggest best solution. I have explained Error code and description which is received from Income tax department.
Suneel kumar
Sunil, You have not filled the profit & loss account & Balance sheet. Getting audited is secondary, but u need to submit this. You can revise your return now. Audit is not required if total income is below 2.5lks.
Nithin ji,
Thank you very much for your reply. Please confirm about profit & loss sheet and balance sheet. Is CA required for preparation of same. My CA filled only ITR 3. Is separate document required.
sunil kumar
Hi,
First of, this is the best article for a novice like me. It really helped me in understanding the concept. I have a question though.
If I day trade in F&O and say close it with a profit of 50000. I don’t withdraw this money to my linked ICICI bank account. This money stays in my Zerodha account. Next I buy EQ shares with this 50000. Will I still be liable to pay “Short Term Capital Gain” tax on this 50000?
Regards,
S.
Taxation is based on the income tax slab you fall in, check this module on Varsity for more.
hello sir
My wife started trading since Dec.2016. she started her journey by depositing 1.5 lks cash into bank account and made short term gross loss Rs.1500.00 and F&O net profit Rs.24000.00 in FY 2016-17. she never paid tax & filed IT return. Now in FY 2017-18 till date she made 2.2 lks profit in F&O with turnover Rs. 13 lks and short term capital gain Rs. 1600.00. Now my question is
1) is any tax to be paid and file return
2) where to show initial 1.5 lks cash deposited. as she is a housewife
3)GST registration is required or not.
waiting for your reply sir
thanks
1. Tax is required to be paid only if net income is more than 2.5lks. But do file your ITR.
2. You can show it as a gift from you, it is not taxable.
3. Not required.
Hello sir,
Im trading and investing for long and short term in equity only.my query for turnover if it exceed above 20 lkhs i have register GST or not. my second query is that we have pay tax on turnover or on profit, if holding for 12 months no tax is required
I applied for share and it alloted me but now I m confused that can I transfer this share to my family member and thn i will trade nd make profit so the profit is income in the hand of receiver or on the hand of transferer ??
Dear Nithin,
When turnover is sum of Absolute profits in Futures and commodities why in options you add the sale value ?
It should be only the Absolute profit/loss + received premium in case of only option writers.
Please think and save people by not printing the Turnover when you are not sure about it.
Higher turnover is only helping CA’s for audit’s and Income tax officers in name of scrutiny. You somewhere mentioned no harm in higher turnover. Income tax guys taking advantage of this to trouble losers.
Because of your turnover calculation in the P&L sheet, IT officer is saying i have to pay penalty of 5% on total turnover.
IT Law says you have to get Audit if profit is 2cr) .
In options 90% trades fail. Is it ever possible to get more than 8% of turnover except for few jenius.
This means many option traded will have to get his accounts audited as his turnover will easily cross 2 cr even if he does 40 trades with 5 lakh. This can easily be done in a week.
With 5 Lakh and 40 trades he has to get a minimum of 8 % on turnover that is 16 Lakhs profit. Is this ever possible ?
Does this make sense to you ?
Audit costs Rs 30000. Who benefits out of this? Only CA’s.
For Option Buyer:
============
Buy price 100
Sell price 102
Turnover = 2 + 102 = 104
8% of turnover is Rs 8.32
But Actual profit is Rs 2.
Is it possible to get > 8%. Please ask yourself.
Adding sale value or premium might apply for option writers when they keep entire premium.
Atleast if you dont print the turnover we will have chance of explaining to IT Assesment officers.
Dont go buy what few CA’s say. Please find out the facts correct it. Or dont print anything like other brokers.
This is my request as i am big victim of this case.
Hi Nithin
I plan to surrender my ULIP Policy that is in loss when compared to the premiums I have paid. The policy is more than 8 years old now. I presume I will receive around Rs 1 Lakh. Should I club this with my total income while filing returns….or should I show this as Exempt Income….Kindly explain
Yeah this income is exempt.
sir
I have received I T Notice under 143(1) for F Y 14-15. I am a salaried person. My speculation profit was 2.5 lakhs short term loss is 1.7 lakhs. while filling I showed only net profit and that too set from previous year loss. ITO is asking me to pay tax on 2.5 lakhs speculation profit. My question is my filling return of FY 12-13 and 13-14 i had speculation loss of rs 78 thousand and 27 thousand but I showed combined loss of 2.5 lakhs that include speculation loss,commodity loss and short term loss. i showed short term capital loss carry forward 2.5 lakhs. in FY 12-13.
Can i set off loss of rs 78 thousand speculative loss from the FY 14-15. some one told me that under sec 154 you can revise and put up to ITO. pl explain and guide
hmm.. this is a tricky one. Best to consult a CA. Under section 154, you can request rectification of error. Check this link.
hi nitin
1- good evening to you.
2- i have done cash intraday loss of 5 lakh on a turnover of less than 2 crore..would i be liable for tax audit?
3-i havent done no stcg ltcg or futures
regards
If your total income (trading and others) is less than 2.5 lks, you wouldn’t need audit, but if more then yes.
dear nitin
1- I acquired loss of 5lakh on cash intraday in ay 14-15 .but while filing itr i have shown loss of 8 lakh
2-now i got dis notice and assessing officer is asking me how i filed 8 lakh loss when actually it was 5 lakh?
3- what legally could be d penalty for showing more loss in the itr? i carried forward 8 lakh loss while it actually was 5 lakh including expenses in ay14-15.total income is less than 2.5 lakh
thnx in advance
hmm.. if you haven’t setoff this loss against profit and evaded taxes, you should be okay. Maybe explain this to the ITO.
I have received notice under 143(2) for AY 2016-17
it mentions:
following issue(s) have been identified for examination:
(i) Whether the investment and income relating to securities(Derivative) Transactions are duly disclosed.
I am a salaried individiual..filled form ITR1.
During above period i have done only derivative trading with turnover over 60 lakh and net loss about 2.5 lakh.
Since i had not filled correct form(ITR4) ,neither i did mandatory audit of my account..what should be my response now. I have to submit my response in e-proceeding(on efiling website) with option of attaching documents.
What documents to be attached? and what arguments i should mention,a as securities transaction was not disclosed by me (BY filling appropriate ITR Form).
Rav, best to attach your ledger/P&L and say that you didn’t declare because you had losses. Since there were losses, you didn’t show.
Thanks a lot
Which is to be attached?
Absolute p & l or Tax P & L
Thanks
Tax P&L
Hello,
My CA has said that instead of paying 15% of tax on my STCG, profit should be added to other income like fd interest etc and then accordingly income tax to be paid, he is saying, Actually share profit is business income because transactions are being done frequently. Therefore capital gain provisions are not applicable in our case.
Pls suggest.
Thanks,
Alok
Yeah, if you are taking the stance of showing your trading activity as a business, then yes. Do go through this: https://zerodha.com/varsity/module/markets-and-taxation/
Sir,
My short term turnover is Rs. 99515/ ( Rs.436/- loss ) and F & O turnover is Rs. 95,527/- with a loss of Rs. 10,275/-. for the year 2016-2017. It is less than Rs. 1.00 cr. My C A say audit will be required. Is really audit required? Please help.
Thnaks
Since your turnover is less, you can show 8% of turnover as profit and avoid audit.
Thank Yu sir.
Hello,
My this year income is following.
Income from FD=7.2 lakhs
Loss from f&o=2.5 lakhs
gain from stcg(equity)=1.2 lakhs
loss from stcg last yr=80 thousand
Now loss from f&o will get net off from fd interest but my question is will short term equity loss of last yr get adjusted with this year gain, Last yr I have gone through audit, also let me know tax for remaining ltcg will be 15% or will it get added to my remaining taxable income of fd interest
Thanks
Alok
Yes, last year loss can be offset against this year profit. The remain taxable income at 15%.
Sir, how i matched my turnover of F& O trading with form 10db of my ITR 3 to avoid of turnover mismatch with Income tax deptt. Because sometimes they take turnover mismatch base of 10 db for income tax scrutiny.
I don’t think you will be able to match that. Turnover is important to determine audit or not. Make sure to file your returns correctly, that is all is important.
Dear Sir,
Last year (FY 2016-17) i have filled only ITR-1 because i am a Salaried Person, but did shown my details of Equity profit (7000) and Option’s loss (231000) in the same year, now which form i have to filled to show complete details of last year? ITR-2 ? or ITR-4 ? or ITR-4S ?
Another question is i have a huge loss from F&O in FY 2014-15 of 13 lacs, and in FY 2015-16 loss of 2.5 lacs and in FY 2016-17 loss of 2.31 lacs , now can i show the details of all 3 previous years loss and carry forward them ?
If yes then for all 3 previous year or only last year or last 2 year ?
If yes then which form i have to filled with CA ?
Please please please help me.
Regards,
Gaurav Jain
It is called ITR3 now. You can only rectify last two FY. Check this module, have explained all your queries in detatil.
I am a Salaried person working in a MNC.
Apart from my salary; in last year, my Stock trading position is as follows (approx):
Intra-day / Speculative profit : 4,000/-
Short-term profit : 40,000/-
Futures realized profit : 10,000/-
Options realized Loss : 5,00,000/-
MCX-Com realized profit : 1,000/-
My F&O Turnover is more than 2.5 Crores.
How should I file my ITR.??
You need to use ITR3, I have explained in detail here: https://zerodha.com/varsity/module/markets-and-taxation/
Hi,
I gone through the content of the chapter.
I’ve a doubt. How to maintain books of accounts in case of Intraday, F&O Trading & Commodity future trading??
What portion of the transactions need to be recorded in the books??
Pls guide.
Can you check this module: https://zerodha.com/varsity/module/markets-and-taxation/. Your ledger and tradebook is your book. Nothing else you need to maintain other than a bank book.
Hi,
The below numbers are for example purposes.
During the year I have done Intraday trading and incurrred a loss of Rs.3 Lakhs. I aware that this is the speculative business, and to claim this loss in the future years i need to file my return on or before due date. Also, i aware that suppose if we are claiming losses from speculative business, we need to get our books audited U/s.44AB (since less than 8% of Turnover).
From the guidance note of ICAI, Turnover from Intraday trades will be the sum of absolute values of favorable and unfavorable differences. Here my question comes;
I think, ICAI guidance note will help to fairly present the P&L only when Intraday traders earns the profit and it is silent on how to present the loss. Please ignore the brokerage and other charges for below query.
For (eg) During the year, i earned intraday profit from Scrip A – Rs.10 Lakhs & Incurred Intraday Loss from Scrip B – Rs.13 Lakhs which makes up my loss for the year Rs.3 Lakhs.
As per Guidance note of ICAI, The turnover will be Rs.23 Lakhs (10 Lakhs + 13 Lakhs). To claim the loss of Rs.3 Lakhs, i must write Rs.26 Lakhs expenses. Only then, i can show net loss of Rs.3 Lakhs in my P&L Statement.
a) Is it fair to show Rs.26 Lakhs expenses, while i have not actually incurred 26 Lakhs? If it Fair, under what head of expenditure we can show?
b) Any Guidance note/Expert opinion to deal with this matter?
Regards,
Gopi
a. How is 26lks your expenses? 26lks will just be your turnover. and perfectly fair do declare. Do go through all the chapters.
b. Best to speak to a CA as well.
Turnover Rs.23 Lakhs Less Expenses Rs.26 Lakhs = Only then i can show Rs.3 Lakhs loss in my P&L Account.
Fact is, The Turnover is Rs.23 Lakhs & Loss is Rs.3 Lakhs. How to Show the gap of Rs.26 Lakhs in my P&L is my question.
Your loss will be the net difference between Sale value & Purchase value and the turnover the absolute sum of these. Your expenses don’t have to exceed your turnover for you to make a loss.
If i am going to show the sale value as my turnover and purhcase value as my cost, my life will be easy.
But Turnover is the absolute amount of profit and losses. Turnover is nothing but my sales for the purpose of Income tax act. My sales is 23 Lakhs.. My Loss is 3 Lakhs… What is my cost? What is the appropriate head that cost should be presented in P&L?
Dear Nithin,
I hope you are aware of a product from a broker (I won’t take name here) who provides a product where you can take margin from broker and use it to trade in cash positions and there is no minimum holding period for the position.
Although you have margin position, but still you do not have holdings in the demat account.
You just have to pay taxes on the borrowed capital and provide for any margin shortfall.
Now my query is that how will IT dept tax this product.
Suppose I hold the position for over a year. Will this be treated as LTCG? Although I did not technically hold the stock.
Will I have to fill ITR4 to file the same? Any help would be appreciated.
Regards
Somenath.
Yeah, this will still be LTCG. ITR2 is enough.
Dear Sir,
I read your article on website regarding Futures & Options. The article was very good & well explained by you.
But, I have some doubts and queries regarding this.
Actually, My Uncle is Salaried Employee & Trading in Futures, Options & Shares. But in current FY 2016-17 (AY 2017-18) he was filed ITR using ITR Form 2 with showing the Losses from all Futures, Options & Shares as under Head of Short Term Capital Losses.
So, My queries :-
1) Whether IT Department asked any queries & Penalty against ITR Form 2 filed by him…??
2) Whether he was filed revised return & change ITR Form mandatory….??
3) If he don’t want to show any losses, then it is allowed now…??
4) If not done any activity (As per Original Return) then what are the consequences he will be face..??
5) What is the Solution available to him..??
Sir, Please try to explained all the queries and doubts.
1. No penalty if there is no tax to be paid. But question can be asked on why didn’t you show F&O under business.
2. Yes, it is best to.
3. Yes
4. point 1
5. If you can revise, best to do it.
Thank you So Much for your Valuable Suggestions…!!!
Can I take the Set Off in same FY of STCL of Shares aginst STCG of Intraday…??
If not then what is the solution available..??
No not possible.
Sir, whether a student studying in college is allowed to trade in futures and options based on the capital (margin money) given by her mother?
No Chella, you need to have income proof.
Hi Nithin
For quarterly settlement of funds, instead of transferring back to linked bank account, Zerodha offers the option of investing in “Reliance Liquidity Fund – Daily Dividend Plan” and redemption is done to trading account probably the same day or the next day
The return for this one day investment is almost close to nil….What are the tax implications of this….is this short-term investment….should we consider turnover for this….For example, if the amount lying in trading account is Rs 1 lakh and it gets invested into the above fund and comes back the next day to trading account, it is like Rs 1 lakh and 10 rupees….If the turnover is 1 lakh and profit is Rs 10, how do we calculate these for IT returns…
Thanks,
Any gain is short term capital gain and tax is 20% on gain with indexation benefit. There is no concept of calculating turnover in case of capital gains. Check this: https://zerodha.com/varsity/chapter/taxation-for-investors/ for equity debt funds.
HI Sir my short term gain rs 18000 and i have no business.pls tell me whether i have to give tax on 18000 by 15 percent or not.my total income only 18000.so i think its below 2.5 lacs.which form i have to fill.pls tell all us which type of trading force tax audit.is it apply for f&o or intraday.pls tell us so that we take profit and if possible then pls make a video also
No need to pay taxes if your total income is less than 2.5lks. Please go through this module: https://zerodha.com/varsity/module/markets-and-taxation/
hello sir i am a salery woman and my salary income 5 lacs.in 2016-17 my STCG WAS 20K AND TURN OVER 2 LAC.KINDLY TELL ME WHICH FORM SHOULD I FILL AND WHAT HAPPEN IF I NOT SHOW THESE DETAILS TO INCOME TAX
File ITR2, no need of turnover in case of capital gains. Check this module:https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin,
Thanks for your detailed guide. I would want to understand how to account for tax on BTST trades. Even though BTST are technically delivery trades, no delivery is taken by the trader. From my understanding so far, Intraday trading’s profit will be charged at the trader’s normal tax slab rates while that of delivery trading will be at 15% if less than 1 year is the hold period. Also can you confirm if all the expenses other than STT can be deducted to calculate the taxable amount.
Example:
I have executed a delivery buy order for 100 quantity on Friday at Rs. 100 and then sold it on Monday at Rs. 150 before taking delivery. Again I have placed another buy order for the same quantity at Rs. 140. In this case how will I be taxed, i.e. on
[(150 -140) * 100] or [(150-100) * 100] and at what rates.
This is from Nithin’s blog on Varsity:
5.6 – BTST (ATST) – Is it speculative, non-speculative, or STCG?
BTST (Buy today Sell tomorrow) or ATST (Acquire today sell tomorrow) is quite popular among equity traders. It is called BTST when you buy today and sell tomorrow without taking delivery of the stock.
Since you are not taking delivery, should it be considered as speculative similar to intraday equity trading?
There are both schools of thought, one which considers it to be speculative because no delivery was taken. However I come from the second school, which is to consider it as non-speculative/STCG as the exchange itself charges the security transaction tax (STT) for BTST trades similar to regular delivery based trades. A factor to consider is if such BTST trades are done just a few times in the year show it as STCG, but if done frequently it is best to show it as speculative business income.
From: http://zerodha.com/varsity/chapter/taxation-for-traders/
dear sir,
I am getting conflicting views on my query….i am a salaried employee and also trading in cash and F&O.
My details are as under:
Salary income: Rs.15,00,,000
Profit in equity: Rs.1,50,000
LOSS in F&O: Rs. -2,80,000
F&O TURNOVER : 50,00,000
Clarification on OPTION turnover is also need to be clarified….
A. Suppose I bought an option for Rs.12000 and sold for Rs. 20000, then profit is 8000……. Then, the turnover is 20000 or 28000 (20000+8000).
B. Suppose I bought an option for 10000 and it expires at zero….then, loss is 10000. In this case, turnover is 10000(buy price) or 10000+10000=20000 i.e. sum of
C. Which ITR return is applicable to me…. Further, I got some advise that since my principal source of earning is Salary, hence, I should claim the losses as Short Term Capital Loss….
D. Do I need digital Certificate? Do the Returns need to be Audited?
Can I file ITR2 now, i.e. before due date… and then file revised ITR as ITR4, if required. Please guide me as soon as possible.
A. Total turnover will be the sum of favorable & unfavorable difference (8000) plus premium received on sale (20000), so total turnover would be Rs.28000.
B. Turnover will be 0 on worthless options, so total turnover would be 10000
C. ITR 3 you’ve to use. Income from trading futures & options on recognized exchanges (equity, commodity, & currency) is categorized under non-speculative business income as per section 43(5) of the Income Tax Act, 1961. Your losses in F&O, can’t be considered as Short term capital loss.
D. If you’re declaring 8% profits and paying taxes, there’s no need of audit.
Sir,
Thanks for your prompt reply….but one question is still not clear to me…..SALARY BEING THE PRINCIPAL SOURCE OF MY EARNING, CAN I SHOW THE f&o LOSS AS SHORT TERM CAPITAL LOSS……. AS BEING A SALARIED EMPLOYEE I am not supposed to indulge in business.
No F&O loss can’t be short term loss. There is nothing in showing business income on ITR even if you are employed.
Thanks Sir,
A. You people have really cleared my doubts….I need to file audited ITR3 return…..and so the last date is 30.09.2017. Am I correct?
B. And I will be able to set-off my losses in F&O in next FY, if in gains, RIGHT??
C. Do I need digital Signatures to file the return?
Regards,
A. Yes, if it’s an audit case, last date is 30th September, otherwise it’s 05th August.
B. Yes
C. If it’s an audit case, digital signature is required.
HI DEAR I AM A HOUSE WIFE.MY INTRADAY TURN OVER 2477 WITH LOSS 2200 AND MY SHORT TERM TURN OVER 54000 WITH PROFIT 6000.PLS TELL ME WHICH FORM I HAVE TO FILL.TAX AUDIT APPLIED OR NOT.I HAVE NO OTHER INCOME SOURCE.HOW MUCH TAX SHOULD I HAVE TO PAY THOUGH I AM NOT IN TAX SLAB.MY PROFIT ONLY 6000
You’ve to file ITR 3.
hi NITHIN I AM A SALERY MAN AND MY SALERY INCOME 6 LACS.I START TRADING IN DEC 2016.MY SHORT TERM INCOME 15000-{DEMART IPO}-AND MY SHORT TERM LOSS 5000.I SOMETIMES DO INTRADAY TRADING AND MY INTRADAY TURN OVER 12000 AND INTRADAY LOSS 7000.MY SHORT TERM TURN OVER 3 LACS.I STILL NOT TRADING IN F&O.KINDLY TELL ME WHICH FORM SHOULD I HAVE TO FILL.TELL I AM IN TAX AUDIT OR NOT.I ALREADY FILL FORM 1 AND SHOW ONLY SALERY INCOME.I DONT KNOW MUCH ENG.KINDLY TELL ME .MY LOSS BELOW 8 PERCENT
As per section 43(5) of the Income Tax Act, 1961, profits earned by trading equity or stocks for intraday or non-delivery is categorized under speculative business income. As such, you’ve to use ITR3.
SALARY RS 273000
F&O TURNOVER RS 28860 AND P&L RS -27180
INTRADAY SPECULATIVE P & L RS -62000
WHICH ITR SHOULD I FILE? DOES I NEED AUDIT IN TERMS OF MY F&O DATA?
URGENT PLEASE NITHIN,TODAY IS LAST DAY…..
ITR3 and no need of audit.
Hi Nithin,
I would appreciate if you can clarify few of my doubts on taxation. I have been trading through zerodha since 2016. Since last year I have been trading F&O and I have few queries regarding filling IT returns for the same. I did go through the taxation module and few of the queries in the module.
following are the details for my IT returns for the year Apr2016-Mar2017,
F&O loss is appx 2 Lakhs
Brokerage and taxes from trading- appx 40k
Income from salary for the year was nil as I was unemployed during the financial year.
No other source of income.
I have other deduction for LIC/Mediclaim premiums.
Following are my queries.
1.As per my understanding I should opt for ITR4.-My CA says it has been renamed as ITR3 now. So should I be using ITR3 for filling my returns?(since the module says ITR4 for business income/F&O income)
2. My turnover for the year(F&O) was more than 1cr but less than 2crore. Income from trading was less than 8%/6% of the turnover(loss of 2lakhs). my income for the year was nil from salary, so it comes below the minimum taxation slab.Do I need to opt for audit?
3.Since F&O is treated as business income do I have to maintain book of accounts?
4. My CA gave me an excel sheet which says under Income from business- net profit us 44AD@ –% of gross turnover. I understand(but not 100%sure since I referred to income tax website to understand 44AD and it has technical jargons from accounting) that I am taking benefit under section 44AD treating my income from business as presumptive income. Is it right/ regular practice to take benefit under section 44AD if one is trading F&O?
5. Do I have to maintain book of accounts even if I am not eligible for audit for the year apr2016-mar2017?
6. Is there any format for book of accounts I can refer to if I decide to maintain it myself as you mentioned in the module that we can our-self maintain our book of accounts.please circulate one on our zerodha website if you can. it would be of great help to us traders.
request you to post the reply asap, Would be grateful, you replying by tomorrow.
Regards,
Dev
1. Yes ITR3
2. Not required. But this is grey area, always advisable to audit.
3. Yeah best to.
4. Yeah, you can take benefit. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
5. No, only in case of audit
6. Book of accounts is essentially a simple excel sheet. Income and expenses row by row. Let me see if I can get a sample and put itup.
Hi Nithin,
thanks for the prompt reply.
So in my case as mentioned above for 44ad,my presumptive income would be computed at@6% of the total turnover to take advantage of 44AD. However I still can declare my actual income below it and also below the limit for tax liability i.e250000-since I have no income (from salary or whatsover). and i do not have to maintan book of accounts and audit not applicable. Is it the correct way to do it?
I know its always better to maintain book of account, which I will do but Am I correct about whatever I have mentioned above?
Please reply ASAP.
Regards,
Dev
Yes, but do consult a CA.
Hi Nitin,
My name is Tarun Kumar and I am little confused about the ITR this year, because a) I am salaried and I have started regular trading from past one year or so. b) I have made losses under trading for FY 2016-17. Below are my details (trading) and further below are my questions on ITR and taxation. Request you to please help me on this as this is little urgent and extremely important.
Trading / Income / Loss details:
1. My gross income from salary is 8,70,000 Rs.
2. My Total Taxable income (as per Form 16) is 6,84,600 Rs.
3. My total Tax deducted (as per Form 16) is 63,830 Rs.
4. My Intra-day / Speculative profit is -434.65 Rs.
5. My Intra-day / Speculative turnover is 545.85 Rs.
6. My Short-term profit is 174.65 Rs.
7. My Short-term turnover is 24218.95 Rs.
8. My Total realized profit (Options) is -55366.00 Rs.
9. My Total turnover (Options) is 423129.50 Rs.
10. My Total charges (including brokerages) and (for EQ and FnO) are 11585.15 Rs.
Since I am not sure on the calculation of Total turnover and due to non-clarity on 8% calculation for audit rule and also due to the salary component and lastly, due to change in ITR form names, I am looking for advice and help on below questions / points. Please help me with this.
a. Firstly, please confirm which ITR form to use and file.
b. Whether or not I need audit? (please clarify using calculation)
c. Where and how to show losses?
d. Where to show Total charges I have paid (including brokerages and STT)?
e. Should I show the expenses on Internet, phone and Laptop purchase?
a. ITR3
b. Yes, you would need.
c. Go through this module: https://zerodha.com/varsity/module/markets-and-taxation/
d. Best to take help of CA for this. Tough to explain here.
e. Yes you can.
Thanks Nithin for the guidance!
Hi Nithin Sir,
I would be thankful if you can clarify few of my doubts about tax filling….
I am a tailor and i have an income of around 2 lac. for FY 16-17.
Income from trading is as follows-
Short term capital gains- Rs 13590.
Short-term turnover- Rs 48030
Intra-day / Speculative profit- Rs- 16694
Intra-day / Speculative turnover- Rs- 36330
Loss from futures trading- Rs- 119300
futures turnover- Rs- 119300
Now my question is,
My total turnover is well below 2 crore
Profit is below 8% (as i have net losses)
And total income is below 2.5 lac
Do i need an audit keeping in view that my total income is below 2.5 lac?
Technically not required. But always advisable. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Zerodha Team,
I see that you are providing Tax PnL, but my CA always asks for buy and sale date of the stocks showing up in short term and long term capital gain.
Is there a way, I can easily get that in zerodha?
Regards,
Kinshuk
You will have to use tradebook for this.
Hi,
Can anyone please help me with below query, for last financial year below are my trade transactions value:
Equity Intraday gross profit: ~2L (-ve)
Equity Intraday turnover: ~3.2L
Equity Short term gross profit: 18k (-ve)
Equity Short term turnover: ~22L
Do I need tax audit?
Is it compulsory to declare profit/losses of equity intraday/delivery trades in ITR. If yes, which ITR form I should have to fill (Also an IT Employee) ?
Can I carry forward my loss in next financial years?
Do we have any CA service/guidance available for tax filling in Zerodha?
Thanks.
Check this module: https://zerodha.com/varsity/module/markets-and-taxation/. Yes best to declare trades on ITR as there is a chance of receiving notice asking why not declared. yes you can carry forward. We tried supporting tax filing, but extremely tough to do this online.
Please confirm, does audit required or not?
Salary: 7-8L
Equity Intraday gross profit: 2L (Loss))
Equity Intraday turnover: 3.2L
Equity Short term gross profit: 18k (Loss)
Equity Short term turnover: 22L
Not required. Equity short term I am guessing you are showing as capital gains.
Thanks Nithin.
Yes, Equity Delivery as “Capital Gains” and Equity Intra-day as “Profits and Gains from Business and Profession”. It’s okay, right?
Yes
Thanks Nithin.
Yes, declaring Equity Delivery as “Capital Gains”
And Equity Intra-day as “Profits and Gains from Business/Profession” (Speculation Business).
It’s okay, right?
Also, please confirm which ITR form should I have to fill (ITR2 or ITR3). I have done trading only in Equity segment i.e Delivery/INtra-day (No trading in F&O) and I’m a salaried person.
ITR3
i am salaried person , i have invested 90,000/- in Stock market 7 years back, recently sold it @ 38000/-, and such i have lost 52000/-. i have received form16 from my company.
in this situation i would like to know…
1. can i book my loss ?
2. how ?
3. can i do it myself as i do normally from form16 data and in this case adding my loss to particular section ?
either you can suggest better idea to save some tax amount.
thanks in advance for quick response.
Yeah this is long term loss and you can show it on your ITR. But since long term gain is tax free, you can’t setoff the long term loss against any other income.
Thanks a lot Nithin for your time and efforts.
Came to know the following from a reliable source: (Disclaimer: Cannot guarantee the genuineness)
How does IT Department knows what we have done in markets, especially the derivative segment of F&O. How do they get the details of what we do in the market.
Basically, the details of Securities Transaction Tax (STT) goes to IT Department. Even if you have multiple trading accounts and multiple brokers, all the STT linked to your PAN number is summed up and calculated automatically. The IT Department has this detail in their automated systems.
The system roughly multiplies the STT by 400 times and the red alert is raised.
For example, say your total STT paid for the year is 1800, the system calculates the turnover as 1800*400=Rs 720,000, which is the total turnover and then they look in the ITR filed by you to see if this amount tallies and whether tax is paid for this.
So roughly showing the net profit as 40 times the amount of STT in ITR would work out, it seems.
Hi,
I started trading commodity this year and I hv no other income. I made a loss of around 1,35,000. I am filling ITR 3 now with the help of your video about tax filling in your channel just to inform IT dept about my trading activities. Thanks for that video. Filling P&L is easy, but do I need to fill Balance sheet? Is it ok if I just fill P&L sheet alone?
Waiting for ur reply.
Hi Priya , I am also having same query , I did commodities this year and had loss and hence ITR-3. But if in loss Audit is must . Also from this Year only filling P&L is not enough. Balance sheet is must. I do not have expertise to fill Balance sheet and i am on business trip outside India thus cannot contact any CA.
If your turnover is more or if you need an audit, you will need to fill the BS also. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Thanks for your reply Nitin,
As I mentioned, I traded only in commodities and I hv no other income.I assume I don’t need an audit.My turnover is 114473, my loss is 107398. I filled my losses in P&L tab of ITR3 as shown in the taxation video. My doubt is
1. Do I need to fill BS also?
2. Is entering the losses in P&L tab is right or I am doing it the wrong way?
3.I think I don’t need an audit. Am I right?
1. If no audit, not required. Otherwise yes.
2. Best to seek a CAs help for this.
3. Yeah.
Hi Nithin,
My commodities Turnover is 1.95 Lacs only . I have salary income So do i need to put this Salary income in balance sheet ? Any CA you know who charges minimal fees to Audit ?. No other Business I have 1. Income from Salary 2. FnO & MCX trading. are the two transactions. I have taken numbers from Zerodha Yearly P&L statement and its straight forward to identify Loss , profit & turnover from this statement . But Balance sheet is something I am not able to fill need some help. Which Income should be declared as Prop capital, Asset etc.
Niranjan, for all of this, best to take a CAs help to fill.
Hi,
My turnover is around INR 70 lac and loss of approx. INR 1 lac (99% short term and some minor intra day)
Do i need a tax audit ?
Thanks,
Akash
If you don’t have any other income, then not needed. But if your total income is above 2.5lks, then yeah needed. Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Sir . i am a retired person and fully involve in fo trading. i hv no other business or income source apart frm interst etc frm FD OR MF. my query is do i hv to mentain accounts of everyday trading manually too or global report frm my stock broker is enough for incomtax return.
Global report from stock broker is enough.
In Tax profit and loss report, we get gross profit for intraday and short term trading separately but all charges are combined. How to know charges for intraday and short term trading separately?
Pankaj, currently we don’t show charges by intraday or delivery separately. This will be part of our new Q.
Ok. Could you please tell me how to calculate exact profit for intraday and short term trading for tax filing?
No one line answer for this. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin Sir,
In my tax p&l all eq loss = 9367.35 +1413.20 (total charges) = 10780.55
Turnover =18370.65
In my tax p&l all –FO Loss =83554.50 +53964.44 =137518.94
Turnover =103552028.75
From the above kindly tell me if I am supposed to get AUODIT from CA.
An early reply please.
With thanks and regards,
Kanti Prasad Kaushik
Zerodha client id RP 5879
Yes, best to get an audit done.
Dear Nithin
I am a salaried person and having professional income (doctor) and also capital gains, filing itr4 in the previous years, not liable to audit so far.
This year my income is as follows
Salaries 1295000
Professional income 91000 (receipts 182000, claimed 50% section 44ADA)
Short term Capital gains 13000
FNO loss 43000 (turnover 79000)
I failed to show the losses. And did not fill Balance sheet and P&L as I claimed section 44ADA.
I already filed ITR3.
I want to know whether my accounts needs audit. If audit is neede, can I file revised return.
Regards
Chandramohan
Ideally you should have shown your losses and carried forward as it can be setoff against future gains. For this you would need an audit. The other option is since your F&O turnover is less, declare 8% of that turnover as profits and pay taxes on it accordingly and avoid audit. You can revise your returns now.
Sir
i have two doubts.
1) On your website under P&L tax profit is given,Is this profit excluding charges?
2) Is Xl file downloaded from your website is sufficient for tax filing?
Hi,
I am a housewife and I have no income.
My husband starting trading account in my name, transferred 1.5 lakhs from his account to this one and started doing FnO trading
After reading this blog, we calculated and he said turnover was around 6 lakhs and loss was around 50000….He had also invested Rs 50000 into an equity scrip which is still in demat….After this FnO loss, he had completely stopped trading in my account.
His idea now is to sell this equity scrip which is 10% lower than the buy price (holding period is now close to 11.5 months) and then close the trading account or keep it idle without trading/investing.
I have never filed IT up to previous year as I had no income…Even if income was there, it was very less in the form of taking tuition, will not cross 3000 per month, but even that has stopped…
Also, I do not plan to work for the next few years, so there will be nothing in the name of salary for me in the next few years and since trading is also stopped, there will be no transactions at all in trading account
Considering that I have no income for the next few years and since IT dept will have access to these trading done until now, should I go ahead and file IT….Even if I show 10% as profit of 6 lakh turnover, I would come below the tax bracket….what would happen if I do not file IT now….what would happen if I file IT now and with no income in the foreseeable future years, what should I do….
If I file IT once now and do not file at all for the next few years with no income being the reason, what will be the IT department reaction….
Kindly enlighten….
Check this module: http://zerodha.com/varsity/module/markets-and-taxation/. It is not mandatory for you to file ITR, but if you don’t there is a chance of getting a notice asking for why you haven’t. IT department will have access to only trades and not if profits or not. It is similar to how if you deposit money into your bank and don’t declare the source of income – there is a chance of getting automated notice. So, I’d advise you to file ITR.
Thanks a lot for your time and reply.
Should I go with ITR3 or ITR4 (Sugam). I will file IT only this year.. From next year on, I will not because there would be no meaningful income seen..
Thanks a lot
ITR3 is always preferable.
Thanks a lot Nithin for your efforts.
Let us all praise Government of India for the rules and regulations and IT laws. What can be made simple and clear with a single announcement has been made tedious and stressful. After all, we are poor retailers and not rich politicians, why should they care about us.
I have a doubt Nithin. I have subscribed to an Equity Recommendation Service pay hefty fee for a year of service. Where do I show this expense in ITR-3?
Also, while filling out Profit and Loss account, it is now mandatory to fill Balance Sheet also. In simple terms, let us say if proprietor capital is Rs 2 Lakhs and Rs 1 Lakh is invested into equity, can it be filled into (PARTA- BS) (TAB APPLICATION OF FUNDS) (Point 2 – Investments) (b) (i) “Equity Shares, including share application money” in the ITR3 Form.
(in my opinion, I do not want to go to a CA , I do not want him to laugh at the loss I have made neither do I want to pay him either, filling out the ITR3 is just to dodge the monitoring software at CPC. In spite of loss, I am filling out as 10% profit of turnover) (My one question is how much is the IT system efficient to calculate my exact turnover when the rules themselves are not clear)
Thanks a lot for your efforts.
Advisory can be shown under other expenses. Balance sheet needs to be filled if audit required. It is best to go to a CA for this, he is like your doctor – you shouldn’t really care for what he thinks. IT department gets access to all trades done on the exchange. If your turnover is more, best to get it audited.
Thanks for your reply.. My turnover comes close to 7 lakhs and loss is around 60000….But after showing 8% of it as profit and clubbing it with my salary, my income tax comes close to nil….so I had decided to show 8% as profit….
In the video posted recently by Zerodha on how to fill out ITR-4 Form, he said that when profit and loss sheet is filled out, it is mandatory to fill out balance sheet also….otherwise, the CPC software would mark this as error and send notice….I did not know that balance sheet must be filled out only when audit is required….Please correct me if I am wrong…
Oh My God! No respite even after suffering loss and trading in FnO….Filing IT is a big pain in the a**
Till your income is less than Rs 50 lacs you can fill only business balance sheet (no P&L) in case equity trading assets are investment/ stocks (DP holding) + balance with broker / bank balance.
You can include asset linked to bank statement like mutual funds / fixed deposit so the income will be linked to class of assets owned .
Ex: interest for FD’s , dividend for shares , rent for property.
Thank you very much for the reply Nithin.
Actually, I got more confused now.
So I assume I have to fill out:
P&L Sheet
53(i) For assessee carrying on Business
a Gross receipts 53(i)a
b Gross profit 53(i)b
c Expenses 53(i)c
d Net profit 53(i)d
and in BS
6 In a case where regular books of account of business or profession are not maintained -furnish the following information as on 31st day of March, 2017, in respect of business or profession)
a Amount of total sundry debtors 6a
b Amount of total sundry creditors 6b
c Amount of total stock-in-trade 6c
d Amount of the cash balance 6d
Yes. Best to seek a CAs help if you are not sure on all of this.
Dear Nithin,
I had Equity ( Intraday + Short term ) , FnO , MCX Commodities trading for year 16-17. I am confused between ITR3 and ITR4 forms since both has Business P/L attributes.
I searched over google it says The old ITR-4 tax form has been renamed ITR-3 for F.Y. 16-17 (A.Y. 17-18)
The Current ITR3 Form is to be used who have income from proprietary business or are carrying on profession. Wherein The current ITR 4 is applicable having income from a business or profession and who have opted for the presumptive income scheme as per Section 44AD ,Sec 44ADA and Section 44AE.
Please guide which Form to fill.
If you have intraday equity, it has to be ITR3.
Hello Nithin,
I am a salaried person in 30% income tax slab .
My profit is 940 (Intra Day trading) + 8000 (Equity Short term) +16500 (F&O).
My turnover is 940 (Intra Day trading) + 370000 (Equity Short term) +30000 (F&O).
I have read and tried to understand a lot of things from varsity. Still to clarify more below are my queries.
1. Can I show 940 (Intra Day trading) +16500 (F&O) as business income and 8000 (Equity Short term) as short term capital gain.
2. Can I declare myself as investor despite the income from F&O as this is my first year and going forward in coming years I will be more interested in investing longer term.
Regards
Yashwant
1. Yes. Intraday as speculative business and F&O as non-speculative.
2. Yes you stock purchases can be shown as capital gains, and intraday/f&O trades as business.
Thanks a lot Nithin for the clarification. 🙂
Hi Nithin
Just help me with few of these
1) STCG i cannot deduct STT as expense from my Gross income, but rest of the expenses i can ?
2) For INTRADAY Trades, can i deduct as an expense STT?
3) FnO can i deduct STT as an expense as FnO income is a business income?
1. Yes
2. Yes
3. Yes
Thanks Nithin 🙂
Also how can i claim benefit of “stock advisory service” fees i have paid and can i set it off it in the same way as i claim brokerage fees in ITR2 field “expenditure wholly and exclusively in connection with transfer” ?
Yes you can. But proportionately distribute the cost for both long term and short term holdings.
Thanks Nithin – can you please explain it bit more how exactly i can claim benefit of this stock advisory fees in ITR2 and under which section?
Check this. You can add this as a cost along with your brokerage costs.
I am Salaried person and I have show short term losses on account of sale/purchase of shares in 2012 and carry forwarded it. But I have not shown this carry forward loss while filling next subsequent ITR.
Can I show this short term captial loss this year and set this off against short term capital gain on account of sale/purchase of shares this year?
Also for salary person without any other income except short term capital gain on account of purchase/sell of shares , do i need to fill ITR1 or ITR2?
Yeah you can show it this year and setoff the gain. ITR2
Hi Nitin,
Just wanted to clarify my doubt regarding ITR filing. If my salary is less than 2.5 lakhs P.A and I have gained short term capital gains from investments, then should I show both the salary and short term capital gain in ITR OR just pay the Short term capital gain tax and show it in the tax details in ITR Form?
Yes you should show both. There will be no tax to pay though.
Dear Nithinji,
I took loan from bank and used partial loan amount to pay social function expenses and part of amount lend to friend.
I understood that for FNO turnover<1 CR and profit < 8% than audit is must required. and i have loss approx 40K in FNO and turnover is < 1CR. in this case Do i need to show Bank loan amount in Audit books?? i am bit confuse if Audit should be cover only expense related to FNO trading ??
Thanks in Advance.
Audit is nothing tough, you just get a CA to look at your ITR across everything you do and sign it. Suggest you to check this: https://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin
I have a query on tax treatment of intraday charges (like STT, brokerage, Exchange charges and all other taxes) that we incur during intraday trading (speculative business income).
Can intraday charges be used to show as expense for business income to reduce taxable income for current FY or do these charges have to be carried forward similar to intraday losses and can be set off only against speculative gains in any of the next 4 FYs
Eg. For FY 2016 – 2017 my intraday charges are Rs.1000, intraday losses Rs. 3000 and business income is Rs.50000 so can I reduce my business income by intraday charges ie Rs.1000 to show my taxable income as Rs.49000 for FY 2016 – 2017
I have gone through Markets and Taxation Guide but not sure on above case
Thanks
Ah no, intraday charges are incidental to your intraday trades. So you need to add it to your intraday losses, carry forward and setoff against speculative gains only.
Hi Nithin,
1) My Turnover is 1.4 CR and i am in losses of around 6 Lakh in F&O? Do i need a audit?(I am Least bothered about carrying them forward)
2)Also i work as a Software Engineer Fulltime(So one of the CA’s told me that i can show F&O Losses as Short term Capital losses and no need to show it as trading as a business income, because i am in a full time job). Is it right?
Regards
1. Hmm.. yeah u would.
2. F&O is a business loss, can’t be shown as short term.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin ji,
Please note that i have filled my ITR3 form wiith the help of CA. Now I have only one point regarding turnover calculation;
My Short term profit 7000 and sales value 52,000
My long term profit 13,000 and sales value 45.600
My equity intraday profit is in negative -7000 while sale value is 34lakh and turnover is 124,000 (add positive and negative value)
My F&o loss is -3,45,000 against turonver 8,45,000 (positive and negative value)
I have defined short term and long term in investment so i have not consider it in turnover calculation.
For turnover calculation i have add intraday positive and negative value but My CA told that total sales value shall be consider for intrday. Please clear the same
As per calculation, turnover is —1,24000+845,000=9,69000
As per my CA, Turnover is–34,00000+845000=4245000
Which one is correct please clear. Also note that i have not consider sales value of short term and long term in turnover because it is showing as investment.
Please give your opinion.
Thanks,
Sunil
Different ways to calculate turnover, I have explained in detail here: https://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/
Dear Nitin
I have recd a notice from Income Tax which says
limited scrutiny whether the investment and income related to securities transcaction are duly disclosed.
My actual invstement in shares is Rs 1.8 lakhs , the balance was Intraday trading around 12 crores turnover .
What do i evidence information do i need to provide to them to convince them
a) P& L accounts file
b)Variable time PNL or any other documents that you suggest .
c) What footnotes do i mention.
1. P&L
2. Trading ledger which shows funds in and out.
3. Your bank statements.
Dear Nitin,
Greeting for the day, first let me appreciate for putting your efforts in clarifying all the doubts..Good initiative…Thanks.
Request you to clarify my below doubts as well.
1) I am having continuous F&O losses from the FY 2014-15 (2.77 Lakh), 2015-16 (6.03 Lakh) and 2016-17 (1.40 Lakh). I am confident of closing in profits from the FY 2017-18 on wards. I am salaried person and every year i have been filing returns regular thorough ITR-1 only. I have not declared my F&O losses for FY 2014-15 & 2015-16 in IT Return.
2) Now, can I include the 2014-15 , 2015-16 losses in FY 2016-17 or not. ITR -1 returns for 2014-15 and 2015-16 FY is filed with in due date. If not can i revise the returns now for 2014-15 and 2015-16 inclding F&O losses.. What is way out.. because i am confident of making profits in FY 2017-18 on wards.
3) Since i am salaried person and F&O trader which ITR form to be used for 2016-17 FY..
Thanks & regards
Srinivas Reddy Y — Zerodha Customer
To carry forward a loss, it has to be filed within due date. Since you haven’t, you can’t carry forward to this year. You can’t even revise your old returns now. You need to use ITR3. Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Hey!
i have a doubt that if I have loss while trading in F&O, which means i am declaring profit less than 8% which means would get covered under audit..
so is it necessary for me to get my transactions audited ?? (though my transactions are not of huge amount)
Yes. But there is more to it, I have explained in detail here: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nithin,
You really very well explained things!
But i still have 1 doubt,
1)I have 7 lakhs loss in options and 1 lakh loss in future in FY 2016-17.Can i carry forward this losses and setlle it off against the profits i make in the coming years in cash equity segment or is it like i can settle this losses with the profits in FNO only?
2) According to my turnover, i need audit also. which ITR form do i need to fill?
Regards
Gautam
1. Only with F&O
2. ITR3.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin
I am a NRE and I do trading in futures.I am into loss.do I still have to file income tax as I got a letter from income tax to file my returns.I did it online as they provided me the link and I filled it up saying than I am an Nre.AM I right on my path
Thanks
Simon
Yes Simon you have to file your returns. You have to use ITR3 to declare F&O. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin,
I had loss of Rs.26000 in which Rs.25400 is in intraday and around Rs.600 in short term equity.
My gross income from salary is 2.26 lks for FY16-17.
which ITR i have to file ? and is there anyway i can avoid audit as my profit is less than 8% of turnover which is around 47500. Please suggest suitable solution as soon as possible.
Since you have no taxes to pay, you can avoid the audit. ITR3 you need to use. Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin ji,
ITR-1 & ITR-4 are showing only in income tax website in “file online return” section. How I get ITR-3 form.. Is ITR-3 is sufficient or both ITR-1 & 3 are required to fill tax. Also note that you have upload one Computation sheet for complete calculation. How can be get computation sheet in online filing. Please brief me about online filing process.
Thanks,
SUNIL
I can see ITR3 here: https://incometaxindiaefiling.gov.in/. Suggest you to go through this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hello Nithin ji,
I am full time trader in equity & future derivative. My broker had submitted single profit &loss sheet for equity. They have not defined short term and intraday P&L. Can i consider all equity as a short term profit & loss.
Also tell me about turnover, they had submitted script wise consolidated turnover for F&O and not given trade wise turnover. can income tax dept raise any issue regarding turnover in near future. As per my opinion, for exact turnover calculation, a lot of calculation required. Is there any problem possible for turnover.
Please share some sample pics of filled ITR4 form so that we can easily file return. I have no other income and my f&o loss is 5lakh..which form i can fill.
Also confirm that is account book & balance sheet mandatory for F&O Trader because CA demand huge amount for balance sheet.
Thanks,
Sunil Kumar
No you will have to bifurcate intraday and short term separately yourself.
Turnover calculation is only to determine audit. Suggest you to go through this: https://www.youtube.com/playlist?list=PLkxTRam6E2V-okv6gwQlt6dLTsn0v6CD1
Dear Sir,
Please note that I am doing trading mostly in F&O Segment. My equity trading is very less. I have no other income and doing trading full time in f&o segment. My equity profit is 7,000 in short term and 8000 in long term while my F&O loss is 3 Lakh. My F&O Turnover is 9 Lakh. I have some following query:-
1) Last time I was working and filed Income tax return easily by using form 16. Now this year I have started trading full time and F&O segment is speculative business so can i file tax return without CA. Can I file tax return directly by website.
2) Also confirm, is tax audit applicable for me because my loss is below 8% of turnover but I have no tax liability.
Equity Profit short term -7000
Equity Profit long term -8000
F&O Loss-3 lakh
F&O turnover-9 lakh
FD Interest-20,000
Please confirm, Can I file tax directly without CA. If yes then which form is applicable for Speculative income. Please guide. I login income tax website but little confuse about equity and f&o tax filing. Please share some filled sample form for short term, long term and Speculative business tax filing.
Thanks in advance.
Thanks & Regards,
Puja Sharma
1. Suggest you to look at this: https://zerodha.com/varsity/module/markets-and-taxation/. For ITR3, you will need a CA help.
2. Not required. But do consult a CA.
NITHIN JI,
Pls explain about intraday equity and short term equity. What is the time period for short term equity.what is the diff as a tax point of view.
Intraday F&O-Non speculative
Intrady equity-speculative
short term equity- fix tax
My broker given complete profit and loss for equity. How can calculate short or intrday.
Also note that brokerage, STT and other charges also required separately for taxation. It seems trading is more critical when you face income tax return.
Thanks,
Puja
Puja, no one line answer to this. I have explained all of this in detail here:https://zerodha.com/varsity/module/markets-and-taxation/
Hi Team,
For showing capital gain,i need to put purchase and sell date at H&R block site.
But i didn’t received them from Zerodha.
Can i put total value for sell and buy their? As my calculation report is matches with them after putting these (sum value for all shares) values.
Waiting for reply.
Yes u can. But dates also required to calculate if long term or short term. You can get dates on tradebook on q.zerodha.com
Dear Sir,
Please help me how to get the audit done and charges involved in it.
As a salaried person of fall in income tax slab,which form should I use for ITR, although I have huge F&O losses to audit & to file???
Thanking you,
Suggest you to go through this: https://zerodha.com/varsity/module/markets-and-taxation/
Sir,
Thank you for this creation i.e, https://zerodha.com/varsity/module/markets-and-taxation/
I’m reading all these modules, but I’m worried about july last date deadline for salary income ITR.
Can a person file two ITRs as may be the case of mine???
Thanking You.
There are not two ITRs, if you have already filed one, you can revise the return.
Since income from F&O is treated as Business Income, what expenses can I use as deductions in income tax as a salaried employee trading options from my own account?
All business related. Internet, computer depreciation and etc. Check this: https://zerodha.com/varsity/module/markets-and-taxation/
I had a few queries regarding ITR Filing.
1. I work in Govt Sector. Last year I started online trading with Zerodha and had traded in CPSE ETF , Punj Lloyd etc and got some profits which are partly kept in my demat account and partly I transferred in my bank account. Kindly guide me which ITR (1, 3 OR 4 ) do I need to file and also guide the stepwise procedure to do the same.
2. Also I have got Form 16 from my employer but interest proceeds which I am getting on my FDs IN BANK ACCOUNTS, How do I need to declare it.?
3. I also started investing in mutual funds since last December, but havent redeemed any of them’. Do I need to declare anything regarding that during ITR Filing.
4. I, last year purchased CPSE ETF (index related to Navratnas like REC , CONCOR ) from Zerodha and then sold it. But it is not showing anything regarding this investment in my Profit and Loss Report for last financial year I downloaded from Q Back office from Zerodha.I spoke to Zerodha helpline .They said the trading done for CPSE ETF is not included in the P & L report.Now What needs to be done in this regard and how to file tax for that.
1. ITR 2 if it is only capital gains. ITR3 if you have intraday trading.
2. On ITR2
3. You can declare the investments made.
4. You can add this trade manually on your P&L.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nithin,
This post seems to be very old now so is there anything that you think would have changed over time? Can you please update this post or highlight the changes if possible?
Have an entire module dedicated to taxation here: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin,
I Have traded commodities in MCX with turnover of 459200 and incurred losses of 175000 and no other income.
Nitin could you please help me with the below points.
1.if i need to go to for Tax Audit.
2.For tax filing can i go as Short term capital loss declared in ITR-2 .
Thank you in Advance.
1. Yes if all your income together is above 2.5lks. IF not no.
2. No, it is business income. Need to use ITR3.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Hi nitin,
My turn over is below 1 cr and I have a loss of 2 lakhs. do I still need a tax audit as my profit is less that 8 percent?
Hi Nithin, I tried my hand on Nifty Options in the month of March 2017 with a turnover of approx 30,000 and loss of 17,000. Is it mandatory for me to file ITR-4 and get the accounts audited (as profit is less than 8%) OR can I just include this with my intra-day transactions and file ITR-2? I will obviously not carry over this loss. Appreciate your advice.
Even intraday transactions can’t be declared on ITR2. You will need ITR3 to show all business income (intraday and F&O). If you want to avoid audit, you can declare 8% of turnover as profits. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
Ur post r very useful. I have two doubts.1. Can interest charged by my broker on delayed payment for f&o margains. This interests paid by me can be treated as expenses.2. Trading in f&o be shown as business. Which types of expenses can claim as rebate from profit earned from f&o. I have no other sources of income. Please give ur value able guidance. Many thanks in advance.
Hi Nithin,
Thanks for such an informative article. Below is my query.
I am investor for last 10 year mostly traded with time horizon more than 2 years. From Jan (2017 ) this year started derivative trading. For FY 16-17 return perspective
a) as I am involved in derivative trading, should I consider myself as trader?
b) I have long term profit ( for example 20,000 k for securities bought in 2014 and sold in 2016) and net loss in F&O of RS 11,000. I have few shares in my DMAT account more than 3 years.
Do I need to show as RS 11,000 as losses from trading OR RS 9000 ( RS 20,000- 11000) as profit.
Can you please help on these points?
1. Yes trader for F&O. You can still show investments as capital gains.
2. Rs 20k u can show as long term capital gain and pay no tax. ON derivatives, show 11k loss. Suggest you to go through: https://zerodha.com/varsity/module/markets-and-taxation/
For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts
How to calculate the sell side value of options contract ? Is it Premium X Quantity or is it Total value of the Nifty contract
Premium x quantity.
I have close to 35000 from Equity selling which I have purchased in 2015 sold in Feb 2017.
I am at 20 % tax slab on my salary, where I need to included this equity profit in my ITR, which ITR form I have to use?
This is long term capital gain, it is exempt from taxes, no tax on it. You need to use ITR2 and declare this under exempt income.
Why Zerodha doesn’t provide tax report as required to fill table f of Schedule CG.
We do have a tax P&L on q.zerodha.com.
Hi Nitin,
Thanks for putting in effort and document such a nice and informative article. Though it solved many doubts but still there are doubts left.
I am an active trader in F&O and Equity since 2014 and i have been incurring an overall losses every year until this year. I have never filled ITR for my profit / losses from trading until now but now i want to showcase all my profits and losses from trading along with my salary in current year ITR .
I am not clear on how to calculate my overall benefit %age but my overall turnover is < 1 crore.
As i self file my ITR, I am looking for help for:
– Identifying how to show case losses for past few years from trading.
– How to report expenses used for trading purpose.
– What documents to submit.
Can you help or point me to the right person who can help ?
Suggest you to go through this: https://zerodha.com/varsity/module/markets-and-taxation/
Hello Nitin
Thanks for all of your hardwork and your team efforts. This knowledge sharing is beyond the words.
I have following queries:
1. I have been trading in the account of my mother name and I am transferring money to my mom account from my bank account. Wtever loss or profit from trading, How should I go for efilling? Should I declare loss and profit in my mom e-file or should i declare it in my name by clubbing of income. I have transferrd lakhs of money to my mom account.
2. I am having intraday loss and short term loss both in trading account. As turnover is less than 2 cr, by having a intraday loss straight away means it is less than the 8% of turnover. Should I have to go for audit? Can I show it as short term capital gain all of the losses?
3. I have heard from one of CA who says that Turnover for audit is only intraday turnover, not the short term delivery turnover? Is this correct?
4. Why income tax has created such a law which says that turnover less than 2 cr and profit is less than 8 % of turnover. 90% of market players incur loss and with this law, all are coming under tax audit. Am I interpreting it correct? Because loss is like profit = 0 which is always less than 8% of turnover
1. In your mom’s name. You can show the money transferred as a gift to her.
2. Best to go for audit. Showing it as short term gain won’t be right.
3. Yes, delivery turnover is considered capital gains. No concept of turnover.
4. Yeah, this rule is for normal businesses. Unnecessary issue for traders.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Thanks for the fast reply.
If I go by the clubbing of income, would not that be easy and legal way of doing it?
One more thing, In zerodha, Brokerage charges are shown separately. We can club this charges with the short term capital gain/loss to get to the final profit or loss values made in share market. We can do it?
Yes, you can reduce this cost.
Hi Nitin,
I have been trading in F&O as well as long term investing for some years. I did not have clarity on these rules previously so i did not declare the losses incurred from my F&O trade while filing returns all these previous years. Now, is there a way to re-file the returns of previous 2-3 years to show these losses so that i could get the carry forward advantage from the year when i start making profits ?
Another question – I have some long term capital gains as well in addition to F&O profits/losses. I assume these 2 items should be categorized separately while filing return (ITR3 i guess) . Or, will i be able to sum this up while declaring
Thanks
Sajeesh
9447125297
If you haven’t filed returns in time, you can’t carry forward the losses. Yes, you need to show capital gains and F&O separately. Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hi Sir,
My total turnover is Rs 53813/- and total profit is -32313. Please do let me know if I have to get the audit done?
I am bit confused with this line.
If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB)
Thanks
Sachin
Can you go through this module: https://zerodha.com/varsity/module/markets-and-taxation/, have explained in detail.
I am a psu employee (salaried) and heavily do intraday trading and all the capital gain is short capital gain but not a huge amount. So can I declare my self as trader even after being a PSU employee.
Yes.
What if I am having ELSS and other mutual fund,then also I can declare myself as trader not investor, keeping in mind that i do intraday trading to book profits.
Yeah, you can show your investment and trades separately. Check this.
Dear Sir, Could you make the Tax P&L statement of zerodha in Q, the final one that we can use for calculating profit/loss and use it as reference for filing without requiring CA. Also i would like to know why IPO gains/losses realised on the listing day are not reflecting in profit/loss statement anywhere in zerodha’s records. Other than that we get all the data pertaining to Tax Filing in P&L statement itself.
For IPO stock, if you can go to holdings and look at discrepant holdings, you will be able to add buy price for the IPO stock. Once done, it should show up. We are completely revamping Q. The new one will have everything.
Dear Nitin,
PL inform last date to file returns in case of audit in case of individual who wants carry forward losses
Trading as business ( no salary income)
July 31st.
My statement shows
Brokerage 556.20
Turnover charges 520.46
STT 2002.00
Service tax 150.74
Stamp duty 320.28
SEBI charges 32.05
Total charges 3592.46
So filing return should not consider STT as expenses and the rest should be added up against trading expenses. Am i right?? or only trading charges can be shown as expenses?? please clarify. Thanks
Other than STT everything else can be shown as cost.
I’ve noticed that the TAX P&L statement provided in Q portal is incorrect. Whom do I contact for getting it corrected? I can explain them in detail as to what is triggering incorrect numbers. Also which file should I give it to CA for auditing?
You can email [email protected]. You can give the ledger and tax P&L to your CA.
Nitin Ji,
First of all thanks for your reply. I also want to know maintain of account book in case of F&O is mandatory. If i will maintain account book then audit will also applicable to verify all the entry.
As per above mentioned detail, Can I go direct e filling without audit and account book. I have no other income and have loss 3.5 lakh so can i fill direct ITR4 with carry forward option. I talked to one CA and his charge around 30,000 with audit and account book. I am already in loss and don’t want extra burden of auditing and account book maintenance.
Can I filling e-return directly. I there any problem.
Thanks,
Suneel Kumar
Can you go through this module: https://zerodha.com/varsity/module/markets-and-taxation/, have explained in detail.
Dont try to do job of an CA unless you can well manage it. Dont talk with people who charges 30k for individual tax audit. Higher charges are meant for corporate sector only. Usually it should charge from 5k to 10k on an average. check with taxmanager.in
‘Good thing in audit is they will add all your expenses and create less burden as it can be set off for next 4 years.
Hello Nitin Ji,
I am regular trader since august 2016. I am generally trading in F&O Segment. I am almost 70% aware about return filling but i have some points, please clarify;
1) My F&O turnover is apprx 10 lakh for 2016-17. Turnover sheet received from my broker. My total loss is 3.5 lakh and i have no extra income. Now please clarify, audit is required in my case because as per rule, if profit is less than 8% then audit is required. As per my turnover, my profit is below 8%.
2) Some friends told me that IT department will send notice incase of return filling without audit because they told me IT dept has software which detect automatically profit or loss below 8% of turnover and then generate alert. On that basis, IT will send notice without checking it manually.
3) Please tell me approx charges of audit. Individual trader account is not like any company account so what will be the reasonable charges for audit.
Thanks in advance.
Regards,
Sunil Kumar
1. Since your total income is not taxable and turnover less than 1crore, not required.
2. Notices are sent when trading as a business is not declared on ITR.
3. I think varies between Rs 5000 to Rs 20000.
Check this: https://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin ji,
I have discussed to one of CA regarding Audit incase of loss in F&O. He has informed that in 2016, IT dept sent notice to everyone who has profit below 8% of turnover. He has given example of one client..
Client profit was 20,000 and turnover was 6lakh and no other income . Every time IT Dept rejected return and at last, they filled return with 8% profit and after that it has accepted the same. Please explain your view because i am submitting my final return.
My F&O Loss is -3.5 lakh against 8lakh turnover and i am not going for audit beacuse i have no tax laibilty.
My intraday loss is -8100 in equity. will equity turnover add in F&O turnover. Intraday turnover is applicable or not.
Thanks,
Sunil
Sunil, I haven’t come across any case where a notice was sent if client hadn’t done audit if there was no taxable income (provided turnover didn’t exceed 1crore). Yes you need to add both intraday and F&O turnover are considered as business. So you need to consider intraday as well. But best to go with what your CA says. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
Hi,
I am trading in commodity and currency market from May 2016 to till date and have made a loss of Rs.1,07,392, the turnover is Rs.1,14,472. I have no other additional income. Do I have to declare it to the tax department? If so,
1. Which ITR form I have to fill?
2. Do I need an audit? or consult a CA professional?
3.Can I just fill the form on the income tax website or is there any other procedure I have left out?
4.Will there be any problem if I don’t declare the losses to IT department?I am least bothered about the advantage that I can carry forward the loss for 8 years. If I won’t face any problem, then I can just skip declaring the losses to IT dept.
1. ITR3 from this year.
2. Not required
3. Yes you can, but since ITR3 is a little complex, best to use help of a CA
4. If you don’t declare, there is a chance of getting notice asking why you didn’t declare. IT dept won’t get to know if you have made profits or losses, you will have to then go explain. To avoid this, best to declare yourself.
Hi,
In the FY 2016-2017, I did some intraday transactions not realising that these could be potentially considered as business income. I made a small profit too of around Rs.14,000. Most of my portfolio is as an investor and was mostly loss since I was a learning period from me. Now does this mean that I must file ITR3 even though I do not do any business or can I show this small intraday profit elsewhere and not under income from profits and gains from business or profession? I am worried here that lack of knowledge on tax treatment of intraday profits may have landed me in soup as firstly I may be required to file a return meant for business and secondly, in future, it may be considered that I have kind of declared myself as trader when that is not the case.
One more query in addition to my earlier one. If I need to file ITR3 only for intraday profits with non-intraday transactions being noted from an investment perspective, does that mean that for future years also, I have to use ITR3 and treated as trader even though that was never my intention to be a trader and also if I do not do any intraday or commodities or futures? My main work is farming and interests from fixed deposits. I have recently retired from employment.
In future you can switch back to ITR2.
Thanks Nitin. Unsure if you saw the main query too. Could you share your comments please vis-a-vis “Now does this mean that I must file ITR3 even though I do not do any business or can I show this small intraday profit elsewhere and not under income from profits and gains from business or profession?” Or can it be added under Short Term Capital Gains itself wherein the total loss already declared comes down by Rs.14000? Further, I noticed that even ITR2 has a section for “Profits and gains from business or profession”. When is this to be used for and can it not be used for declaring intra-day profits through ITR2 itself? Sorry for so many questions. Really, the government has to stop this torture of the middle class who are dabbling in equities and are suffering from such ambiguity and insensitive provisions of the Income Tax Law. I understand that sometime back, there was a petition from Zerodha to the Government. Perhaps you should re-open the petition. In any case, I am drafting a letter and propose to send it to the Honourable PM.
hmm.. ideally you should use ITR3 and show intraday as speculative business. But I know people who would show it as STCG on ITR2. Best to speak to a CA. In ITR2, schedule BP is only for a person who is a partner in a firm and receives remuneration/interest.
Thank you Nitin both for the knowledge and patience. I know you are a busy man. Despite that taking time for us is simply extraordinary! The CAs here are themselves confused but will try and see how best to proceed. Thanks once again. Do let me know in case you restart the petition. I would love to contribute to that.
Hello Sir,
I am new to the world of stock market and have a doubt. I am a student and as of now I am not earning any income from any source whatsoever. I have started trading and have bought shares of less than Rs. 2000 as of now. I just wanted to know that is there any tax liability on me as an individual investor since my income is less than Rs.2.5 lakh as of now?
And if no, am I even required to file an ITR as of now and what will be the income level when I have to start filing an ITR?
There is no tax liability if your income is less than 2.5lks. It is good practice to file ITR even if you have income less than 2.5lks.
I don’t want more explanation.
They are asking for”Statement of trading account/ demat account in case of shares”
From do I have to download this document
Statement of trading account is your ledger, login to q.zerodha.com for this. Demat account, send a request to [email protected]
Can you please help me with taxation procedures.
I am trading only in equities. How to file ITR. What are the documents that I have submit for this.
Actually I have contacted tradetax for this procedure. But no response from their side. Please help me with the details.
No one line answer to this, check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hi, Nitin sir,
I am a housewife (Age- 36) .I do shares trading through zerodha. The report in zerodha’s online tax portal , it shows in FY 2016-17, I have to pay tax of INR 4072 ( Equity = 1052 and F&O= 3020) .I am doing this trading through my Bank of Maharashtra account ( I am a sole account holder) . As i am a housewife, i have no income. My Husband is depositing money in this Bank account.
Please guide me whether i am liable for tax and how to pay the tax ? and file the return ?
Please reply.
You have to pay tax only if your profit for the year is more than 2.5lks. Even if you don’t have tax to file, best to file your ITR. Check this module.
I am salaried person and I made loss in previous 2-3 years but did not show that loss during the filing of income tax.
Only thing, I can think of is, I am loosing that carry forward loss benefit if I didn’t show.
Will there be any problem ?
Also can I go back and update previous file return to show losses ??
If you file the losses after the last date, you lose the benefit of setting it off against profits in the future. The only possible issue is, you could get a notice asking why you didn’t declare trading losses. Which you can explain.
Dear sir,
I am a investor since 2012 and made some profit though i have not booked . i open zerodha account and start F&O in jan 2017 in starting period i made some profit and my daily turn over crosses 60 laks as i do MIS some time it crosses 1 crore too. but now because of some wrong trade i am in net loss of 1.3 lakhs and i received a message of TDS Deducted approx 68 k . i want to know can this TDS be claimed back as i have not made net profit , or some other taxes i need to pay as if it comes to turn over it would me much more because of F&O MIS trading ,if yes then how to do this through ITR
Who have you received the message from? Brokers don’t deduct TDS. Do you have another business for which you receive payments against which TDS may have been deducted? Trading Income has to be self declared; nobody would deduct TDS for it.
Can gateway fees that I pay for NPS (National Pension Scheme) Tier 2 be deductible from short term capital gains on debt funds.
Yes, they can be taken under STCG deductions on debt funds.
Are any of the charges that I pay to Zerodha (1) Cash Transfer (2) COIN account fees (3) Annual Demat charges (4) Zerodha Account Opening Fees deductible from Short Term Gains that I make from equity funds, or from my taxable salary income.
Hi Yogender,
Any amount you pay to acquire or sell can be considered under the STCG deductions.
You can refer here
Thanks Akshay, please specifically clarify for all the 4 kind of charges that I have mentioned that I pay to Zerodha. Which of these can be claimed as deductions.
Sir , I want to file IT returns with your expert , well in advance , don’t want to wait up to july , as I am a state govt employee, kindly do the needful immediately
Dear Sir,
I need a clarification on the compliance required by IT department regarding derivative trading.
I do not “write” (sell) options, but have bought and squared my options positions.
The query is as under:
“STT-04 Sale of option in securities(derivative) in a recognized stock exchange.
STT-05 Sale of futures (derivative) in a recognized stock exchange.”
Does the word “Sale” in this query refers to “Writing of option” or “Squaring of option that I hold(before expiry)”.
Regards,
Thirumal
I am trading in F&O, Commodities & Delivery segment. Can turnover of delivery is also club with F&O or I have to show separately short term profit from delivery & tax @ 15%.
In preparation of trading account what should be shown as turnover of purchase. I have loss of Rs.500000/- in FY 2016-17 & turnover is Rs.900000/- (Profit 200000/- & Loss 700000/-), so we have to show sale is 900000, purchase is 1400000/- & loss is 500000/-.
Opening stock 0 Sale 900000
Purchase 1400000 Gross Loss 500000
Like this we have to show in trading accounts. Please suggest.
Delivery can be shown as capital gains, so no need to calculate turnover. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
Can you go through this http://zerodha.com/varsity/module/markets-and-taxation/, have explained in detail.
Thanks for your reply.
I read the Markets & Taxation but how to prepare trading account is not mentioned in that. Now I well know how to calculate sale turnover but what should be the purchase turnover. For preparing trading account we should have opening stock, purchase value, sale value & closing stock & then we have calculate whether there is gross loss or gross profit. Please solve my query.
Show all buys as receipts and sells as purchases on ITR.
Sir,
If I have sold the stock in F & O first in FY 2016-17 and purchased it later in the FY 2017-18. So will the sale price will be considered while calculating the Turnover for the Future and Options
You can MTM your positions to March 31st closing price to calculate profitability for FY 16/17. Use this as starting price for FY 17/18
Dear Sir,
I regularly indulge in F&O Trading. I have incurred huge losses for fin year 2016-2017 and I intend the carry forward this loss in my Income Tax Return.
My turnover (sum of profits & losses on each transaction) for the fin year 2016-2017 is Rs 1.5 crs & loss is Rs 35 lacs.
I want your views whether as per Income Tax rules, I need to get TAX AUDIT done for the above.
I need your expert views to double check on this Income tax provision.
rgds,
Santosh Iyer
Dear Nitin,
I am a PSU employee & details of profit/loss incurred by me in FY16-17 is as follows:
Intraday profit: 80,000 Intraday turnover: 1,60,000
Short term loss:4,00,000 Short term turnover: 2,00,00,000
F&O profit: 6,00,000 F&O turnover: 8,00,000
a) Can I declare myself only an investor(not a trader) in this case? If yes, then how shall the tax be calculated?
b) Can I declare myself an investor for short term loss and trader in F&O segment?
c) If I declare all the three profits/loss under business income, do I have to pay 30% taxes(income>10L)
over 80,000-4,00,000+6,00,000 i.e. 2,80,000
d) If I declare myself as a trader/investor this year, is it possible to switch the stance to investor/trader in the later years?
Regards
Hello Nitin,
I am zerodha client and trading regularly in F&O and Equity
FOR FY16-17, as per Q
For F&O
My gross profit is: -5lacs(approx)
Turnover: 12lacs(approx)
For Equity
My gross Profit: -9k
turnover: 17k
i am confused, how do i calculate whether i need tax audit or not, since my gross profit is negative.
ALSO SPECIAL REQUEST TO YOU, CAN YOU PLEASE MENTION IN ZERODHA GENERATED TAX REPORT THAT WHETHER ANY CLIENT NEED TAX AUDIT OR NOT(BY CALCULATING TURNOVER AND ALL), THIS WOULD BE VERY BENEFICIAL FOR ALL OF YOUR CLIENTS.
Sir,
status-Business income
Realised & Unrealised profits were to show in trading account or P&L .
Turnover of fno & options, intraday stocks & short term delivery trades where to show & How to show- in trading or P&L, How it will match with net figure of profit or loss ie. reconciliation of all statements as per Q.zerodha back office…..which will make things simple & self explanatory. please explain in detail with presentation.
Thanks for your detailed statements to clients ..its unique & perfect system….with great value to clients.
Hi Nitin,
first of all, i would like to thank you for your efforts to simplify the taxation process for common people. though i have lot of queries which i will post time and again. i have been trying to get the P&L statement for the past financial years on Q-back office but i am not able to get it. Need help on that.
Amar, we are doing some upgrades on Q, give us 3 to 4 days more. You should be able to retrieve all tax P&L
Hi Nithin,
My query is regarding taxation of long term capital gain on debt mutual funds. As I am student in the current financial year, I do not have any earning from salary. However I have earning from mutual funds. My doubt is that if my total short term plus long term capital gains is less than 2.5L , should I still have to pay 20% tax on my long term capital gain of debt funds? Should I still pay 15% tax on my short term capital gain of equity funds? Thanks.
No need to pay if your total income is less than 2.5lks
Hi,
I would like to know if short term and long term capital gain statements are readily available on Zerodha’s site. Also, for how may FYs these statements are available on site?
If statements are not available on few clicks, what all details will be available on Zerodha’s site and how easy it will be to calculate it and how much time will it consume?
Thanks
It is available, go to Q.zerodha.com and click on tax P&L.
Hi Nithin,
I have some confusion about the term “TURNOVER”
I am posting my F&O trades on 31.03.17
(i) Bought 3 lots APRIL AMBUJACEM (Lot size 2500) @ 236 and sold @ 237
Buy value = 7500 x 236 = 1770000, Sell value = 7500 x 237 = 1777500, Profit = 7500
(ii) Sold 2 lots APRIL BHARTIARTL (Lot size 1700) @ 344 and bought @ 345
Sell value = 3400 x 344 = 1169600, Buy value = 3400 x 345 = 1173000, Loss = 3400
My net profit for this day is : 7500-3400 = 4100
What will be my turnover for this day ?
Everyone has different take on it, but the most conservative of calculating, 7500 + 3400 = 10,900. You could also use your way of calculating, because that is the final credit/debit to the ledger.
Thanks Nithin for your time
I have a query. Analyzing from the client base of Zerodha, do traders (retails especially) really make any profit by trading in F&O. Roughly, how much percentage of people succeed….I have a feeling it might be less than 10%.
i am trading from north east nagaland please tell me my tax liablity
Hi Nithin,
I am a Zerodha client. Thanks a lot for your initiative
My salary and other interest income is Rs 5.3 lakhs (Rs 5,30,000) Deductions are HRA Rs 50000, 80C Rs 160000
From Zerodha Q:
EQUITY: (Short Term Gross Profit is) Rs 13,908 (Short Term Turnover is) Rs 165827 (Total Charges is) Rs 905
F&O: (Total Gross Loss) -6,725 (Total Turnover) Rs 4,34,256 (Total Charges is) Rs 6,313
I have made a loss of Rs 6725 in F&O and Profit of Rs 13908 in Equity Short-Term.
What is my turnover, should I take it only from F&O or add Equity Turnover to it….Is it Rs 434256 or Rs 600085 (434256 plus 165827)
I do not want to go for Audit (Does this make sense?) and would like to show 8% as profit and pay the damn tax….Now, let us say, the turnover is Rs 6 lakhs, the 8% comes to Rs 48000…The Expenses are STT other charges Rs 7218, Net Bill Rs 15600 (1300*12), Computer Depreciation Rs 5000, Total around Rs 28000. Now, this Rs 28000 gets deducted from Turnver Rs 6 lakhs, Rs 5.72 lakhs, and 8% of this is 45760, am I right here..
So Total Income 530000+45760=575760. Net Taxable after all 80c and standard deduction comes to Rs 115670, of which Tax liability is Rs 11567
ALSO PLEASE KINDLY ORGANIZE A SESSION WHERE TO FILL IN ALL THESE DETAILS LIKE TURNOVER, PROFIT, EXPENSES ETC. IN ITR-4
Thanks a lot
Show only F&O trading as business. Equity you can show as short term capital gain (@15% tax). Btw, we have taken a conservative approach to calculate turnover, you can be aggressive and reduce turnover even further. But you are right about the other bits. Check this calendar, we have a webinar on filing ITR on APril 6th https://zerodha.com/educate/
Thanks a lot Nithin for your time
Kindly clarify one doubt
I will pay 15% on my Equity Short Term and Show only F&O as Business Income
What would be my turnover 434256 or Rs 600085 (434256 plus 165827)
Thanks a Lot
4.34lks
Hello Nithin, have a query on RGESS. My demat account with zerodha is not RGESS compliant. But can i purchase some RGESS based MFs through my account to claim the deduction?
By deduction, I meant income tax rebate under 80CCG. Please clarify
Yes you can.
Hi Nithin,
You’ve mentioned:
“Long term capital loss from shares where STT is paid cannot be adjusted against any long or short term capital gain from any source.
An interesting thing to note is that if you do the same transaction without stock exchange( off the market transaction), i.e transfer of shares with demat slip, you can get your long term capital loss set off against long term capital gain of other asset.”
1. If i bought a listed stock from NSE and paid STT, transfer/sell it off-market after 1 year with a loss, can i set off this loss against long term capital gain of other listed shares (gain and loss are in the same FY) ?
2. Can i transfer/sell it to a family member (not as gift)?
3. Can you please share the process for above.
Thanks!!
1. Hmm.. long term capital gain has no tax to pay, so no point setting off.
2. Yes
3. You can ask for DIS slip from the broker, mention the dp ID of your family member, fill the stock details and submit it to the broker where you have demat.
Nithin, why do we follow the policy of FIFO for ST capital gain. Say for example I bought SBI on April 1 at Rs.250 ,100 quantity. And say on december I bought 10 more SBI and sold 10 on January. Ideally it should be negated with the last 10 SBI i bought na..Is RBI mandating like that? According to me, it shld happen in FILO. Can you please clarify.
It is always FIFO for taxation.
Hi,
I have a salary account wherein I earn else a lakh per anum. I have a some short term capital gains from delivery and Intraday markets.
Curious to know whether such capital gains are liable for tax at 15%, even though I don’t fall under normal tax slab and pay no taxes on any other income??
Upto 2.5lks you are exempt from any taxes. After that you have to pay 15%. So if you have 1lk income and 1.5lks in STCG, no need of taxes on STCG.
Further to question above, if let us say income is not within the basic income slab, then do we still incur tax @15% on intraday and short term equities? If so, then is it possible to use ITR2 rather than ITR3 since intraday was not meant as business and only 12k profit? Thanks.
No, taxes are applicable only when your income exceeds 2.5lks. So you get that benefit.
Hi Nithin,
I am salaried employee and my taxable salary income is 5 lakhs. I made a loss of 10,000 in options trading. The profit/loss is less than 8% of turnover. I have the following questions.
1. Which ITR form should I use to file returns?
2. How can I carry forward the loss?
3. Do I need of auditing?
Thanks,
Ramesh Nukala
1. ITR4
2. If you file on time, loss automatically gets forwarded
3. yes
Check this: http://zerodha.com/varsity/module/markets-and-taxation/
H Nithin,
Thanks for your information.
I heard that auditing fee is around Rs. 30K but loss is only Rs. 10k. Can I avoid showing loss in returns to skip auditing? What is the best solution?
Thanks,
Ramesh Nukala
If your turnover is less, you can show 8% of your turnover as profits – wouldn’t require an audit. If turnover 5lks, 8% of 5lks or 40k as profits, pay taxes at the tax slab. You can take an aggressive approach to calculate turnover.
Hi Nithin,
I have been trading from 2013 but filed ITR1 only for my salaried income as I was unaware of the tax procedure. Now is there a way in which I can revise the tax filed for assessment year FY14, FY15 and FY16. I am a client of Zerodha
FY 14-15 won’t be possible to revise. FY 15-16, if you have filed the returns within time, you can revise now. FY 16-17, you will have to file it this year anyways.
Hi Nitin,
This is really an excellent document.
I started trading in Zerodha Account exactly from 1st April 2016.
This is just to make sure whatever report is generated will be from single DMAT account and that will be from Zerodha only.
Now, In this fiscal year from the duration of 1st April 2016 – till date (24 Mar 2017), my total P&L statement comes out to be -ve 10.2 L in which 1.2 L loss is in Futures and 8.8 L Loss is in Options.
When I download the P&L report from Q Zerodha, It gives me total TURNOVER value as 1.14 Cr.
Total brokerage I have paid is : 39 K out of which 4.8 K goes in STT and 4.5 K goes in Service Tax.
Now, Overall I have made a loss of 10.2 Lks for this trading year, and my Turnover as per calculations is coming to be 1.14 Cr.
I understand this is a Contract Turnover and not the Settlement Turnover.
Overall P&L is coming out to be LOSS 10.2 Lks
1. Do I need to maintain Book of Accounts? – I think YES, because My contract turnover is above 1 Cr.
As far as I understand : this Turnover which is mentioned in Report : is Contract Turnover and is only for the sole purpose if you need to maintain book of accounts. Please correct me if i am wrong.
2. Can I carry forward this loss of 10.2 Lks for next upcoming 8 years ?
3. In the current year, can i deduct any other income like Rent I am receiving + Interest from FD’s ?? Lets say this amount is 3.5 L > Can i deduct 3.2 L from 10.2 Lks and carry forward the loss of ( 10.2 – 3.2 = 7 Lks) for next 8 yrs ?
4. If I can carry forward the loss of 7 Lks for next 8 years, And I make a profit of 7 Lks in next year : Can I consider my total P & L additional Income from F&O will be ZERO ?
Thanks
Devang
1 More Q Sir…
If I do not show any Loss of 10.2 Lks but calculate 8 % of 10.2 Lks as my Profit which comes out to be around 85 K, Add this as my extra income through Business and Sum it up with My Salary and whatever bracket it falls in, Can I simply pay the tax in that bracket without showcasing / carry forward any loss for next years >?
Thanks
Devang
You need to consider 8% of turnover and not loss. Since your turnover is 1.14 crores you will have to show almost 10lks as income. Doesn’t make sense.
1. Yes
2. yes
3. Yes, check this module http://zerodha.com/varsity/module/markets-and-taxation/
4. yes
Dear Sir,
One more question is that i also have some physical shares purchased with the broker.
In the broker statement, it is showing the value of my shares as per the market rate.
How shall i treat this in my books to tally with the brokers books?
Thank You.
You will have to do it based on your purchase value.
Dear Sir,
I deal in futures and options, mostly in options. I understand the provisions very well. There is one problem only that my trading account statement which i received from my broker is not matching with my books.
There are some entries in my broker statement like transfer to NSE/F&O or transfer from BSE/Cash which i am not able to understand and track.
Is there any other account statement which shall be asked from the broker?
Can you please tell how many accounts are maintained with the broker?
Can you please tell which account statements shall i ask from my broker?
Hoping for your early reply.
Thank You.
Harsh what you can do is, look at all funds transferred into the trading all funds withdrawn from trading, all stocks purchased, all P&L, any options premium that is currently open. This is enough to reconcile. You can ask for the ledger from broker to see all funds transferred in and out.
hi nitin,
My turnover ==4 lakhs ( f&o,STCG,intraday equity) full time trader no salary
combined losses=== 80 ,000 rs
Do I require audit to carry forward losses
Hmm.. yeah.. Another way is since turnover is so less you can declare a profit of say 8% of your turnover which is 32k. Since 32k is within the IT slab ,u have no tax to pay and you can avoid audit. But by doing this you will not be able to carry forward the loss. Check the taxation module here: http://zerodha.com/varsity/
There is no requirement of audit as the turnover is only Rs.4 Lakhs but you will need to maintain books of accounts for the purpose of carry forward of loss.
If I have a separate partnership firm dealing with other business but not very active can I combine my share income using ITR3
If you have F&O income you have to use ITR4, otherwise yeah other activity can be shown on ITR3
In Q back office, short term turnover shown is on the sell side. For tax audit purposes, is this turnover relevant? As I have read above section thoroughly, I can see for tax purposes, turnover is the sum of settlement of profit and loss. In Q back office, where can I get to know that?
Download tax P&L, you can see tradewise turnover report. But that said do read this: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/
8 th march 17 live session on youtube on taxation i heard ,
It was quite informative Mr kamath
My small querry is
should profits or losses made while trading commodities and cds futures contracts be clubbed together with equity Non speculative businesses income
Yes Omkar
Hi Nitin,
Though I have Zerodha account since 2014, I have got realized profits in this year :).. so need your advice.
I am a salaried person, I checked Kite->Reports-Tax P&L and it shows
Realised short term profit= X Rs.
Intraday profit = Y Rs.
Didn’t get any details on charges cut (so that I can deduct from above) but say they are Z Rs.
I am write, Total amount (X + Y – Z) = A Rs. is what I have to add as my taxable income and deduct as per individual slabs. Am I missing something ?
Thanks in advance.
Seems about right. Can you check the taxation module here.
One more Q. If we have loss of 5 lakhs in last year and we paid STT n brokarage around 1lakh, then next year we gain 10 lakh and we paid STT n braogarage around 1.5 lakh.
a) First year we need not to pay any tax is it right?
b) Second year shall we able to deduct first years STT and second year STT as expenses or only able to deduct second year STT?
Thanks
a. Yes
b. First year your net loss is 6lks, you can carry it forward to next year. Next year you can setoff 8.5lks profit (10-1.5) with 6lks carried forward loss.
Thnks for clarifying me.
Sir in trading income shall we deduct STT n Brokerage charge along with internet bill, computer depreciation etc
Yes
hello sir,
i have a doubt that my income is less than 2lacs and no other incomes. i am trader and i buy some stock as cnc and sold it before one year many times and have 30000 profit , and also i have done intraday trading and profits of 20000 , so my question is that if i am not coming in the income tax slab why i give stcg tax 15% of 30000 and why i have to file tax return file.is the STCG tax is different from income tax and bound to pay or not , if yes then how i will pay the tax. my turn over is less than i crore.
If you don’t come under income tax slab, you don’t have to pay 15% tax. You have no liability. But since you have traded, it is best to file your ITR.
Hello ,
I trade actively intra day equity,f&o,long term,short term turnover less than 1 cr no salary income
Can i use ITR-4S
If income less than 2.5 l +profit less than 8% do I need audit
thanks
chetan
If you have intraday equity income, you can’t use 4S, you will have to use ITR4. Yes audit required if profit less than 8% of turnover.
Thank you very much sir for your guidance
As i have not filed tax yet is it possible that i can file old taxes( back three years)
Joe
You can currently file IT returns only 2014/15 and 2015/16.
JOE
February 8, 2017 at 9:47 am
HELLO SIR GREETINGS
I was abroad for last three years and now i come back to india before going to abroad i used to trade intraday and delivery also, my problem is
1, while during the stay in abroad i had traded in both intraday and delivery without changing the status to NRE in my normal trading account. will it create any problem while filing IT return as
Thanking you for your earlier advices thank you
joe
Shouldn’t be a big deal as long as you don’t evade taxes. Make sure to show your trading income on your ITR, do consult a CA for this.
Hello Nithin,
A big thanks to you and your team @ Zerodha for this initiative.
My income sources are –
i) Interest income from Fixed Deposit (FD) & Recurring Deposits (RD)
ii) Short Term Capital Gain (STCG) from Equity (Not intraday). I buy equity stocks through Zerodha after paying STT etc. and keep it for days or months but less than 1 year and sell it after making some desired profits
iii) Long Term Capital Gain (LTCG) from the stocks purchases through Zerodha after paying STT etc. and keeping for more than 1 Year (365 days)
I would like your kind help to know the following; in case of my income from all the three sources mentioned above goes beyond 2.5 Lakhs –
a) How the taxation will work for me for the gains from all the three sources?
b) Can I declare myself as Investor as I am not doing any Intraday, F&O, BTST etc?
c) Which ITR form to be used?
Thanks,
Bhushan
a. Interest income and capital gains.
b. Yes
c. ITR2
Thanks Nithin! Follow up up question/clarification –
a) If my STCG and Intresest income remains below 2.5 lakhs and in addition I make profits as LTCG in equity my income tax will still remain zero as LTGC is not taxed?
B) LTGC is not taxable for any tax slab and not get aggregated with other source of income? Let’s assume someone’s salaried income is 20 Lakhs and he makes 5 lakhs profit via LTCG in equities, will he be taxed for only 20 lakhs or 25 lakhs?
a. yep
b. only 20lks
Thanks a lot Nithin!!
Dear Nithin,
I have great experience while doing trading on zerodha, you and your team have made really a wonderful thing.
Although I am in loss this year, and I learned a lot also from which I will definitely cover my loss in next financial year
Sir, some things I want to get clear :
1. I am having account with zerodha on my mom name. And I am transferring money to my mom saving account and then to zerodha. As money is transferred from my account on which I am already paying taxes as this income is from my service income…so is this right way??? is anything wrong in doing trading on my mom account?
2. I am having Intraday loss of 4lk and Short term loss of 1lk. And brokerage charges are 1lk. Does in next financial year, Short term gainif any (lets assume 4lk) can be net off against this intraday loss of current year??
3. Sir, can I get support on my zerodha account through customer care on these above details ….taxation support??? what losses can set off against??
1. Gift to mother is not taxable.
2. Short term equity trading can be shown as either capital gains or non-speculative business income. Intraday equity trading is considered speculative business. Non speculative losses can be setoff against speculative gains, but not vice versa. Yes you can carry forward the losses, but only non-spec losses be setoff against spec gains.
3. Hmmm. unfortunately we don’t have qualified support for this. I’d suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. You can try speaking to taxiq.in or cleartax.com and refer that you are a Zerodha client.
Thankyou very much dear Nithin sir, if i transefer the money does any tax liability on principal amount or only on interest
Tax is always only on income/gain.
Dear Nithin sir,
kindly modifies one thing in tax pl section. pls show dates in short term and long term gain cases and pls also bifurcate charges into short term and intraday trades as we have to show dates of transaction in itr and also have to take deduction of charges separately.
Hi
Thank you Team for valuable advices given here. I was in Dubai for three years and now i have returned to india permanatly i have a NRI acount what shoul i do now and what will be my tax liablity now if i transfer amount to normal SB account
Joe, you can open a normal resident account, but you will have to first open a SB account. If it is your own money, there is no tax liability to transfer form one bank to another bank.
Dear Nitin,
pls provide date also in short term and long term gain trades in your tax pl report as we required to fill purchase and sell date in income tax return form. and pls also bifercate charges in intraday and short term trades as we have facing difficulty to deduct from profits.
hmm.. dates on P&L is not really possible right? What if you have bought same stock multiple times on different dates? We show the short term and long term gains separately. You can download the tradebook for dates.
Hi,
In ITR 4s form in NOB BP (Nature of Business) section, there is no option to mention Trader in stock market. What do i choose in the drop down or do i have to enter details somewhere else.
Regards.
Trading Others 0207
Hi Nithin,
There’s no option Trading Others 0207, it stops at 204. Then theres’s 801 – Banking Companies, 802- chit funds etc etc 808 -share brokers and sub brokers 809 – others. Do we use 809 ?
Regards.
Ah my bad 0204-Trading-Others
Thank you Sir, Kamath
Dear Sir,
Good Day and wish you a happy new year..
I am an NRE and I am doing trading in Equity and FNO through my wife’s resident account.I have started to do this around 5-6 years back and till the time did not make any single profits on my trading life and I did not make any tax returns files aswell..Earlier I had used to do with some other broker and around year back moved to zerodha.Normally I am transferring some funds from my NRE account to my wife resident account from there transferring to trading account with Zerodha.On a yearly basis around 8-10 lakh transferred to her normal account and from there transferred to my trading account with Zerodha and doing the trades in intraday/FNO and whatever.Till the time there is not any profits I make and hence I did not make any tax returns..Also recently I have got some memo for non filing the taxes aswell.Would like to know how to proceed further?Also now my worry is that is there any issues/difficulties for the amount which I have transferred to her normal account from my NRE accounts to do the trade?Is this amount taxable or how can I mention the sources of this fund?Also would like to know any issues for doing trading/investment using this same method in future, that is using my wife’s resident status account and the resident account with zerodha?Is there any limitations and mistakes that I am making?
Also help me out to do the tax return and which all years return can I submit now?Overall I am in a big loss of my last five years trading life roughly can say around 20 lakh plus loss in last five years trading life..Now would like to know the details on this-I know its quite big story and questions though really would like to get the clarifications on this and waiting for the same..Any more details if i missed out to provide me a solution,pls let me know…
Hi,
It’s best you consult a Chartered Accountant who will help you determine your turnover and help you file belated returns. The Source of funds could be ‘Gift from Husband’. You’ll have to draft a suitable reply to the notice you’ve received, giving appropriate reasons for not filing returns. Since you’re stating that you’ve made losses, you could state that since your Income was below taxable limits, you haven’t filed, but again that’ll have to be validated by a CA after considering turnovers. You can file returns for 14-15 and 15-16 before March 31st, but you won’t be able to carry forward losses of those years.
Thanks Mr.Venu.
Is there any limit for giving amount or transferring amount to spouse account?And I hope need to pay tax if i generate any income/profit from the gifted amount and no need to pay tax for gifted amount. Clarify pls.
Thanks.
No limits on gifts. Of course tax has to be paid if income generated from the gift.
Thank You Mr.Kamath.
Saab, what are the documents need to be submitted to the CA for ITR filing. How to get zerodha PL statement or whatever statements required for filing?Could you pls help me out to get info on the documenta need to be submitted and aling with where and how I can obtain the same. Thanks in afvance..
Go to Q and pull out the tax P&L statement, the ledger copy. That’s all your CA would need.
I am NRI and my trading under NRE PIS. if my income is less then 2.5 lakh for stcg Can I get refund of STCG deducted at source if i file the return
Thanks
Sir i have a query. E.g. i bought 10 Shares of Reliance @ 100 and 5 sold 5 shares @ 120 and remaining 5 shares put on Normal i.e. 5 days grated by Stock Broker also known as BTST/STBT and sold remaining 5 shares after 4 days @ 130 (Brokerage is different on intraday & BTST Call) and i got a Contract Note in which all the charges are charged by the broker. So i want to ask the accouting treatment of above querry. Whether BTST will be considered as Intraday Trading or Delivery Based Trading?
5.6 – BTST (ATST) – Is it speculative, non-speculative, or STCG?
BTST (Buy today Sell tomorrow) or ATST (Acquire today sell tomorrow) is quite popular among equity traders. It is called BTST when you buy today and sell tomorrow without taking delivery of the stock.
Since you are not taking delivery, should it be considered as speculative similar to intraday equity trading?
There are both schools of thought, one which considers it to be speculative because no delivery was taken. However I come from the second school, which is to consider it as non-speculative/STCG as the exchange itself charges the security transaction tax (STT) for BTST trades similar to regular delivery based trades. A factor to consider is if such BTST trades are done just a few times in the year show it as STCG, but if done frequently it is best to show it as speculative business income.
From: http://zerodha.com/varsity/chapter/taxation-for-traders/
Dear Sir,
What if I am not a salaried person and do only trading in F&O and make some profits either buying or selling on the same day or buying / selling today and selling / buying the same next day or two days later or may be three days later.
What taxes will I have to pay on my profits. Would it be STCG of 15% on gains or would it be according to my income tax slab and I will have to pay accordingly.
Thank You
Please note that I am trading through stock exchange platform and STT is deducted.
Trading in F&O is considered business income. You’ll have to pay taxes according to your Income tax slab.
Thanks.
Hello,
If intraday equity trading is considered to be speculative,
What about intraday F&O Trading?
Intraday F&O can be considered as non-speculative business income since there is no concept called intraday once u take a position in F&O.
Hi Nitin,
Please clarify my following query.
My total turnover for financial year 2015-16 is 16 lakh and my loss is around 3.5 lakh. I missed the September-30 deadline and now it is already too late to declare in ITR-4.I don’t want to do an audit now since i cannot carry forward the loss and also to be frank it is very painful to pay around 10k for audit when i have not made a penny profit
1.What will be the max punishment/penalty for not declaring my trading loss in ITR4 but only declaring my salary in ITR1.What usually happens in practice.Is there any possibility of me going to jail?
2.Will my accounts be under close scrutiny if Income tax radar falls once on my PAN number
Thanks in advance
Hey Guru,
1. There is no jail and all u have to worry about. 🙂 You haven’t evaded paying taxes, so nothing bad can happen. If in case your file gets called for scrutiny, you will have to visit the ITO and tell him why you didn’t file ITR4. Probably tell him since you had losses and no taxes to pay, hence you decided against. But you can still file delayed returns, you will not get benefit of carry forwarding the loss.
2. No, nothing like that.
Sir,
I am an Employee in police dept. of state govt. I want invest & short term trading in equity market.
can i do this because i am a govt. employee ? and if I can do this …..so which ITR is applicable for me?
Thanks
If you are buying and selling stocks, you need to use ITR2. Investing in stocks shouldn’t be an issue if you are in police. Do confirm once with your department.
ITR FILE KERNA HAI OR MUJHE JANKARI CHIYE KI TRADING SE related JO BHI EXP HOGA VO PROFIT ME ( – ) KIYA JA SEKTA HAY OR LOSS HO TO CAPITAL LOSS ME DIKHA SEKTE HAY OR TRADING SE RELATED JITA BHI EXP HOGA VO SAB CAPITAL LOSS MANA JYEGA YA NAHI FOR LIKE DP CHARGE , DELAYEDPAYMENT, INTREST ,ACCOUNT OPININ CHARGE ETC
PLEASE HELP ME PLEASE QUICKLY
OR AAPLA 60 DAY CHALANGE MAY JO BROKERAGE REFUND NILTA HAY USPER HI TAX DENA HAY OR NAHI PLEASE HELP ME
DP3640
Can you check this module: http://zerodha.com/varsity/module/markets-and-taxation/. Yes all expenses can be reduced from gross profit, and if loss it can be added to the loss and carried forward.
Hello,
I have 2 questions: I usually do the BTST or Intraday
1. If my turnover is for the financial year is more than 1CR and my profit is around 1LKS, can I need to do audit with CA? and how much tax I need to pay?
2. If my turnover is for the financial year is less then 1CR and my profit is around 70,000 can i need to do audit with CA? and how much tax I need to pay?
If you are showing as capital gains no audit, if as business income, yeah audit applicable if turnover more than Rs 2 crores (from this year).
Short term capital gain is 15% flat, if showing as business income according to the tax slab you fall in. Taxes is only on profits. CA audit fees could start from 6500 onwards. Suggest you to read the taxation module here: http://zerodha.com/varsity/
Sir,
I trade in share market with my Pocket Savings. If My Short term Capital Gain from share trading is 50000 Rs. and no other income…..so pls suggest that Tax slab is applicable for mine….because my Short term Capital Gain amount is lower from Tax Exemption Slab..which is 2,50,000 rs.
Pls suggest . thanks for advance….
Veer, there will be no tax applicable since total income is below Rs 2.5lks.
I have booked 89000 losses in share market last year (FY-15-16) and now stop doing trading in shares. Is it required show in file return? My salary income is 198000/yr and side buss. Income is 35000/ye. I am also paying around 51000/yr in LIC.
Chintan, you are under minimum tax slab, so not mandatory for you to file income tax returns. But it is advisable that you show these losses when filing your ITR. There are two benefits, you can carry forward the losses and set it off against future profits. Also the chances of IT scrutiny is much much lesser if you declare your trading activity.
Thank you so much for your reply. But I am confused about my turnover. How to calculate it, I don’t know? And till date I have not file income tax return for FY15-16 as my company has not given to us form-16. If my turnover was more them 1Cr. then what will happen?
Chintan, suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. Has all your answers.
Dear sir thank you so much for your reply.
Hi Team,
Thanks for providing such a nice article on Tax.
Based on the above article, I have one query with regards to total gross Income. Just want to confirm that it should be less than 2.5lac or 2lac (Trading + Salary or other business)
“Also note that if your total gross total income (trading + Salary or other business) is lesser than Rs 2lks, you don’t need an audit even if your profit is less than 8% of your turnover or if turnover for the year is > ₹1 crore”
2.5lks (it was 2lks when i wrote the article). and turnover limit has been increased to 2 crores from this year. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
Thanks for your quick reply.
This is truly appreciated…
Dear Nitin,
I look forward for your reply on two things :-
1. I have got my demat and trading account with zerodha for 3 months now. I have transferred shares into my zerodha account through off market transaction. The buying price for the discrepant stocks have been entered wrongly, and the Q back office doesnt give a provision to correct it. I got response from zerodha support that nothing can be done until a software change is rolled out. There are no timelines on this. Its a pain in the neck, my PnL looks completely screwed up.
2. When can we expect buy back orders to be submitted online ? I was told that we need to fill up the tender forms, scan and send to your team. This manual process adds to our woes, and your operational costs. Any timelines for 100% automation for buy backs ?
1. Krishna, none of the brokers typically give this feature. We have, the issue is that holding value etc is calculated based on what is entered the first time and cached. Going back in time to correct it would mean, us having to calculate the holdings file for all the days. It is extremely painful, atleast in the current setup. By december we are launching our all reporting tool, we have accomodate an option for people to change this on the fly.
2. We should have this with the new reporting tool
Thanks a lot, Nithin. I will eargerly look forward a correction mechanism, in december 2016.
Appreciate you for replying me.
Hi Zerodha,
I am new to stock market ,I have one doubt .
I am an NRI ,if my short term (less than 1 year) trading income is less than 2.5 lakhs ,do i need to pay
any income tax ?
Thank you
NRI’s don’t get the exemption limit. So yes, you will have to pay tax at 15% flat for your short term income.
Dear Nitin,
As I am planing to have another D-mat cum trading account with your company, just a few simple queries.
1. I already have one with Axisdirect which 3-in-one Account connected to my savings Bank account . Do I have to close that D mat account.
2. Account that I am going to open with you, can that be connected to my existing Standard Chartered Bank Savings Account which is my Salary account.
Regards,
Shyamal
1. Not required, you can open multiple demat
2. Yep it can
Dear Nitin,
I have made a purchase of Aban Offshore Limited(E-Margin Product) of 225 @ Rs.285/Share by utilizing Rs.19238.18 from my account on 25.10.2016 and Trade Bill Shows the following.
Purchase -64127.25
Sale 0.00
Brokerage -160.33
Security Transaction Tax -64.00
Sebi Turnover Tax -0.14
Turnover Tax -2.09
Service Tax (Including education cess) -24.05
Stamp Duty -11.56
Other Charges -0.31
Amount Payable -64389.73
My query is:
If I had the account with your Company Zerodha, how would the Bill Look like ?
Please correct me if I am wrong: In your case the Brokerage of Rs. 160.33( 0.25% of Rs.64127.25) would be ZERO.
Regards,
Shyamal
Yep, brokerage would be 0, everything else will remain the same. You can check this: https://zerodha.com/brokerage-calculator
Dear Nitin,
I have a 3-in one Account ( Savings-D-Mat-Trading) with Axisdirect. As I am an active trader both in Equity and F&O my total traded value in 2016-17 is going to be around 70 to 90 Lac. D-mat account which was given to me at the time of opening the account, I was told (NOW) that has Trading limit of only Rs.12.50 Lac with a validity period of 7 Years.
Bank sales official is insisting that I should not trade any more in this account as further trading could lead to some undesired implications from SEBI and he is insisting that I should open another account ( Premium Package costing around Rs.1.45 Lac) in my wife’s name and trade. This account will have the facility of No validity time period and unlimited trading value.
My question are:
1. Is he misleading me and becoming a smart Sales Man to sale his Premium Package ?
2. What kind undesired implications from SEBI he was talking about ?
3. What kind of D-Mat Account should one have to carry out high value trading ? My trading value in 2017-18, I estimate to be around 1.5 to 2.00 Crore. With the existing account can I trade this kind of value transactions.
Regards,
Shyamal.
1. Yep, he is absolutely misleading you. You should probably complain about him to his superiors.
2. Nothing as such. You are free to trade as much as you want.
3. There is no limit on trading that SEBI or any other regulator has set.
You should probably just open an account with us: https://zerodha.com/. We charge zero brokerage on investments and Rs 20/trade on F&O. You will save a lot of money.
Hi Nitin,
Need your assistance on the below :
I have salary income and profits in F&O positional trades for the financial year FY16-FY17. From the above chain of questions & replies, I understand I have to file ITR4.
When I spoke to a Chartered Accountant, he advised me to file ITR2 as I have salary income and to show the F&O profits as speculative income under the heading Income from Other Sources. He further states that If I had no salary income only then it would be justified to file ITR4 and show F&O positional profits as Business Income
Question – Could you please share a link to any CBDT circular or Income Tax Directive stating that it is ITR4 that I need to file as I have F&0 profits in positional trades besides Salary income so that I can show proof to my C.A.
Neil, can you go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. Everything explained in detail. What your CA is saying is wrong. Check this livemint article.
Dear Sir,
Me & my 5 friends are going to start a share trading business , all 6 members are ready to invest equal amount , Is their any possibility to open a company or can we do business through partnership firm , how can we do accounting process , is this is legal or not
can u please guide me
Regards
Mahesh
Mahesh, you all can start a partnership or pvt ltd to run a business. As a business you can also trade stocks, but you can’t without license go out and raise funds for trading. Accounting process and all is just like a normal business.
You guys have a great system which makes tax reporting hassle-free. However, there is one flaw/short fall in the current system. Shares acquired through an IPO and the subsequent short-term profit/loss made from the sale is not getting captured in the system. If you could get your system to use the IPO issue price as the ‘purchase price’ of the stocks allotted in an IPO , then I feel this problem could be solved easily.
Roy, all shares credited through IPO shows up as discrepant quantity on your holdings page on Q. You can manually enter the IPO price and this issue will get sorted on its own.
Hi Nitin,
If shares allotted by IPO are already sold without manually entered the issue price then Do we have any option to add it into P/L Report?
Please let us know, it will be really helpful.
Hi,
Already entered discrepant quantity on your holdings page on Q for few IPO but it none of them reflect in P&L.
Dear Sir,
I am salaried individual and trader. I mostly trade in commodity and my salary is less than Rs.2.5lks p.a. I also have I.T. exemption certificate u/s 10(26). My question is if my annual turnover is < 1 crore and profit is Rs.5 lks.
1) Do I need to pay taxes?
2) Do I need to file ITR? (If yes, which ITR form is best suit for me?)
2) Do I need to get audited from CA?
Thanks
1. yes, you have to pay taxes for income over 2.5lks
2. Check this http://zerodha.com/varsity/module/markets-and-taxation/
3. Check the above link.
But sir I have I.T. exemption certificate u/s 10(26) which states that as long as I reside in the specified area my income is exempted from income-tax u/s 10(26).
Check this link http://www.rishabhdara.com/sc/view.php?case=6260. It is best to talk with a local CA, I don’t know if any kind of income is exempted.
Hi Sir,
Our Employer (bank) started mandatory deduction from my salary towards NPS subscription, from 01.04.2012, and made an equal contribution towards the same. Entire amount was being deposited in a separate account of our organization (bank) since then. However, I got my NPS account opened in April 2015. Entire corpus of funds was transferred to this NPS account in April / may 2015. Since our employer issues Form 16 for previous FY by end of May of that calendar year, NPS subscription amount (my and employer contribution) for FY 2014-15 was mentioned in my Form 16 (that I received in may 2015) for FY 2014-15, on the basis of which I could claim tax refund for FY 2014-15.
I just want to know, whether I can claim tax refund now, for NPS subscription amount deposited by me and my employer for the period from 01.04.2012 to 31.03.2014, i.e., for period prior to FY in which NPS account was opened but deductions towards the same were made, while filing my IT return for FY 2015-16?? or that investment has gone waste from tax saving point of view…
You cannot revise the old return. Whatever has been filed for 01.04.2012 to March 2014. Hence you can’t claim the benefit also.
Hi,
I have salary income as well as doing F&O part-time. Last year I made some loss in F&O, hence I filled only ITR-1 before the due date for FY2015-2016. Now I realize that I need to show the losses then only I can carry-forward in future.
Is it possible to revise the ITR-1 to ITR-4 now?, as I filled ITR-1 before the due date.
Yes you can. Please be sure to check audit applicability before revised returns are filed.
Can you show accounting entry of a share transaction & a futures transaction? My main concern is that in turnover calculation you use any gain/loss value as turnover so does that mean it replaces purchase/sale value in accounting entry? My concern is trading as business.
You can click here to know how turnovers are calculated for Equity & Futures transaction http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/
The method of computing turnovers mentioned here is as per the Income tax act.
Have already checked that. My question is not about turnover, I understand that. My question is about accounting entry…how does it go?
Hi,
I do trade in F&O on my demat account. I use the laptop which is on my wife’s name.
Can I show laptop depreciation, electricity bill and broadband charges as expenses in my PL statement, as these bills are in the name of my wife?
Yes, as long as there’s an expense and it’s been paid, you can claim despite the bills being in your wife’s name.
Hi Nithin,
I have query on shares received through ESOP, I received the shares at face value, so my question is,
1. Will the difference between Face Value and CMP be considered as profit
2.Do i need to hold this for one year to save tax (short term capital gains)
3. What if i gift these shares within a year to my spouse, will it be considered under short term capital gains
1. Not face value, but the value at which these were allotted to you. If they were allotted at face value, then you CMP-value is your profit.
2. Yes.
3. You can gift, your holding period will be considered for her as well. For the transfer there is no gain, but she will have to wait for 1 year to get the LTCG benefit.
Gift to spouse may have tax implications to the extent of income from the isset. Check with CA first. Income to wife may be added back to husband if husband slab is higher. LTCG may have different implications.
Hello Nitin,
my CA is asking for “Global Positioning Report ‘”, what is this report , pls help in this regard.
Hmm.. donno, I am guessing the ledger. Can you download the ledger and P&L statement and show him.
ok ill do . thanx for reply
Just appreciating your work Nitin, great work man. Glad to be among the best.
I am a professional with income below 2.5 lacs in previous year and also around 4.5k of STCG in my previous year, according to this blog of yours an investor is supposed to file ITR 1 or ITR 2 but as a professional I can’t use those forms. What am i supposed to do then? Also the blog says 15% flat for investor on STCG, does it mean that even if my income is less than 2.5 lacs(professional+trading) still I am supposed to pay 15% on that STCG?
You can use ITR4 and show it under short term capital gain. No tax if total income is less than 2.5lks
Hello,
Could you please tell me regarding the taxes on long term capital gain in F&O (Derivatives segment),
suppose if Today i sell nifty 9000 CE or PE Dec 2017 (15 months period). Still i would be liable to pay taxes on
gaining amount.
Regards
Rahul Tyagi
F&O is considered as business income, you have to pay taxes based on the income tax slab you fall in. Suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/
Hey Nithin,
1st of all your write up and detailing was clear. But the auditors confuse as much as they can. Let me give a brief of my situation . Can you guide me
My business profit was Rs. 792551 for the year 2015-2016 (AY 2016-2017)
My Short Term Capital loss is -1651813 for the year 2015-2016 (AY 2016-2017) – F&O Equity and Intra day F& O ( only futures trading)
Can I set of this loss to my profit and not pay tax . Will file it either ways
My Auditor says there could be Litigation and he does not suggest the same
F&O loss is business loss you can definitey set off. Intraday equity trading (speculative business) and short term capital loss can’t be setoff. Suggest you to go through this.
Hey Nithin,
Spoke to my auditor Nithin.
He had set of my last year F&O loss as a Capital Loss instead of a Business Loss
He says this year we cannot change the same. Any idea and circular reference to this.
Regards,
Arun Christe
also one last thing what about F&O Intra day. It can be considered as a Business loss
If you have already shown this as a capital loss, guess nothing much can be done now. yes intraday F&o can be shown as business income/loss
Nithin,
No I had showed the Capital loss last year FY2014-2015 for -1300000
This FY 2015-2016 i have a loss of -1600000
My auditor has filed for 2014-2015 as capital loss ( he dint file as business loss as there was no clarity from the department)
for fy 2015-2016 can i show the -1600000 loss as Business loss
as there has been a circulation clearing the assumption process only on Feb 29 2016
Yes this FY15/16 you can show as a business loss even if you didn’t before.
Dear Sir,
I am a salaried trader who used to trade in Intraday Equity and F&O segment.
My salary as per Form 16 for FY 2014-15 is 9.2 lakhs.
I did not file ITR for FY 2014-15 as on date and have received a letter 4 days ago from ITO asking for the following information:
1. You have paid STT in last few years. Please let us know whether you have filed ITR for last three years or not. If yes, please present before us the copy of ITR along with computation.
2. Whether the above mentioned trade transactions have been considered by you while filing your ITR.
3. Please furnish the related documents before ITO for verification.
I want to let you know that my total trade turnover w.r.t. equity intraday and F&O is less than one crore for FY 2014-15. However total loss for FY 2014-15 is Rs. 1.79 lakh, i.e., profit is less than 8% on turnover. Since return is going to be filed after due date, loss cannot be carried forward, and I don’t even want to do the same as I have stopped trading.
I wanted to know:
1. whether I have to undergo tax audit for the same?
2. Whether am I supposed to fill form 4 while filing return or only form 1 will suffice?
3. As per form 16, i am eligible for IT refund of around 25000/-, owning to interest paid on HL and Life insurance policy. Should i claim the same or leave it due to these complications?
Request your kind guidance in this regard…
Thanks
Animesh
Noteworthy to mention, What i received is just a letter from ITO and not a notice..
You will have to firstly explain to the ITO that you hadn’t filed because you had made losses. Maybe attach yoru P&L statement and ledger details to show this. Once you have done this, if the ITO asks you to revise the return, then yeah you will need to use ITR4. Audit, hmm.. maybe you could just ask the ITO. I think you should apply for IT refund, you have actually let go of Rs 1.8lks of losses which you could have easily carried forward.
Hi nitin,
Im having a query regarding the costs to be deducted while calculating the capital gains arriving out of both long term and short term.
Which of the following can be deduted while calcuting capital gains:
1. Brokerage
2. Service tax
3. Statutory and other charges
The statutory and other charges are included in the contract note and are defined as Statutory and Other charges represents a consolidated charge towards providing various value-added services such as Trade Confirmation SMS, electronic account access, portfolio tracker, access to research reports,
market news SMS and towards defraying Member’s Statutory/Regulatory liability for the clients’ trades.
Thanks alot nitin.
Nikhil, if it is capital gain, you can’t really show this as a cost. But what you can is to show all of these (excluding STT) as part of your acquisition price. So your buying price automatically goes up.
I was more concerned regarding whether the statutory and other charges can be deducted which you say can be deducted.
Thanks alot nithin your a great helping hand.
Look forward to join zerodha.
Hi Nitin,
I am an NRI aged 65 and I buy shares more than 6 lakhs pa which is from my nri funds & always buy shares for long term(i.e. for more than a yr) & don’t have any other income in India. Do I need to file income tax ? bcz I am buying shares more than 6 lakhs pa which is above the taxable limit. But the funds are from nre account which as per my knowledge in non taxable. Kindly resolve my confusion
If you are just buying stocks, there is no income, hence no tax to be paid and hence no need of filing income tax. If you sell the shares tomorrow for a profit for which you have taxes to pay, you will then need to file ITR
Hi,
I am new to trading. I have a query on the taxation part.
I have cited a situation below. Could you please help me out on the taxation part.
Consider I have done intraday trading for 2 days only. I have done trades with 2 stocks (X & Y) only.
Stock X : Profit Rs. 3000
(day 1 – Profit Rs. 5000, day 2 – Loss Rs. 2000)
Stock Y : Loss Rs. 1000
(day 1 – Loss Rs. 3000, day 2 – Profit Rs. 2000)
As per Tax P&L summary – Intraday turnover is Rs. 4000 & Intraday profit is Rs. 2000
Charges are Rs. 500
Now which is correct for calculating my tax due,
A. Tax to be calculated for Rs. 2000 minus charges & it is as per my tax slab
(or)
B. Loss can be shown as Rs. 5500 [(sum of loss from stock X, day 2 & loss from stock Y, day 1) + charges Rs. 500] and I can carry forward the net loss of Rs. 3500 ( Total loss Rs. 5500 minus Rs. 2000 intraday profit) to next year with net tax outgo Zero for this year.
If it is different from these two, please educate me.
Thanks
Vignesh
A is the correct way. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Thanks Nithin.
An astrologer has asked me to trade in my brother’s name/account. So I trade in his account. But in doing so all money is going to his account and I am not rewarded in any way. Please suggest some tax effective ideas to transfer the profits to my bank account. Thanks, Sumit
Take a salary.
Hi
In the FY 2015-16 my turnover was 93 lakhs and had incurred a loss of 3 lakhs. My total income for the year was just 70000/-. Do I need to file ITR? Also audit is required or
not
Best to file ITR, no audit
Sir,
In the FY 2015-2016 my Fno and Intraday Turnover (as per Zerodha)comes to 93 lakhs. And i have incurred a total loss of 3 lakh plus. My only other income which I got as Mutual Fund brokerage comes to Rs. 70000/- (Seventy Thousand only). Do I need to file the ITR? If yes does Audit is required?
Not mandatory to file ITR, but I’d say it is best you do it. No audit required. Check this out: http://zerodha.com/varsity/module/markets-and-taxation/
Sir i loss in F & O in f.y. 2015-2016 Rs 25 lac and same year i earn 35 lac in long term capital gain (by sale of property)
so please tell me can f&o loss adjust against capital gain?
No, can’t be adjusted.
Sir,
Thanks a lot for such a wonderful blog. Solved so many puzzles.
I am a PSU salaried employee. I incurred F&O loss in 2010-11 & reported the same as business loss (in ITR 4) which have been carried forward year after year. Now, after reading your blog I came to know that rental income & FD interest income can also be adjusted against F&O loss, which I hv not claimed. Instead, I have been paying income tax for these incomes without adjusting.
1. Can I revise all my ITRs since 2010-11 with Rental & Ineterst income adjusted against F&O loss.
2. If not, can I adjust these incomes from carried forward F&O loss in this years (AS 2016-17) ITR. (I hv already submitted ITR but hv not sent ITRV)
3. Someone told me that business loss can only be adjusted against same year’s Rental & interest incomes. That means previous year’s business losses can not be used to adjust current year’s other sources incomes. is it correct?
Thanks in Advance.
1. No
2. Yes
3. Yes that is correct.
Thanks a lot.
a little confusion:
If 3 is yes, then how can 2 be correct? Can I adjust CURRENT year incomes with PREVIOUS year carried forward F&O loss.
Please reply sir…
I will have to revise this years ITR if CURRENT year rental income can be adjusted with PREVIOUS year carried forward F&O loss.
You can’t setoff carried forward F&O loss against rental income of this year.
Hi Nithin,
I had posted some specific queries earlier. Hope you’ve gone through that. It would be nice of you to be answering 2 more queries (with the same scenario, trading in commodities).
1. Turnover, as you mentioned in your post is the yearly sum of all profits and losses of all the scrips.
Is this profit calculated after deducting the brokerage and transaction taxes etc.?
In case of loss, will these brokerages and other transaction charges, CTT etc. will be added to the loss?
2. In your post, you’ve mentioned that If turnover is < ₹1 crore and profitability is less than 8% of turnover, one needs his books to be audited.
Now, how is this Turnover different from the Profitability?
Suppose, one has made a sum profit of Rs. 1 Crore (by adding all the profits and losses) in a financial year and his initial capital investment was also 1 Crore, What is the Turnover and the Profitability? And whether he needs his books to be audited?
Thank you to have been patient enough.
1. There’s no maximum limit as such. As long as you’re able to justify the funds that you’re bringing in is earned through legal sources(if required by any authority), you’re free to trade without any limitations.
2. That’s an internal arrangement that you’ll have to have with the consultant. As a brokerage firm, our relationship would be limited to you being our client and your account details would be shared only with you. Yes, consultant fee/salary can be considered as an expense from the profits you make.
3. You can legalize the agreement by having it on a Stamp paper, stamped with appropriate values as per the relevant State’s act. It’s best to consult a lawyer for this.
4. The Income tax slabs would remain same.
5. Again, the Income tax slabs remain same.
6. If you’re trading for yourself, you can do it as an Individual. This would save you the costs and compliance required for a newer entity (partnership,company etc.)
1. No, you’ve to exclude brokerage and other taxes while computing turnover. It’s only the absolute sum of all profits and losses.
2. Profit is actual profits, without considering any losses.
Hi Venu,
Thanks to have replied promptly. One thing is still little confusing. Please guide me clearly regarding Turnover and Profitability (less than 8% thing).
For example, total profit in a year is Rs. 90 lakhs and total loss in the same year is Rs. 30 lakhs; the absolute sum of all profits and losses are Rs. 60 lakhs, which I understand is called Turnover. Now, this turnover is less than 1 Crore. Tell me what is the profitability here.
Please tell me the same if total profit in a year is Rs. 30 Lakhs and total loss in the same year is Rs. 90 lakhs, what is the turnover and what is the profitability and whether in which case the books are supposed to be audited.
Thanks.
If your profit is 90 lacs and loss is 30 lacs, your turnover will be 1.2 crores (90+30). You can’t net off losses against profits to compute turnover.
You’ll net off to compute the actual profit which in the above case will be Rs.60 lacs.
Thank you.
As per this, if my net profit in a year is 60 lakhs and net loss in the same year is 30 lakhs, my turnover will be 90 lakhs which is less than 1 crore and since the net profit is 60 lakhs which is more than 8% of 90 lakhs (turnover), I don’t need to get my books audited. Hope I am understanding it right this time.
But if my net profit in a year is 50 lakhs and net loss in the same year is 45 lakhs, I need to get my book audited. Or if my net profit is 40 lakhs and net loss is 55 lakhs, I do need to get my audited. Right?
In first case, your net profit will be 30 lacs (for computing 8%) and not 60 lakhs as you’ve said. Since it’s still > 8%, no audit required.
But if my net profit in a year is 50 lakhs and net loss in the same year is 45 lakhs, I need to get my book audited. Or if my net profit is 40 lakhs and net loss is 55 lakhs, I do need to get my audited. Right? Yes
Thank you!
Hi Nithin,
I appreciate your in-depth knowledge and efforts to make it this simple. I have some queries for a specific situation though, would love to get it answered.
1. What is the maximum tab of money for someone to use for trading in commodity (MCX), if any. Precisely, what i want to know is that, suppose someone wants to use Rs. 1 Crore for trading in commodity, can he do it in one go? What are the compliance required?
2. If that person hires a consultant to guide him in doing the trades in order to make more profits, can that consultant be kept on the basis of being paid a share in his profit?
If yes, is there any upper tab for the profit share?
If not on profit sharing basis, can the consultant’s salary be showed in the expenses and hence adjusted in the profits?
If yes, is there any upper tab of salary that should be given to any consultant who guides you in doing trades?
3. What are the documents needed to be prepared for legalising this agreement of a client for having a consultant?
4. What kind of income tax slab would apply on the earning/salary/profit-share of that consultant, if it’s any different from the normal Tax slab that is mentioned in your article?
5. What kind of income tax slab would apply on the profits of the client if profits are huge (may be more than a crore or so), if it’s any different from the normal Tax slab that is mentioned in your article?
6. Understanding this precise scenario, whether one should go ahead as an individual or as a company or as a partnership firm (partnership between the client and the consultant) in order to save taxes?
Hope to be answered specifically for my queries.
Thanks.
SIR I INVESTED IN EQUITY MF AS PER DETAIL BELOW
NOV 14 INVESTED 200000 WITH NAV 35.48
SIP OF 5000 FROM DEC 14 TO SEP 15 = 50000 ( WITH DIFF. NAVS )
REDEEMED FULL ON OCT 15 WITH NAV 35.50 AMOUNTING TO 246170 ( LOSS OF 3830)
IS THERE ANY TAX ON THIS.
No tax on loss, only on gains.
Sir,
I am senior citizen
I am throghly studying your blogs from last 3 months
As I Read The Blogs, more and more
I get frightened whether to enter the trading or not
specially with regards ITR 4, and its compliance
I Studied the Q
But unable to understand how to use
the information for book -keeping
can get I explanation of use of items related to
tax purpose
You explained to me I can represent myself at the same time
as
Investor as well as Trader
If I start Trading
( I want enter first day trading, long and short term gains in equity only, when ideas will be clear I may go for Derivatives)
1-how my the value of more than 10 year old holding
and also my holding at 31st March, the end of financial year
appear in balance sheet
2- Is there there any facility in your
system
to import data for automatic accounting
of Buy and sale value, and related expenses entries
3- which software I can use in sync with
your system
AND / OR
Suggest how I go about to record accounting all types entries of expenditure like brokerage STT etc
I feel now my enquiry is getting long
so sorry
please help as you can
THANKS IN ADVANSE
RENUKA
Renuka, you need to go through this module, everything you need is on this: http://zerodha.com/varsity/module/markets-and-taxation/
hi,,
in 2012-2013 my loss arount in commodities is 400000
and in 2013-2014 my loss is around 420000
which my ca is carry forward…..
is commodities loss i will cover in 8years from my future profit….
—in 2016 i recieved notice from income tax for heavy transaction in my saving account….around(3 lac)
this is for 2013 -2014 itr
i have not knowledge more in income tax…
my ca not filled my 2015-2016…
and 2016-2017(he said first close the casw which will close on dec)
will 2015-2016 or 2016-2017 loss also included in my previous loss of (2012,2013)—-last date is over….
please…clear me this….
also mail me
Dear Ajay,
You’ve stated facts, please let us know what sort of assistance you need?
Hi,
I have recently started trading on Zerodha. My problem is that I am a Research Scholar and I receive monthly scholarship(25k). The terms of scholarship states that I cannot receive salary, emoluments and any other scholarship but is very unclear about income from shares and alike. I am not a day trader and I make investmnts in the mid-long term scale. Can you elaborate on my tax liabilities and whether my income from equities is not allowable considering my scholarship status.
Dipyaman, very tough to comment on this. But if you are just investing in stocks, don’t see how it can effect your scholarship status.
Dear Sir, Very very thanks for reply, if i want o fill revise income tax return, if it is possible. tax audit last financial year ki kab tak karani hoti hey. pl inform last date of filing return. pl replysir, i m very thankful to u. if i provide my details, can u file my revised return on payment. pl help.
Sep 30th is the last date for audit.
Dear sir, i m trading in future (derivatives) sir please let me know that tax liability on net profit or net loss only or on turnover also. If i m in loss, then i pay tax on loss amt or turnover amt. Pl reply as soon as possible,. Thanks
You pay taxes only on profits and not on turnover. On turnover you already pay STT when trading. Also turnover requirement is only to determine if you need an audit by CA or not. Check this post: http://zerodha.com/varsity/module/markets-and-taxation/
DEAR SIR, very very thanks for fast reply. sir if I m in loss in future trading, then I am no liability to pay income tax. on loss amount. please reply. THANKS
No Kalpana, taxes have to be paid only if you make profits. Make sure to file your income tax returns.
Nitin Sir,
I have another question , that i have incurred losses of 9 Lakh in F&O trading , in the period may 2015 to feb 2016, I was unaware of the fact that i have to show the losses in my income tax return and i filed the income tax return on basis of my salary . but after going through this form i got aware.Now what should i do , as when in contacted my CA , he said that he has already filed the return and requested for the refund that is due to me. Please help
You should be able to revise your returns and file them again.
If you have a loss, you’ll have to undergo audit unless you are declaring 8% profits.
Respected Nitin ji,
i have a query regarding F&O , suppose i have made losses in F&O in the period from (may 2015- feb 2016) , so can i show these losses in the income tax return and for how much time in the future?. and can i offset these losses from the short term capital gains in the next Assessment Year . if yes then how.
Regards
Non-speculative losses can be set-off against any other business income except salary income the same year. So they can be set-off against bank interest income, rental income, capital gains, but only in the same year.
You carry forward non-speculative losses to the next 8 years; however do remember carried forward non-speculative losses can be set-off only against any non-speculative gains made in that period.
Sir , I was reading your taxation module. On page no 33, its written, Speculative gain and non speculative loss can off-set each other. Same thing i am asking that if i have made losses in Non Speculative F&O in period May 2015- Feb 2016, can this loss be offset with the speculative gains (Short Term Capital Gain) in the next year or say in period April 2016 to Feb 2017 ?
Short term capital gains are capital gains and not speculative gains. They can’t be offset with F&O loss unless if you declare your capital gains as also business income. But if you do, yeah you can.
sir,
Futures realized profit -1887702.50
Options realized profit 0.00
Total realized profit -1887702.50
Futures unrealized profit 0.00
Options unrealized profit 0.00
Total unrealized profit 0.00
Futures turnover 2737977.50
Options turnover 0.00
Total turnover 2737977.50
no taxable income other than stcg loss of equtity
do i get tax audit
If you have no other income, then no need of audit. I suggest you to go through this: http://zerodha.com/varsity/module/markets-and-taxation/
How to prepare Profit and loss account for Equity Future transactions for tax audit purposes
If you are using the Zerodha tax P&L, it already has everything on it. http://zerodha.com/z-connect/traders-zone/taxation-for-traders/zerodha-tax-aide-while-you-trade
Hi Nitin,
I am salaried employee and I have intraday loss of 96000 thousand. Do Tax Audit is application for me, if i file ITR4 and show indraday loss as speculation loss.
If your salary income is more than 2.5lks and you have tax liability, yeah audit will be required.
Hello Sir,
I have played intraday in 2013-2014 & 2014-2015 year and had a loss of 8Lakh. I was not aware that i have to show a loss to income tax department. Today i have received a notice from income tax department with below detail:
This is for your kind information that the return of income for Assessment Year 2015-2016 filed vide ack. no XXXX on 26/07/2015 has been selected for Scrutiny. Following issues have been identified for examination:
1. Securities Transaction
I have some queried in my mind which i want you to clear before going to infront of ITR Officer:
1. Which type of proofs i have to carry and what will be the procedure to handle this case easily?
2. I have P&L statement for 2014-2015 year which shows the loss value. Should i show the P&L statement for 2013-2014 as well?
3. Do i have to provide the the saving account statement as well from money was debited or it is not required?
4. I paid the loss amount through personal loan. Do i have to provide the personal loan statement as well?
5. Total Loss was 8 Lakh, I took personal loan of 5.5L and rest of the money was in my account which i borrow from my wife and brother. Do i have to declare that i got money from my wife and brother or it is not required?
6. Online Bank statement is sufficient if acccount statement is required or i have to collect the letter from bank that in this year i borrow money from wife and brother and bank will give the confirmation of money transfer with account number as in online saving account statement it is showing NEFT transfer, it is not mentioned payee name.
Thank you it advance.
Dear Rajiv,
It’s best if you can get in touch with a Chartered Accountant who can help you with the scrutiny of your books. You will have to produce all of those documents that will substantiate the losses you’ve made. This includes the P&L statements for older years, personal loan statements. It’s also dependent on what the Assessing officer needs. As I said earlier, best to get in touch with a CA who can help you with the scrutiny.
I find this article very helpful. Please read my queries and reply ASAP.
I have already made my return filed for the salary I received this year.But after reading this article, I got to know it is necessary to file return for trading in equity.
The particular problem is as follows:
1 – I receive money from my brother who is staying abroad.
2 – I invest that in stock market
3 – and I incurred huge loss in that.
My questions:
1 – Do I need to show money received from brother as income? (As I read from http://www.incometaxindia.gov.in, money received from immediate relatives will not be counted as Income)
2 – Can I revise ITR 1 and re-file with ITR 4.
3- To get the benefit, do I need to revise it today or within 30th Sep.
Please reply.
1. You can show it as a gift, so no need to show that as income.
2. Yes you can
3. Within 30th sept
Last Year, I am Salaried Persion. One of my friend played Intraday and made profit of 2.2L and Loss of 11L from my demat account. Today i got a notice from income tax department regarding the same. I have not mentioned in this in my ITR as i am not aware of it. Can you please help me out to understand that how much tax i have to pay for it. Below are my details:
Annual Package: 5.5L
Already paid tax approx 10K after declaring home loan, PPF and mediclaim. Please let me know how much tax i have to pay for Intraday transaction.
If you have made a net loss there is no taxes to be paid. You just have to explain to the ITO with proof that you had made a loss and you were unaware. Btw if you made intraday equity gains and F&O losses, you can’t combine both and show a net loss. Equity is considered speculative and you will have to pay tax on that profit as per the slab you fall in.
Hello Nithin,
Thank you for your quick reply. I have some more questions:
1) I made both profit and loss in intraday, in this case i have not to pay any tax. Is it correct?
2) Which type of proof i have to show to ITO office to proof that i made loss in intraday. Account statement is enough of or not?
3) My close friend played through my demat account and i have annual income of 5.5L and loss in intraday was 10L approxx. Can i have to show from where i got funds to play intraday or not?
4) I have to go ITO office next week.. can you please guide me how tackle this case.
Below is the brief of my case.
One of my close friend did intraday trading on regular basis from my demat account as he dont have PAN card (I was not aware that i have to pay income tax on this). In 2014-2015 year he made profit of 2.2L and 10L Loss in intraday only. Today i got notice from ITO with below message:
“This is for your kind information that the return of income for Assessment Year 2015-2016 filed vide ack. no XXXX on 26/10/2015 has been selected for Scrutiny. Following issues have been identified for examination:
1. Commodity Transaction
2. Securities Transaction
In view of the above, we would like to give you an oppurtunity to produce, or cause to be produced any evidence which you feel is neccessary in support of the said return of income on 12/08/2016 at 2:45P, in the office.”
Can you please help me on this..how to tackle that.. I need to carry only demat account statement or i have to carry proof from where i got that money to play intraday. Please advice.
1. You have to pay taxes only if you have net profits.
2. yes just P&l and ledger is enough
3. Yeah, you will need to show how you got funds.
4. Tricky, best to choose a CA who can help you .
Thank you.
I tood money from my friend and some personal loan. I can show this as proof. I am going to contact CA tomorrow morning.
If I declare myself as a trader can I still do long term invetments in equity and have 0 zero tax on that particular script for long term capital gain?
Yes, Check this module.
Hello Sir,
How can this answer be “Yes” for a trader?
In the above blog, it is mentioned as…
“Trader
Any income from buying and selling shares even if more than a year is considered as a business income. This gets added to your income and then taxes paid according to the above mentioned slabs .”
If you’re declaring yourself as a trader, you ll have to consider income from trading in equities as business income. Hence the Yes.
Hi Nitin
I am Sr.Citizen
my holding in joint demat account, actually are 16 years old.
I had transfered shares from one broker to other
and name and style of account kept same capacity
Finally today I am at doorstep of ZERODHA
No need to mention Zero beroker
If I sale shares, I will be eligible for Long term Gains
last year from june 15 , I have made fresh purchase
No sales
So as on today , I am as INVESTOR
Now I wish to enter activity of in this financial year
like
Day trading
sale of shares within year
or may be long term investment if situation in
Scrip/Market warrants
may be derivatives
So I would be defined as Trader
My Question is
If I start trading activity in this financial year
whether I will be eligible
for Long term gains so Zero Tax, on old holding
or
It will be treated as bussness income and added
to my others income and taxed according to slabs
Please guide
whether I can start trading in this year and get
long term gain on old holdings
OR
In this financial year
I sale old holdings and claim long term gains as investor
and
start Trading in next financial year
Regards
Renuka
1. Your long term holdings will continue to be long term.
2. You can have both investment and trading portfolio at same time, you have to demarcate it yourself. CBDT circular this year, has clarified it. Check this chapter on Varsity.
Hi I am an NRI and have not filed income tax returns as I didnt have any taxable income in India.
I have received notice for non filing of rturns for FY 2012-2013 & 2013-2014 for clauses CIB 403, CIB 502 STT01 STT02 194A 195.
most of my investments are in NRE Fds which are tax free,
on and of I have been keeping some money in NRO where I keep earning savings interest which is in the range of 30-70000 interest per annum.
I have a equity trading account through PIS route where initially in 2012-2013 FY I had sold a few stocks and has STG ( total gains of 1,05,000) in 2013-2014 the STG Income was 43000 after that all the stocks i have held for long term and sold mostly after 2 years which are tax free.
I have received notice for following clauses CIB 403, CIB 502 STT01 STT02 194A 195.
CIB 502- conract of 10 Lakhs or more in commodities exchange is something thats puzzling me as I have never traded or invested in commodities
STT01 and STT02 seems fine as i had traded/invested in equities but the total gains were much less than the 2.5 lakhs exemption limit. was it 2.5L in 2012-2013 an 2013-2014?
infact the total income after adding all the incomes is less than 2 lakhs.
Please advice how to go about it especially CIB 502 I couldnt understand in my case.
Thanks
A NRI doesn’t get the benefit of tax slabs/exemption limit. So ideally you should have declared/paid taxes. It is too late to file ITR, but I guess what you can do is get all the financial documents in place, pay the taxes that was supposed to be paid, reply to the notice saying it was a mistake, and you didn’t file because you thought the exemption limit was applicable to you.
You can reply in the same notice that you have never traded commodities, you could probably attach your ledger/p&L from the brokerage firm you have an account with.
HI Nitin,
thanks for your reply.
but if all the earning were received after deduction of TDS from respective parties which for NRIs is almost 30%
i am sure there is no tax liability but i should be liable for return.
also when you say NRIs do not have slabs then how should i calculate the tax if total income is less than 2.5 lakhs
I have jusr rented my apartment also from next month as 50:50 ownership for 228000 /annum rent. how will that add to my taxable income?
Please advice
Yes, you should file ITR.
When I meant you won’t get benefit of tax slabs, I meant in the context of stock markets or short term capital gains. Residents, if they have STCG upto 2.5lks, don’t have to pay any tax (if no other income). While NRI’s are required to pay a flat 15% in any case.
For rent and other income, you get the benefit of tax slabs.
Hi Nitin,
Thanks for your reply.
1. in my case with income from house property, investments in equities and MFs and dividend income and FD interest from NRE account which ITR form I need to fill?
2. When I check 26AS there in no mention of any of my NRE account or LTGs and dividend income as I guess no TDS is deducted because they are not taxable. if they are not taxable do i still need to show them as income in my ITR or I need to show just taxable income in ITR?
Regards,
Peeyush
1. ITR2
2. You can show it under exempt income in ITR
Hi Nitin,
I was under impression that exempt NRE FD interest needs to be declared on maturity but have been reading that we need to declare it on accural basis every year. as I had not declared it on accural basis due to the above confusion. can I declare it all ( total maturity proceeds) in the FY year when i received the proceeds or as per rules only yearly accural interest has to be declared?
Thanks.
Peeyush
Yes, you can declare it all.
Hi Nitin,
when I try filing returns on incometaxindiaefiling by logging with my PAN it shows only ITR1 and ITR-4S as 2 options.
it does not show ITR2. how to go about it in that case?
Regards
Peeyush
I think you are choosing the quick filing option. For ITR2, you need to download, fill and upload.
Thanks Ntin,
As my equity portfolio total value is above 1 cr and I invest through NRE PIS route. do I need an audit?
Regards,
Peeyush
Not required. Audit only in case of business income and not capital gains.
In ITR -4 Samlple excel:
In Analysis of PL Reports sheet, In P&L Account Purchase of share is shown as 150,000 and sale of share as 100,000 for Equity delivery while just below under Short Term Capital Loss, Sale Consideration is shown as 100,000 while cost of purchase as 120,000. Why is this different ?? shouldn’t it be 150,000 which is same as above if both are for Sale of Equity share kept less than 1 year ? Or Are these entries for different kind share purchases?
Please help
I trade only in Intraday Cash Markets.No F&O,Currency,Commodities and my only source of income is Intraday Trading Cash Market.I am confused as my CA is telling that as I do only Intraday I need to pay 15% for short term capital gains tax along with the Tax slabs from total income in between 5-30%. So that means Intraday Traders pays the highest amount of Tax. Please help.
Check this module. Intraday and F&O are considered as speculative and non-spec business income, they are not short term capital gain. Since they are business income, you have to pay tax according to the tax slab you fall in (no 15% extra as STCG)
Dear Shri Nithin, I have read the blog right from 2013 and this is an extra ordinary service to the trader community given the plethora of provisions, interpretations, advices etc., some of which can be contradictory!
Please see if there is a simple answer to my case. I am salaried (Annual salary Rs 5 lakh) and I have traded almost everyday in spot (intra-day) and F&O. My loss in intra-day spot is Rs 4 lakh whereas my profit in F&O is Rs 3.50 lakh. Seeing absence of trading profit I simply filed salary returns only. I have received scrutiny notice for “security transaction” asking information. My fear is that I would be taxed for business income (of Rs 3.50 lakh) in F&O without considering intra-day spot market loss. My query is whether I can declare myself as trader and state that both spot as well as F&O should be considered together to arrive at my net income from securities trading.
It is too late to revise the ITR, you just have to explain to the AO that you didn’t file because you had net loss. Most AO’s don’t understand the difference between F&O and intraday, so if you take your P&L and trading ledger and show them that there was a net loss on your trading account and you haven’t evaded paying any taxes, you should be okay.
Hello,Nithin!
My query is that i am a salaried employee and I have frequent transactions in Derivatives. Can i consider this under capital gains as there is an issuance of circular dated on 29th of February 2016 by CBDT which states that an assessee is allowed to take an option for PGBP or capital gains as per his choice.(Irrespective of frequency and duaration of transactions) but once he exercises this option-he cannot choose change it in the next year.
Also, if i consider it under PGBP- can i show it as normal business and not maintain books of accounts u/s 44AB if my turnover is about 10 lacks and i dont want to exercise the option of 44 AD?
Thanking you in anticipation!
The choice of declaring yourself as a Trader/Investor under this circular is only if you are trading in the Capital Segment. If you’ve done trades under Derivatives, it’s considered Business Income, you can’t show it as Capital gains.
Thank u for ur reply!
But as per definition of Short term capital gain as per section 2(42A) it includes assets held for not more than 12 months as STCG,which includes-Any other “security” listed in a recognised stock exchange.
And as per Definition of security as per2(h) of securities contract act- Securities include “Derivatives”.
So, why will i not be able to classify it under short term capital gains/loss???
Also the same circular specifies Shares/Securities. So doesn’t securities mean as per the definition of 2(h) of securities contract act,which includes derivatives?
Sushant, check this chapter and the CBDT links at the beginning. Capital gains are meant to be for investments, and investments are those on which you earn dividends. Since derivatives don’t earn, it can’t be capital gains. Also there have been a bunch of circulars from CBDT pointing out to trading in F&O as non-speculative business.
Okay,thank you so much! will go through it in depth and take a call on classification.
I am a salaried person with LTCG, STCG & speculative (intraday) loss on equity. I understand that I have to use ITR-4 for filing return.
Kindly let me know whether I have to keep books and get them audited?
To know if you need an audit, you need to calculate the turnover. Go through this: http://zerodha.com/varsity/module/markets-and-taxation/
Gone through the module ; turnover is less than 1cr but whether section 44AD is applicable in case of ITR-4?
Yes it is.
Hi Team,
I have a demat account owning myself and holding some stocks in my portfolio since 2014 and have not filled ITR returns yet . I am a non salaried person and bought shares from my father’s money who is salaried. In the meantime i have traded in some stocks in which some stocks i booked loss and in some i have some profit but not exceeding the 2.5 lakh profits in a year.
So my question is –
1> How do i show myself in ITR and which ITR form should i fill (like i think ITR 4) ?
2> Do i need to pay tax on the invested amount which i got from my father for demat account trading and investing?
3> As I have traded in some scripts and locked some scripts for long term because long term (ie more than one year holding tax exemption) tax is zero.
4> How do long term is calculated like from the dater of purchase and sell or by the completing financial year?
5> Most of my portfolio stocks have completed almost 2 years lock in period and if i sell
them and the selling value is 15 lakh that will be tax free or not?
Kindly clarify and reply as soon as possible.
Regards
Rakesh kumar
1. yes ITR4
2. You can show as gift, no tax
3. Yes
4. Date of purchase and sell.
5. All gains will be tax exempted.
Hi Team,
I had trading in FY-15-16 in Commodity segment (MCX and NCDEX) and details is given below
1.Turnover :- 311,683.43 (on trading price)
2.Brokerage :- 7,929.68
3.Other Charges :- 7,318.68 (STT, Service tax and other).
4.P&L :- 75,867 Loss (Excluding Brokerage and other charges mentioned in point 1 and 2)
5. Net Loss :- 91,115
I have below query
1. My Net profit is less than 8% of Turnover, in my case audit is required.
2 I don’t have maintain any record, if audit is required then any alternation option to avoid audit.
3. I don’t want to carry forward this loss for future so can i avoid disclose this Loss in ITR.
4. I have other income from Tuition (other source) is 200000 but total income is less then tax slab 2.5Lk.
If i declare 8% of turnover in point 1 which should be arround 40K and add in my tuition income after that my i come also less then tax slab, can i fill ITR 4s.
5. If use ITR 4S can any type of query may received from department.
Request you to please help on my case and reply asap.
Regards
Chirag Mittal
Chirag, suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. Turnover is not trading turnover, but yes if profit is less than 8%, you will need an audit if there is other income on which there is a tax liability. If this is the only income and your income is less than 2.5lks, no not required. Records are maintained with your broker, so even if you haven’t it is okay. It is best to declare all income on ITR. If your total income is less than 2.5lks, then no audit required provided turnover is less than 1crore. Check out the module to find out how to calculate turnover. Since you have done only F&O, you can use ITR4S.
Hi Nitin,
i am a salaried employee, and a active trader in F&O, i made 10 to 12 transactions in equity also on short term basis.
kindly advise, in this case which form do i need to fill to file the returns.
and tell me which column do i need to consider as turnover (turnover column or turnover with sale value)
ITR4. Turnover can’t be shown within ITR4, you need to calculate it separately to determine turnover. Check our module on taxation: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin,
Very useful and user friendly document regarding taxes. I have few more doubts since I am doing this first time. Kindly reply on the following.
1) I used to be an NRI till end of 2014 and used to stay in abroad
2) I came back and settled in India and started share business (investment as well as trading) in my wife’s name.
3) In India, I am not salaried (all your above examples are about salaried plus share trading. That is the reason I am mentioning this) my wife also not salaried. Now I have transferred funds from my NRE account to her account and then used that fund for trading and for investing.
4) In trading cash(some of them were taken delivery but sold within one year) I made profits
5) I was also invested during this period and I have not touched them
6) I did lot of trading on Futures and made some profits and some losses (about 10 Lakh)
7) I also get some rental income from my houses which I have rented out
8) There are expenses like internet, school fees, telephone etc as expense
9) Now considering the above, please advise me whether I file the return in my name or my wife’s name?
10) Also kindly advise what is the difference between the March 31st Filing and July 31st Filing.
11) can we file 1 return as HUF?
12) Which form needs to be used?
I will be grateful if you can advise.
Regards,
Vishnu Sankaran
You should file returns in both your and your wife’s name. March 31st is jut end of financial year. Last date for filing is July 31st for without audit cases and 30th sep with audit. You can create a HUF and file returns. If you have done F&O trading, you need to use ITR4.
Dear Sir,
I am a salaried person. in last year i have done some intra-day trading in equities and trading in Options. and i have suffered losses.kindly confirm can i fill ITR2 and show intra-day equity loss and option loss under short term capital loss. and can i carry forward that losses by using ITR2
No Amit, you need to use ITR4 and show intraday equity losses as Speculative business and option losses as non-speculative business losses.
Thanks
Hi Nithin,
I am Salaried person and have F&O trading, need ITR 4 filing with TAX audit. Could you tell me the Auditor fees for my case. (Hope you have some idea on this). Thank you very much for your help.
Tough to say Venki. Btw, we are starting a tax filing initiative: http://tradetax.in/
Hi sir
I need a help to carry forward my losses in commodity day trading.How to file this is der any option to file online.
can i file my 2014-15,2015-2016 losses to carry for next 4 years.
Dear Nitin
A very good morning
1- I filed itr fy2014-15. I filed itr as an investor.
2-I claimed loss of stcg 6 lakh,intraday loss of 3 lakh.
3-I further claimed losss futures and options of 16 lakh(including expenses) on a turnover of 30 lakh.It is pertinent to mention that as its a loss is below 8 percent profit criteria as per( section 44ad).
4-I have no other income and hence my gross income is well below taxable limit.
Now i just gotta notice from income tax department,which says that Quote”Assese has claimed loss under the hear profit and gains of businesses or profession,however he has to fill balance sheet and profit and loss account.Incase assesee falls under section 44ad assesse has also to get his books of account audited if his income is less than 8 percentof the gross receipts”
My queries
1-Do i have to fill profit and losss statement and balance sheet while filing the itr-4?
2-Do ihave to go for audit as per section 44ad??What i have find is if ones gross income is less then taxabale limit then one doesn need to go for tax audit even if one acquire profit less then 8 percent of gross turnonver.kindly guide on this.
Thnx in advance
Regards
Nivedita,
I am guessing you haven’t filled the details on ITR4 correctly and hence the notice. Audit is not required for sure, if you re-file it correctly, the notice bit should get sorted out. We have decided to start a tax filing initiative for people trading/investing through Rainmatter. We will have the website up soon, if you need help you can send an email to [email protected]
Dear Nitin
1-My account is not liable for tax audit as you say.why is my account not liable for tax audit as my turnover is less 1 crore and profit is less than 8 percent the turnover(as i have acquired loss)?kindly guide me on this
2-i have gone through your website rainmatter.com it doesnt seem to be working?
3- do i have to file profit and losss statement and balance sheet even if my account in not auditable??
regards
1. You said you have no other income, so if there is no tax to be paid and turnover less than 1 crore no audit needed. Check this chapter on varsity.
2. If you have queries, look at the above link.
3. No, only in case of audit.
Can I assume, my return will not be selected for scrutiny if IT dept sent the refund claimed in the return. Or is it also possible they send the notice even after processing and sending the refund.
What I mean is: Can we assume the return is in proper shape and legitimate and reasonably acceptable as per IT guidelines, if the refund has been processed?
I was just talking to our CA, he says: refund is an automatic process if everything is filled correctly on an ITR. Scrutiny selection is based on cash transactions, high value purchases, foreign travel, non declaration of trading income and etc. So a refund doesn’t guarantee that there won’t be any scrutiny.
Thanks for the explanation regarding taxes. I have a doubt, regarding the term TURNOVER. I am doing F&O intraday, apart from being Salaried. I want to know, what is meant by TURNOVER value. Is this profit or loss occurring from a trade. or the Transaction value. ie, my understanding of TURNOVER is,
for ex: future trade in INFOSYS , ie, BUY at 1000 * 1170 = 1170000 and Sqare Off at 1000 * 1175 = 1175000.
so total transaction is 2345000/- and profit is 5000/- (TURNOVER).
So when is audit required. If the profit/ loss turnover is above 1 Crore, or if the Transaction value cross 1 Crore.
Your answer will definitely help me.
Deepak, have explained it in detail here: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/. Also check out other chapters on taxation.
thanks a lot Nithin Kamath, the information in link was very helpful.
sir,
i have intraday equity loss of around 60k and loss from fno is around 5k.turnover is below 10 lacks.i have salary of 2 laks.IF i want to carry forward my speculative loss,then do i have to get my books audited by ca? actually i dont want to spend more on audit,if possible i would not carry forward my loss if audit is mandatory to carry forward losses.
Yeah, in your case audit would not be required as your salary + other income is less than 2.5lks. You can file using ITR4 and carry forward the loss. Check this module on taxation.
Do you mean, if return is filed using ITR2, losses can’t be carry forwarded?
ITR2 doesn’t give you an option to declare business losses (intraday/F&O), so yeah not possible to show and hence not possible to carry forward as well.
Can’t we carry forward the losses under Short Term Capital Gain through ITR2?
(Many people show losses and gains of Intraday and F&O as short term capital gain. )
Yes you can carry forward short capital losses too.
From the back office Q, under ‘Reports’ the generated Tax P&L statement for 01/04/2015 to 31/03/2016 shows realised profit as Rs.35930.
But the absolute P&L statement generated for 01/04/2015 to 31/03/2016 shows gross profit as Rs.35,930/-, Total charges Rs.2,21,562.70, Other credit/debit Rs.-92.37, and
Net Profit Rs. -185632.70,
The doubt is whether tax is to be paid on realised profit of Rs.35930/- (as shown in Tax P&L) or whether this has to be considered as a loss as Rs.185632.70. If it is loss then why the same is not shown under loss in Tax P&L generated.
Further, I’m a salaried employee. The return for salaried class is required to be filed before 31.7.2016. Since the trading is only in F&O, whether separate returns to be filed one for salary now and another for F&O as business later or shall I have to file a combined return before 31.7.2016.
In the case of intraday f&o whether it is business or speculative?
HI nithin i have done trades in stock market in fno and cash segment as well …i need to use ITR4 ..but i hvae a query ….can i show my cash segment equity under capital gains and fno under business income …i have heard that according to recent circular from CBDT in feb they have allowed taxpayer to choose either capital gains or business income but only in case of listed shares segment ….
Yes you can. However you’ll have to keep your approach consistent in the coming years while filing your returns. You can’t change your stance between Trader/ Investor every year depending on where you can save taxes.
Hi,
I am trading in F&O for past few months and I have question related to advance tax payment.
1) Since I don’t know what is the profit I am going to earn for the whole financial year, How to calculate the advance tax?.
2) I trade only in F&O and no other income, so is it ok If i pay the advance tax only on March 15th for the entire financial year? as i will know by then what is the most approximate profit I am going to earn for the year.
In case of Futures, since it is considered as a business, you will have to pay advance tax. Yeah it is kinda tricky, but even if you pay advance tax and assuming you end the year in a loss, you can get the refund of the advance tax paid already.
Yes, you can pay at the end of the year. But there will be a penalty of 1%/month on your advance tax liability that you haven’t paid.
hello nithin ji
nice article…what happens to options open position open during the year end…. does we have to show income /loss on the basis of closing price of 31-mar-2016 or we have to ignore that & taken profit\loss in next year.
The accounting principles require all unrecognized losses to be booked while profits to be booked only on realization.
Accordingly, if you’re making a loss on the position as on 31st March, book such losses for the year and carry forward such positions into the new Financial year with the new acquisition price being the closing price of March 31st at which you had booked loss. If there’s a profit, don’t consider and consider it only on realization.
I have STCL of around 1 lakh. I only do short term equity trades (no intra day). WHich ITR should I file ? And what all documents will I need to attach with ITR along with P&L statement which I can get it from Back office.
What is contact note ? Do I need to show that too ? Where will I get that in back office if I need that ?
Please take into consideration that I have business Income already, but I want to show STCG/STCL through shares. So will ITR 4 be good ?
If you have business income, then it’s ITR 4 that you’ll have to use.
I am salaried person and do derivative trades accordingly. Please tell me while filing ITR4 what are the mandatory fields are there? Please explain with the part or senction of the form.
Hi,
I have income from retails shop approx (Turnover 15.5 lakh and profit 1.9lakh
and had trading in MCX and NCDEX exhange and net loss is Rs.66,500.(P&L statement received from broker )
1. I can’t maintain books of account so last year (FY2014-15 AY-15-16) i filled ITR 4S
2. In FY 2015-16,AY2016-17, can i fill same as ITR 4s.
I request you to please sent reply on my email as well
Regards
Chirag Mittal
Yes you can use ITR4S
Hi Nithin,
I have got speculative losses for the last financial year. Total income is above Rs. 2.5 Lakh in the FY. Can I file using ITR-4S as there isn’t any speculative gain but only loss ?
There is no option to fill any speculative business profit/loss on ITR4S. You will have to use ITR4.
thanx
Dear Kamath Sir,
Whether Loss in a intraday transactions are consider as my income from share market if we think in the income tax perspective or should i subtract from profit and remaining is consider as my taxable income? further i would like to know that brokerage and other govt. taxes will considered as my income from shares? shall i consider all income for calculating mu turnover?
KIndly reply
Thanks & Best Regards,
Shreyas
Shreyas, can you go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. Only profit is income. For calculating turnover, you need to gross sum up profit and loss. Brokerage and other taxes is expense. Check out the chapter on turnover in the above link I have given.
Hi Nithin,
Could you please help with this query:
I started investing in equity shares this year. I’m not an active trader.
During this year, I made intraday gains of 600 rupees.
What form I need to fill in this case ?
Thanks
ITR4
Could you pls help with this query:
I have 800 Sun Pharma shares. WRT their current buyback offer, small retail investors (who have less than 2Lakh worth of shares) get more than 10% of their holdings eligible for buyback and acceptance rate is very high where as HNI investors get the offer for less than 1% of their holdings for buyback. Can I transfer the shares to my wife and sons (as gift) to increase the number of shares eligible for buyback? Does it have any income tax implications.? Is it benefitial doing so.
Note: Buyback price is 15% more than that of purchase price of the shares. (purchase price is Rs770, buyback price is 900).
Yes, you can do that, you’ll have to ensure it’s done before the record date. You can initiate an off market transfer and transfer the shares.
There are no tax implications by mere gifting such shares. However there will be tax implications when your wife & son tender these shares in the buyback.
If the shares were transferred at 0 consideration (being a gift), the cost of acquisition becomes 0 and the entire 900 is taxed at 15% as Short Term Capital Gain.
Thank you.
1. Can we just fill in the transfer cost consideration in DIS slip and do not make any actual payment?
2. In case it is transferred as gift, will my short term capital gain get reduced by market price of the transferred shares.
Vyas, I guess Venu missed out on this. If you are gifting this to your wife/son, there is no tax implication to anyone. Your original buying cost and date will continue for your wife/son. Btw, you can’t mention the transfer cost on the DIS slip.
Great. Thanks a lot for clarifying this. Greatly relieved from the pain and to know the efforts are not going to give more troubles instead of benefiting.
Hope I am right in doing this for increasing the entitlement for more stocks for buy back offer, without causing any hidden costs/troubles.
How does IT come to know if the gifting took place between father and son for tracking for the purpose sending notices and to check evasions and monitoring and taxability?
You have to declare while filing your returns, for yourself and your wife/son.
Sir, I have received notice from ITD for the A.Y. 2013-14 due to they find some trades in Derivative as well in cash segment more than 10 lacs in amount. They send me a link and asked response to that notice through compliance mode. I hadn’t filed return for that year due to of my non-taxable income. After discussing this with my tax consultant I had sent a reply to that notice i.e. “As my income was non-taxable, So I did not filed any return” as on that link there was no option to submit the return. Then my consultant filed return on behalf of me for the A.Y. 2014-15, 2015-16 with the help of ITR1. Maximum of my investment source within those period was the money I received from my parents and as well my salary. Even I faced loss from F.Y. 2012-2013 to 2014-2015. After 6 month for receiving the notice I received another notice for the same A.Y. 2013-2014 and they asked me to show my income details. Then I got panicked and told my consultant to resolve this issue. That’s All the issue.
Now after understanding all the tax jargons from your blog I feel that I have to file my return with ITR4 as my source of income is income from salary and I spontaneously trade in derivative market. I faced loss in derivative trades 5 lacs approx. So, please help me to get of it. I am getting so confused. Also suggest if I show this 5 lacs loss for F.Y 2015-16 will it be any issue later on? My total derivative profit & loss turnover is less than 1 crore and I faced.
Please suggest me the possible way.
Aloke, for FY15/16 make sure to use ITR4 and declare this loss. You get the benefit of carry forwarding the loss, so it can be set off against any profit in the future. For the ITR filed till now, nothing much can be done, you can show the ITO your P&L statements and you hadn’t declared because you made a loss.
Nithin,
Thanks for your suggestion. Please also give another suggestion regarding my letter issue which I received from IT for the A.Y.2013-14.
Same suggestion Aloke, it is too late to do anything about returns older than 3 years.
Nithin,
I had not declare my balance sheet to the ITD so If I show this 5lacs loss to them then is this possible that they can scrutiny my account ?
Hi,
I have a gross annual income of Rs 2.11Lakhs(after deducting HRA) for period April 2015 to March 2016 from salary.
Just for the sake of exploring, i traded in stock markets with a turnover of less than 5,000 and overall profit of about Rs 250 only.
I had no idea about these taxation complications. I have read many of your blogs and others’, but still need your advice on this: do i need to fill a return or anything? If yes, then which form, from where, etc.
I am completely new to this, so bear with me if its a silly query 🙂
Shubham, even if you hadn’t traded the markets, it is advisable to file IT returns. You have no taxes to pay, so nothing to worry. 🙂
My company provides e-filing of returns, but since mentioning this capital gain would require me to file returns myself, and would involve change of ITR form, so is it advisable to mention this? Or can i get away without mentioning this small amount?
Also, which form should i fill? and are proofs/contract notes required for this?
I’d suggest you to use the right ITR form, check this: http://zerodha.com/varsity/module/markets-and-taxation/. I am guessing you will need the ITR2.
Hi, I have started doing trading recently. Most of my stock buy/sell is delivery based and is short term (less than a year) and there is some intra-day as well. I was wondering:
a) how do i need to file taxes for the income from both – delivery based and intra-day.
b) how can i carry over the losses to next years? Does it mean I still need to pay taxes on the gains?
c) how can I deduct brokerage, fees, taxes etc on both buy and sell?
Thanks
Suggest you to go through this module for detailed explanation: http://zerodha.com/varsity/module/markets-and-taxation/. You need to use ITR4, and yes you can carry forward your intraday losses to next 4 years. Check the module.
If we trade in fno & we settle our position intraday then will that gain considered as speculative or business? please advice.
All F&O is non-speculative.
Hi Nithin,
I have a doubt over Long Term capital Gain for equity. Lets say if i bought 100 shares of X in July and bought 50 in November in the same year. Now If I sold 100 stocks in August (next year), will the profit be considered as LTCG? or if I sold all 150 in August, how the tax will be calculated. Need to know Long term and short term tax calculation. Do we follow FIFO system for calculating Long term and short term calculation.
Yes, FIFO is widely practiced. If you sell 100, the gain will be LTCG and will be tax free. If you sell 150, you’ve to pay tax on the STCF, if any on the 50 units whose holding period was < 1 year.
Yep FIFO method used. If you sell 150 in august, 100 will be long term and 50 short term.
Can a day-trader (Trading as a business), show short/long term delivery trades under short/long term gain/loss i.e. personal investments rather than his business profit/loss?
I personally intend to treat my delivery investment different from my day/swing trading, so can I treat it similarly in taxation or do I need to shift my delivery trades to some family member’s account who does not day-trade.
Issue is I am in 30% tax bracket and delivery trade taxation would be at a lesser slab under capital gain heading.
Yes, you can. But you’ll only have to ensure that you’re following this approach consistently year on year.
Also in your books, you should have clear demarcation between your trading turnover & delivery turnover.
Hi
This is for filing IT returns for FY15-16. I have bought stocks but have not sold any. So no capital gain nor loss. Do I need to still include the trading transactions or not required?
Please advise.
Thanks in advance
Yes, best to show all your purchases.
Hi Nithin,
I need one more advice for current Assessment year. This year i have salary income 10.5 lacs approx, interest income 2 lacs approx. Short term capital loss 1.7 Lacs with turnover of 64 lacs. Intraday net loss of 96000 with sale value as 11.04 crore and buy value 12 crore, total sum of loss/profit for indraday is 5 lacs.
I need your advice do i file ITR2 and show all loss as capital loss.
OR
I need to file ITR4 and get books audited since I have loss 96000 thousand, which is less then 8% of profit of 5 lacs turnover.
OR
I can file ITR4 without audit and can show assumed profit of 40000 thousand(8% of turnover 5 lacs) and pay 12000 tax (30% of 40000 rupees profit). since i am not maintaining books of accounts and audit charge will be more than 12000 tax amount.
Please guide me, I don’t know what to do and not getting proper reply from anyone. I stopped trading from this year.
You need to use ITR4, either of the options 2 or 3 works. You can choose either of the ways.
Dear Nithin,
First i will thank you for building a super platform and repository of reports and knowledge.
I have few queries and not sure if it would be related to you, but seeing most of the replies from you, i am unable to stop myself from asking you.
I am a salaried professional and my present tax slab is 30%.
I also had Profits from ESOP and i have already paid FBT on the same.
Now thanks to Zerodha, i have also started earning from F&O .
Hence my queries are:
1.Which ITR Form should i be using. (ITR 4 or ITR 4S)
2. Should i be reporting my ESOP Income under Income from other sources ? or Income from Business, as i also have income from my derivative trades.
3. Considering that the sum of Salary + ESOP + Derivative Crosses 1Crore, do i need to get my returns audited ?
4. As i had purchased my ESOP’s by availing ESOP Funding from Financial Institute, can i deduct the interest charges as cost of procuring and deduct it from the short term capital gains if any or can i claim it as refund, incase i have paid excess of FBT and then sold the allotted shares for a lower price.
My sincere apologies for asking you unrelated queries, but basis the reply which you have provided to most of the queries, i though you would be “The Best Person” to address my queries.
Thanking You In Advance.
Happy Trader of Zerodha.
Kiran Jain
1. ITR4
2. You need to show it as capital gains.
3. You need to look at only business turnover.
4. Yep you can.
Cheers,
just i notice your reply !Thanks you so much ! Nithin sir !
Thank you NITHIN sir,
i was not aware about IT law and trading rules, terms until i get notice.
so i start search on google…
your webplace is unique informative. you are wonderful human being giving reply of all queries.
without hesitate i m asking you one more Q. i got info from your web answers but somewhere is query in chattering mind kindly solve.
I have capital loss of Rs 10117 and ledger is 18545 minus( more tha Rs 7000 for DP,stamp duty , tele call charges and service tax )
the turnover in brokerage report is 1,43,09814 rupees
the turnover in STT certificate for NSE is 7403885
the turnover in STT certificate BSE is Rs 33850.
in statement of capital gain/loss buy value of all scrips total Rs. 7176898.36
in statement of capital gain/loss sell value of all acripsr 7166780.60
what is Turnover figure here for consider at Income tax capital gain at filling or reply to notice to for non-filling?
I have no any income in FY 2012-13 except FD 5000 and saving interest 8568 and interest paid for loan 5842 , trade in commodity loss Rs 25500
is my turnover is >> one crore and << 8% rule i have to audit?
but i have no book keeping. i left trading in same year 2012-13 change career direction.
kindly guide me !
Thanks
Already answered here: http://tradingqna.com/41038/guide-about-turnover-consider-time-reply-notice-filling-2012
nithin sir , please solve my doubts
i have a small retail cloth shop
and i am doing all segments in market
i.e, intraday, short term, and f&o, mcx commodity, ncdex commodity
then which itr form for me
please tell me sir
can i do e filining
ITR4, check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin sir,
I have received the below mentioned notice first time on 14th June 2016 by post.
SUB: NON FILING OF INCOME TAX RETURN-REG.
FINAnCIAL YEAR 2012-2013 ASSESSMENT YEAR 2013-14
Compliance Module on the e-filling portal at income tax India filling
2012-13
STT-01, STT-02, STT-03
sir ,
i have turnover >> 1 crore but loss of rupees > > 10000 in equity then 25000 loss in commodity in FY 2012-13 and same year i have change career direction so left the trading. And i have no taxable income upto FY 2015-16. since last four years i m living on loan by friend and small saving for full time study and living expenses.so how i reply this notice kindly help me.when i have lost of Rs 35 to 40000/- and no taxable income. Is still after four years this time i can fill return for FY 2012-13 AY 2013-14 and carried forward loss? when i already left trading but not closed demat and broker account. i need CA or just my self register and fill reply of this notice.kindly guide me !
You can just reply saying no taxable income. If the ITO asks you to meet him in the future, you can take all your statements and prove to him that you have no taxable income.
Hi Nithin,
I have intraday loss 4Lacs and Capital loss 3 lacs in A.Y. 2015-16, I filed return ITR2 and shown total loss 7 lacs together as capital loss. I received intimation u/3 143(1). Can after receiving 143(1), I revised my return and file ITR4 return instead of ITR2 and show my intraday loss as speculation loss in ITR4.
Please advice me what to do now.
Regards,
Vivek Agarwal
Vivek, my personal opinion is to not do anything. If tomorrow you are asked to meet the ITO and he spots that you have shown intraday as capital losses, tell him that you didn’t know that it had to be shown separately. Anyways it is a loss, so there is no tax that you are avoiding. But do consult your CA once.
SIR,
i have a small retail cloth shop
and i am doing all segments in market
i.e, intraday, short term, and f&o, mcx commodity, ncdex commodity
then which itr form for me
please tell me sir
Dear Sir,
1. I was return from Abroad on june 2015, and I don’t have any jobs, and other incomes like I am doing online trading, from July 2016, have income from only this trading, what is my tax slab.
2. My wife also return from abroad and active traders, but she also don’t have jobs but have other income like selling property ( with in short period buying another property), FD interest, Trading profits, Rent from own house, and also expenditure like house rent, broadband, mobile, school fees, electricity. What is tax slab for her.
I am new for IT, until now i am not filling any IT (I was abroad since very long time )
Advance Thanks and regards
Seenivasagan
Suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/. You pay taxes based on the income slab you fall in.
CBDT has given choice to individual from April 2016 to treat himself as trader or investor . Given this choice can I treat equity delivery trading as capital gains & simultaneously f&o as business income without any consequence from IT DEPT. Is it 100 % safe or still any doubt is there
Yep, the circular makes it quite clear.
Yes, you can. You can mention the same in your ‘Notes to Accounts’. Also make sure that you stick to the same principle every year.
i have a slary income of 30 lacs. i have traded (buy and sell) in options worth 10.5 cr, which gave me 16.2 lacs profit and 12.1 lacs losses , still making a nett profit of 4.1 lacs after all expenses. Now, according to you, turnover is 16.2+12.1= 28.3 lacs and 8% means abt 2,30,000. and i am showing 4.1 lacs – less 1,30,000 as expenses = 2.8 lacs which is more than 8% as profit of 28.3 lac turnover .
Do i need a tax audit ??
Or can i just declare 4.1 – 1.3 = 2.8 lacs as profit and keep Ledger and P& L statements for future.??
Can i deduct STT , brokerage and other charges as expense ??
Can i deduct car depreciation as my expense, apart from telephone,petro and employess salary ??
i saw all your QA and module. This is to clarify my own understanding, with your certain knowledge and advice.
Thanks in anticipation
If you have checked out turnover info on Varsity, and you are saying 28lks turnover with a profit of Rs 4.1lks, then no need of audit.
Yep, STT, brokerage, etc is expense.
Car depreciation, hmm.. 🙂 I don’t see any relation of this with trading business. Any expense related to business of trading, yeah.
hi i am a client of zerodha …
i seek your advice in dealing with a compliance notice by income tax office …
for A Y 2014-15 i did not file return as my salary was 61k and loss in intraday equity trading was 15k … so now:
1. should i file an itr through paper (as electronically it is not allowed).
2. my income is less than 2lk so no taxable income so for replying my submission for compliance on income tax portal shoul i just mention the reason that – self income is non taxable .
3. i consulted a CA he asked for a lot of money so i dropped the plan and have filled itr4 on my own in excel but cannot upload … so should i file through papar or leave it and give the reason of non taxable income …
4.for AY 2015-16 my income was 1.5lk and my loss in intraday equity was 29k and loss in FNO was 5k so now for filing ITR 4 again my income is non taxable but i can file itr through e-filing but do i need to get the books audited ?? if yes please give me a way out for without auditing … either i show 8% profit instead of loss in FNO or what i don’t know … just help out NITHIN … please …
thankyou
1/2. You will not be able to file your returns now for AY 14/15. If you have received just a compliance notice, login to the IT portal and point out on why you haven’t filed the return (Income less than 2.5lks). Take a copy of this and send it to the IT office from where you have received the compliance notice. If in return the ITO asks you to file a return, only then you will be able to.
3. Leave it for now. Just give the reason and take a copy of it and reply back to the Income tax office.
4. Since your total income is less than Rs 2.5lks, no need of an audit. You can just file the ITR4.
NITHIN sir thankyou so much …
Hi Nithin,
I have a doubt which hasn’t been covered in the markets and taxation I think. Maybe because it is tooo obvious but still want some clarity.
Consider this case where I have assumed some nos.:
Assume it is a non speculative business on commodity futures:
Gross Profit: 10Lak
Net Profit : 3Lak
Even though 7 Lak has been paid as sum of all commissions, obviously he needs to pay income tax on the 50k. But is there any component in those commissions (like stamp duty/STT,CTT,etc) which can be deducted directly from income tax? If yes, then in the extreme case where a person makes gross of 10Lak and commissions of 10Lak with a net profit of zero would actually be receiving some money from IT department, which seems incorrect. But still need to get it clarified. Is it yes/no?? (If the answer is no, the 3Lak net guy has to pay a tax of 5000 I guess)
No, 3lk guy has to pay tax of 5000.
Hi Nithin,
During the year, i was into Intra day trading.
Total of my sale credits are 31, 37, 320
Total of my purchases are 31, 14, 967
thereby deriving a profit of 22, 353
The turonver calculation as per ICAI gudiance note is coming around 34,000.
So tax audit is nor required.
Can i file my return showing 8% profit on the above 34,000 or else i have to declare my entire profit of 22, 353 as income.
If the above was equity intraday, it is speculative business income. You can’t use ITR4S and use the presumptive income calculation of 8% of profit. You will have to show the entire as an income. Check our module: http://zerodha.com/varsity/module/markets-and-taxation/
Hi,
If a person has turnover of 1.5 cr but net loss of 25 lacs and net salary income of 20 lacs, So his net income becomes negative. In this case does he has to get audit done? also does he needs to get book of accounts done?
Entire business is either salary and trading.
You can’t set off salary income with F&O loss. Your net income will remain 20lks, which means that you have to pay taxes on your 20lks, in which case you will need an audit. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/. You can also carry forward this loss by auditing.
I have bought 100 shares few years back and bought some more shares of same company this year. Now how will they charge tax if I sell all shares in this year.
The first 100 which are more than 365 days old, nothing on those shares. On the shares bought recently, yeah you have to pay short term capital gain tax if in profits.
Dear Sir,
I have done 2 times intra day trading in FY 2015-16. And i have intra day loss of close to 7,000. Also i have short term capital loss of 800. I have read your tax related knowledge modules. Do i have to show intra day as speculative loss as business & fill ITR 4…despite i only had 2 times on different days done intraday trading? out of entire year.
and my delivery based transactions are more than 25. So wouldnt it be possible for me to show my intention as not to trade as either trader or as a business… but was to hold.
Technically, yeah you have to show it as speculative loss on ITR4. hmmm. but as long as you are not evading taxes, you could probably take a chance and show capital loss itself. Best to speak to a CA though.
Hello Nitin,
Thanks for this lively blog and answering all the questions in a very simple way.
My Question: I am having both intraday loss and short term loss ( I am a salaried employee). Which form should I use for my tax returns for Assessment Year 2016-17?
I am sure this question might have been asked already, sorry for repeating.
Thanks in advance,
Ramana
ITR4, we have put up a module on varsity dedicated to taxation.
Sir,
My total turnover of derivative/F&O trading is Rs.20 lacs approx. As per turnover reported by Zerodha
Loss during last financial year Rs.1.20 lacs (excluding STT)
Loss can be deducted from other income (other then Salary-Pension)
Pl guide me – Tax Audit is required in my case.
Thanks & Regards,
Sekhri
9953871525
If you have any tax to be paid for the year, then yeah you will need to. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin,
I have both capital loss as well as intrday trading loss. I filed ITR2 and shown only capital loss. I have not shown intraday loss anywhere in ITR. Is anything wrong if I am not declaring intraday loss in ITR.
yeah, technically wrong. Best to file ITR4 and show losses both intraday and capital loss
I Nithin,
I am salaried employee, but have intraday loss 100000 and capital loss 85000
I agree, its technically wrong, but i filed ITR2 and shown only capital loss. Now my file is in scrutiny. Did ITO can charge any penalty for not showing indraday loss. What I should do now.
ITO can’t really charge you penalty since you haven’t evaded any taxes. You probably have paid more tax by not making use of the loss. Go meet the ITO with all the documents, and if he spots what you have hidden, tell him you didn’t know that intraday loss was supposed to be shown as I haven’t earned anything. If he says, it has to be shown, ask him what has to be done. Let me know how it goes.
Thanks Nithin for your valuable advice. Sure, I will update you on this.
Hi Nitin,
Excellent article; just wanted to have one clarity with the following e.g:
Suppose, I buy 1000 shares of X having a price 90/- per share using BO order that will give me ~20 times leverage. Hence, the total price will be 90,000/- but I might have paid just 5000/- to initiate the trade. Since, it is BO order, it will be intraday. Now I sell that with the profit of 3/- rupees, so the total selling price will be 93,000/-. The profit I made is 3,000/- minus brokerages and STT, say 2700/-.
My question is will my turnover be buy + sell including the leverage i.e. 90,000+93,000 = 1,83,000/- ? Or,
Will it be actual buy + sell excluding the leverage i.e. 5000+8000 = 13000/- ?
The reason for my query is due to scalping, a trader can make virtual turnover of >1 Cr. in a day itself hence, it will be thousands of crores turnover in an year, so what about the audit complications?
Thanks for your guidance in advance.
Regards,
Digvijay
Digvijay, why don’t you check this module where we have explained how to calculate turnover and everything about taxation in detail. http://zerodha.com/varsity/module/markets-and-taxation/. Btw, only gross sum of profits and losses while trading should be used for calculating turnover. In this case only Rs 3000.
Thanks a lot Nithin!
I was worried for the cumbersome process of audit; one of my friend fell as prey for having his audit done on the virtual turnover and paid 25k for the audit.
Regards,
Digvijay
I have two questions:
1. You said if I trade in F&O or MCX, I am by default a Trader. Does, that mean I have to pay taxes for all Long Term Capital Gains on Equity Delivery and Equity MF now? Or, both are calculated separately?
2. I have F&O/MCX trade volume of about 64k, and loss of about 20k. Do I need to get my account audited? Or, I can club the turnover amount with my traditional business, and the profit will be above 8%, so I can avoid audit?
Pankaj
1. You can still claim LTCG and not pay taxes as long as you can make a clear distinguishment between the trades and prove to the assessing officer, if required that your equity investments were made for long term.
2. If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB) & your other income is in the taxable range, then you have to get your books audited if you want to carry forward losses. Else, you can avoid the audit.
Hi Zerodha Team,
Turnover <1 crore, profit <8% of turnover and total income is < 2.5 lac. My income is through trading only.
I have few doubts-
1) Is audit required?
2) Do I need to file ITR as my total income is < 2.5 lac?
And, if I have to file the income tax return can I file it on my own using ITR4 form or do I need go through with CA?
Thanks
1. No
2. Not mandatory,but it is advisable since ITR now gets turnover data from exchange. If they see you don’t have filed, chances of scrutiny higher.
3. Yes you can file on your own.
sir
suggest any CA in Mangalore who is thorough in trading matters
I made loss of Rs. 8000/- in short term and profit of Rs. 1200/-. in financial year 2012-13. but did not file ITR-4 and filed ITR -1 as per my salary. may there be any problem? same case in 2013-14 and 14-15. in 2015-16 short term loss of 1,15,000.00 and intraday profit 22000. and my income from salary is 4.00 lakh. what should i do this time?
Better late than never. Go ahead and declare that loss while filing your ITR this year using ITR4.
I opened a trading account and I mostly traded in F&O and equity. I have lost 10k and my turnover is around 60k. According to the rule the account needs to be audited even if it is loss. My question is do you have to report the loss even if I don’t want to use the benefit of carrying the loss forward? From a legal point of view, would I be in trouble if I don’t report the loss in my trading account and I don’t file the ITR4?
Do go through this module: http://zerodha.com/varsity/module/markets-and-taxation/.
If you have no other income or tax to be paid, then you need not get it audited. Since your turnover is so less, you could get away from audit requirement by declaring 8% of 60k as profits. Show around 5k as profits, saves u the hassle of audit. Speak to a CA about it though.
Thanks Nithin! I have a salary and tax liability. So From a legal point of view there should be no issue reporting the 8% gain instead of loss right?
Yes.
Many thanks! Would this work even if I have short term equity loss (not intraday) in addition to the F&O loss?
SHORT TERM GROSS PROFIT₹-141.75
SHORT TERM TURNOVER₹3,740.25
Can I still file ITR4S and pay tax on 8% of the total turnover?
Thanks!
Timo, you can just use the normal ITR4 and show profit as 8% of total turnover and not need an audit.
Hi Nitin,
While logging into “Q”, I am stating my USER ID and PASSWORD ( used for trading ) but the LOGIN fails,
Pl. let me know whether I have to register afresh for availing /accessing “Q”, and if so, pl -ease provide the link for the same.
Regards.
The passwords for Q are different from the ones you use for trading. You would have received a welcome letter on account opening which would contain passwords to Q. If you don’t have it, you can choose to reset your password by clicking on the Forgot password option. The new passwords will be emailed to your registered email ID.
HI VENU,
THANKS FOR THE IMMEDIATE REPLY. I WILL PROCEED ACCORDINGLY.
REGARDS.
Hi Sir,
Your efforts are truly appreciable. I want to know last yr below is my summary sheet i lost below amount purely in F&O in equity and commodity only. i will show this loss in my ITR but want to know about turnover? as i have already paid turnover charges while trading do i need to specially mention anything about turnover ?/
Gross loss: 1519452.50 Total Charges : 59912.45 Net Loss -1579364.95
I suggest you go through this link: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/
Turnover is only to determine if a tax audit is required or not. Your tax liability does not get affected by your turnover.
Hi Nithin,
What is jobbing(jobber)? Can a individual trader, trading with demat and trading account, can consider to be engage in Jobbing and if answer is yes then how the turnover will calculate for jobbing?
Thanks,
Sahil
Jobbing is a trading style which involves making quick entries and exit and earning small profits. If you’re following this trading style, you can consider yourself a jobber. The turnover is computed as the same way – absolute sum of settlement profits and losses per scrip
Thanks Venu. I read one article that if a member of stock exchange engage in jobbing(joggers) then it will not consider as Speculative transaction.
Though it sound stupid but I want to know how one can consider as a member of stock exchange?
If a person hold trading and demat account then does it mean he is a member of stock exchange?
Thanks,
Sahil
No, you don’t become a member of the Stock Exchange by opening an account with a broker. The broker, Zerodha in this case is a member of the Stock Exchange.
Hi Nithin,
Being a CA student if you please answer above question it will be quite helpful for me.
Thanks,
Manish
Hi Nithin,
I try to find answer for this question but not able to get specific answer, If turnover exceed 4 crore then how the penalty get calculated, will it be based on 1 an 1/2 percent of sales, turnover or sum of 150000, whichever is less,does it mean maximum penalty for audit non-compliance is 150000 or more depending on turnover?
Thanks,
Manish
Penalty will be based on how much income tax was not paid. It is not really on the turnover and all.
Hi Nithin,
I mean to ask If a person have 4 crore turnover and his business income is less then 8% of his turnover(Let assume it’s negative), and his income from salary has the taxable limit, then he is liable for tax audit I think if he is trader. In this case if he is not compliance with audit then what could be maximum penalty for audit non-compliance?
As I said earlier, whatever the taxes you were supposed to pay that you have evaded, interest will be charged on this and penalty charged. It depends on your assessing officer, how he looks at this case.
Thanks Nithin,
I understand now penalty for audit non compliance & calculation for tax is different thing.
My mother is a housewife and only trades in shares (delivery based or intra day). Which ITR should I file?
Since there is intraday equity trading, it is considered speculative business. So you will need to use ITR4
Hi, when is the last date for tax filling for trading as a business ?
Hi
Suppose I have Futures turnover of Rs 10 lakh and my profit is Rs 5 lakh. Can I simply pay tax on 8% of turnover i.e. Rs 80 k under presumptive taxation scheme w/o claiming any business expenses.
Thanks,
Amit
Amit, best not to do that. If in case the tax required to pay is more through normal tax slabs, it is best to do it that way. If any loss caused to IT department, it might always come back to haunt you.
Hi,
I am your client. I have one doubt, in case I sell an out of money option and it expires worthless. But, in your turnover calculation although I am having profit of say 10000. In turnover, it shows turnover of 20,000.
For example, I sell 1000 options of Reliance 1100 CE for Rs. 10., then I will get Rs. 10,000. This option expires at 0 and still I am holding it. So, my profit is Rs. 10,000.
But, in turnover calculation. The turnover comes out to be 20,000 being 10,000 for profit and 10,000 for selling premium of option. How this is possible when I have done only 1 trade for Rs. 10,000. I have to consider turnover as double the actual turnover.
The turnover calculation we have put up is the most conservative way of calculating it. It is upto you if you want to change this. Turnover calculation is anyway only to determine if audit is required or not.
Dear Zerodha,
I am a Salaried Individual and earn some interest through FD.
SCENARIOS/ASSUMPTIONS
1. TAXABLE INCOME FROM SALARY = 1,00,000
2. INTEREST FROM FD = 10,000
3. Purchased 100 shares of Scrip XYZ at INR 10. Assuming Brokerage plus all other charges (STT,Stamp Duty Service charge etc) is Rs. 15. So total cost of buying 100 shares is (100*10)+15 = 1015. Sold the same 100 at INR 11. Again assuming total Brokerage charges plus all other charges to be INR 15. I made profit of INR 70. ie. (100*11)-15 = 1085 – 1015.
4. EXPENSES (Internet, Depreciation etc) = 5,000
QUESTIONS
1. The profit of INR 70 to be completely added to the TAXABLE INCOME OF 1 Lac or the charges of buying and selling (rs 30) to be deducted from 70? and only 40 to be considered for Taxable Income?
2. In case, if there is a loss in trading, can this loss be netted off from the Interest Income from the FD?
3. I believe loss will include Buying and Selling charges + expenses. Please confirm.
1. If you buy and sell shares for delivery, it is called capital gains. Short term capital gains (where u sell before 1 year), the tax is flat 15% and for those after 1 year, no taxes.
2. No capital gains can’t be adjusted.
3. Yes
Can you check this module http://zerodha.com/varsity/module/markets-and-taxation/
What constitutes a year for delivery trades ? The days between when I purchase the share ( as reflected in the contract note ) and the date when I sell the same ( as reflected in the contract note ) or the date when the shares come in my demat account and the date it is transferred from my demat account ?
The trading dates.
Sir,i have an query.I am age of 81 and my pension is 26000 per month.Is my pension amount is taxable? 2.My land is acquisted by govt and I was paid 400000 for that after deducting 54000 for tax?Can I get back that amount?
1. Yes, pension monthly received is taxable.
2. Depends on what you’ve done with the money that you’ve received. If it’s reinvested in buying real estate, then you can claim a refund of the TDS deducted. Best to consult a CA.
hello Nithin,
Please allow known CA’s or CA’s who are part of Zerodha family of traders to publish their contact details in this post, require to contact them for Tax audit purpose, thanks!
Hi,
I have a doubt in turnover computation in case of Options held till expiry with out closing them. What has to be done in that case?
Example. Purchased Nifty 8500 puts @Rs.50. On Expiry this has not been sold and left and the Nifty closes @8515. Theoretically there is a loss of Rs.35 + brokerages as here the brokerage will be huge, on the total sale value @8515.
Now what is the turnover in this case? lot size 75.
You can calculate turnover based on premium only (no need of looking at contract value). Btw check this: http://zerodha.com/varsity/module/markets-and-taxation/
HI Nithin, for the last year I have shown 2 lakhs as F&O losses and gross buy/sell value of Rs. 16 lakhs. But I have also shown 4 lakhs of other business income. Will I need to get my books audited? I read a section wherein it was mentioned if the overall profits of all businesses combined are less than 8% of the turnover, then only is an audit needed. Could you please help.
You have to combine turnovers across all businesses and then compute 8%. In your case your trading turnover is 16 lacs, add the other business’s turnover to this and compute 8%. If your net income of 4lacs is greater than the resultant figure, no audit is required. Else audit is required.
Dear Nithin,
I have few queries regarding taxation. I have studied “Markets & Taxation” module & also comments section of this blog but I couldn’t able to find clear explanation on the below query I have so I need your expertise advise on this.Please help to provide me a detailed explanation based on your expertise knowledge as I will be executing my future plan according to your advise on the tax calculation. I know you will prefer me to check this with a CA for my benefit but it is not a easy task to find a CA with trading knowledge who can spend time in explaining clearly to our queries so I need your help.
Below is my plan,
1.I am already holding trading account(account1) in Zerodha which is meant for F&O trading purpose. I am planning to open another account for Equity investment purpose(account2) with Zerodha in my name if it can be done(in this blog you have mentioned that as per exchange rule 2 accounts cannot be held in same name with same broker, but don’t know any latest change has happened) or open additional account with other broker. I will decide this based on your advise.
2.I will be doing F&O intraday trading more frequently in account1 & will be transferring 50% of my profits to my bank account on weekly basis.
3.This 50% profit transferred in my bank account will be invested into long term investments like investing into stocks or equity mutual funds for holding more than 1 year to avail LTCG tax of 0%. This will be a continuous process.
Now my query is,
1. How the taxation will be calculated for the above proposed plan.From this blog I understand that we can still avail LTCG tax exemption even by declaring the person as a Trader under ITR 4
a. Will the tax be calculated only based on total profits I made in F&O trading for that year irrespective of investing some of the profits for long term investments into stocks & MF or
b. By subtracting (amount invested in Stocks or equity mutual funds) from (Total Profits made in F&O) & later avail LTCG tax exemption when I sell the stocks or MF after 1 year holding period.
For example,
Let us assume I made 5 lakhs profit from F&O intraday trading in a year(2015/2016) & from that I invest 50% of profit which is 2.5 lakhs into stocks & equity MF for long term investment which I am going to hold for more than 1 year which means at the end of financial year(2015/2016) I will be still holding all my stocks & Equity MF worth 2.5 lakhs(more or less) in my investment portfolio. So when I file Income Tax Return for 2015/2016, should I need to pay a tax for 5 Lakhs I made profit from F&O or need to pay tax only for 2.5 lakhs (5 lakhs – 2.5 lakhs long term investment). Also when I sell my Stocks & Equity MF after 1 year holding period say in 2016/2017, can I avail LTCG tax exemption for the profits I made in this investment?
2. Can I use the same bank account number but two different demat accounts linked to it for showing Investment portfolio & trading portfolio separately for tax purpose. Or Should I link investment portfolio account2 to other bank account number & what will be the tax implication since I need to transfer money from one account to another more frequently.
Please help to advise. Thank You.
You can’t open two accounts with one broker.
1. You made profits of Rs 5lks trading F&O. So you have to first pay taxes on this. The money you invest into stocks won’t give you any tax deductions.So you make 5lks, you pay taxes on it, you also invest Rs 2.5lks for long term. Yes, when you sell it after 1 year, you can avail the LTCG benefit on the profits you make on this 2.5lks investment.
2. Yes you can use the same bank account.
Like I have mentioned earlier, you need not necessarily open two separate demat accounts. Just ensure to maintain books separately for your trading and investing portfolio (Don’t mix the expense of each other).
Hi Nithin,
I have exactly this same question.
Now, in your above blog it says under: “Trader
Any income from buying and selling shares even if more than a year is considered as a business income. This gets added to your income and then taxes paid according to the above mentioned slabs .”
So, this means LTCG benefit of 0% tax for equity investments when held for more than 1 year cannot be claimed if we declare ourselves as Traders (which we will have to do since we are into F&O trading). Or can LTCG benefit for those stocks still be availed even if you are a Trader?
Thanks,
Ishwar.
This is a grey area, but if you are doing investments very actively (buying/selling stocks as if it were your business), it is best to show those investments also as part of your trading (yes let go of LTCG benefit). If not what you can do is keep the books separate for trading and investment (don’t mix up charges etc) and still take benefit of LTCG.
how tax calculations be done on intraday share trading for a salaried person on 20 % tax slab.Is the profit or loss added/subtracted to the SALARY EARNED and then tax be calculated ,please provide with examples and also tax calculations for more than 365 days holding
Suggest you to go through this module http://zerodha.com/varsity/module/markets-and-taxation/, everything you need to know is mentioned there. Yes, if you are in the 20% slab, you will have to pay according to the same slab on any intraday trading profits.
[…] also suggest you to read our blog ” Taxation Simplified” where we have discussed on best practices to follow in terms of taxation when trading the […]
Sir,
i have one query about taxation, i actively trade in F&O , mainly on Options.
Intra-day also, but also in loss of -20k
my Jobbing Purchase Value 32,66,639 and Jobbing Sale Value 32,11,892 in Options.
Realized P/L in Options = – 54,747, Unrealized P/Lin Options = – 89,654
Now my turnover is (Unrealized P/L + Jobbing Option Sale Value) + Intraday P/L ?
Is it (89,654 + 32,11892)+ 20k = 33.20lk ?
I have no other source of Income. Now how i calculate tax as i am in total loss
Debnath, taxes have to be paid only if you are in profits, that too only if income for the year is over Rs 2.5lks. If not, no need to pay taxes, but do file your income tax returns.
Sir,
many thanks for reply.
you are really doing a great job for traders like us who are in confusion and in total ignorance about trading taxation.
anyway am i correct about my turnover calculation ?
and what ITR form should i choose to file income tax return ?
If i opt for ITR4s, under 44AD and declare 8% profit, that case can i carry forward intra-day and F&O losses ?
Or i should go for ITR4 ?
Turnover calculation is a little more tricky, explained here: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/, suggest you to go through from first chapter. You need to use ITR4. 4S not possible as intraday equity is considered speculative and can’t be shown on that. Best to use ITR4.
ok sir, i will remember that
But ITR4 is not a little problematic, to a small retail trader ?
If i file ITR 4, as a trader and trading is my business, should i have to file return quarterly in advance ? (If total income not taxable)
Or if income(from trading and other businesses) is taxable then have to pay advance tax?
If you think at the end of the year you will have taxable income, then advance tax has to be paid. Trading is like any other business, and taxation is always painful.
Hi Nithin,
Thanks a ton for this special initiative. Googling for taxation in shares opens up multiple links but none is as comprehensive and lucid. Your comments section is particularly insightful.
Will be glad if you can answer some questions I have.
Below is the transaction history:
1. Bought Reliance on Jun 1 and sold on Jul 30 for a profit of 4K
2. Bought Asian Paints mid month futures on Jul 1 and sold on Aug 1 for a profit of 2K
3. Bought BHEL mid month put options on Aug 1 and sold on Sep 15 for a loss of 1K
4. Bought Maruti on Jun 1 and sold on Aug 15 for a profit of 10K
5. Bought bank 6-month FD product and got gain of 2K in the same financial year
Questions:
1. Which of the above is business profit/loss?
2. All business profits/losses can be added/set off against each other?
If answer to # 1 is all and # 2 is yes, then am assuming that total taxable business income is 4+2-1+10+2 = 17. Is that the right way to go about it?
Its tricky because we wouldn’t know if you’d be categorized as a trader/investor.
If you’re a Trader:
Q1) 1,2,3,4 will be business income. The net gain (profit-loss) will be taxable.5 will be Income from other sources
If you’re an Investor
Q1) 1,4 will be Income from Capital gains (Short term capital gains), you’ve to pay 15% tax on the gain. 2,3 will be Business Income, net gain is taxable (set off only against business loss allowed). 5 will be Income from other sources
Best to consult a CA while filing.
Kum, why don’t you check this: http://zerodha.com/varsity/module/markets-and-taxation/, we have an entire module updated.
1. All the above are short term equity delivery trades, and as long as you don’t do lots (hundreds of such trades) of it in a year, you can consider them as short term capital gain. You needn’t consider this as a business.
2. All business profits/losses and also speculative gains/losses can be set off against each other.
Tax on short term gain is 15%, do go through the varsity module.
Thnx Nithin and Venu
Dear Sir,
I got to knw from CA that audit is not required in case of loss from fy 2014-15 unlike F.Y. 13-14
Also, according to him loss can b carry fwd without audit.
I hv read ur module on taxation.
Dis is wat I gt from my CA.
Is dis true?
Mahadish, I don’t think any rule/law has changed on this in the last two years. If u have read the taxation module, audit is required only if there is a tax liability. If your total income (trading+everything else) is less than Rs 2.5lks, u don’t anyways need an audit to carry forward the loss.
Are the profits from f&o taxable if the funds are not withdrawn from the trading account and and currently invested in stocks?
Yes, profits will be taxed regardless of how you’ve put such profits to use.
Hi Sir,
Also, If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB)..What does this mean to a trader. I do trading and I fall into this bucket(I guess most of the traders falls into this bucket). What is 44 AB means..??
Could you please explain this?
Regards,
Nagesh
Do check this: http://zerodha.com/varsity/module/markets-and-taxation/
Nithin,
I received a notice under section 139(9) regarding defective return.
In the notice, there are 2 mistakes mentioned and they have asked me to rectify those.
The originally filed ITR4 had some other mistakes also which are not mentioned in the notice.
So, when I file a revised return in response to notice, can I correct those other defects/mistakes also which were there in originally filed ITR4.
If yes, then will the originally field ITR4 be nullified and accessing would be done by the newly filed revised ITR4 only?
Thanks,
RS
Hello Nitin,
In the contract note profit or loss comes after deduction of 1- Securities Transaction Tax, 2- Service Tax, 3- Exchange Transaction Charges, 4- Stamp Duty. All these taxes are there. Apart from these taxes one has to pay Income Tax? Is it 30% per year? Means only 70% is the net profit? If loss occurs then also one will have to pay tax? One who wants to trading he will have to maintain a Chartered Accountant? How much fees do that CA take? Please put a light. Kindly reply on [email protected]
Yep, taxes has to be paid on amount only after charges. Check this module, has everything you need to know about taxation.
Hi Nithin,
I am just about to start investing in equities as soon as my account is created on zerodha.
I am a student & not having any source of income. I’ll just be experimenting with some savings.
My expected short-term gains would be less than 2.5 lakhs in a financial year.
Will I still need to file an income tax return next year (provided that STCG<2.5Lakhs)
If not, what is the minimum short term gain after which I need to file IT returns?
You are required to file returns when your earning for the year exceeds Rs 2.5lks, which is when you fall under the first tax bracket.
dear nitin a very good morning
1-first of all thanks a very lot for all the help you provided for filing my returns thnx a very lot
2-i have a qurey i bought few shares of hitachi home at 130 rs two years back,now they are going to delist the shares.as of today i if i sell my shares in the open market i will be liable for long term capital gain which shall be nil. but if i tender my shares in buyback would i be liable to pay any tax or in that case too i will be only liable for long term capital gain tax??somebody i heard when shares are tendereed during delisting one have to pay some tax even if the holding period is more then one year? kindly clarify on this
regards
If there is no STT paid, capital gains are not exempt from taxation. If you tender shares back, no trade happens on the exchange, hence no STT paid. So best to sell it in the open market.
Hi.
I just need a point clarified.
If my total short term profit+loss+income from salary is less than 1 crore and my profit is greater than 8% of my turnover, then I do not need an audit correct?
Salary is not considered as a business. So if short term profit +Loss is greater than 8% of turnover, then u don’t need an audit. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
Sir,
Whether am I liable to deduct TDS (Tax deducted at source) against your brokerage charged assuming that I am a Tax Audit assessee. Pls revert back
Regards,
Veer
No Veer, you don’t have to.
Hi Nithin
I have an urgent query, and any help in this regard will help me immensly. I am a user of Zerodha since a year, and have loved every single aspect of it.
Here is the problem details :
More than 95% of my income is from salary.
I have invested less than 30-50k in shares, since I am very new to trading.
I have done 2-5 same day trades. few short term trades (Bought and sold Within a year) and most long term shares.
I do not intend to do ANY same day trades ever.
Since intraday trades come under speculative business, I had filled ITR4 and submitted.
In the intraday trades, I had made a total loss of ~Rs.2000.
I have not done any audits from CA or asked to make balance sheet.
Till last year, I was filing ITR2, as I dint have any shares or other businesses involved.
Now, the Income Tax department has gotten back to me saying my filing is defective. It is asking me to audit my balance sheets and submit P&L statements.
I asked my CA, (WHo is completely new to filing returns), and he says, no such thing is required, as the amount of money I have traded with, is very less and my primary source of income is Salary.
I need to get this resolved as soon as possible. I dont mind paying extra money over and on top of my legitimate taxes as well. But I want to clear this mess.
What’s the best way forward?
If needed, I can email you/your team, all the return forms uploaded so far and the communications from the Income Tax department.
Have you gone through this module: http://zerodha.com/varsity/module/markets-and-taxation/
Here is what would have happened. Section 44AD requires you to get returns audited if your business profit is less than 8% of the turnover and if you fall in income tax slab above 2.5lks. This is a dumb rule, and we have also taken a petition out on Change to make the CBDT aware of the pain it causes to small investors/traders. Do check chapter 6 in the module.
So yeah, you will need to refile along with an audit done. Do go through the module, all your queries will be answered.
Hi Nithin,
Thanks for the reply.
SInce I have just 2 intra day trades, and most of my income is Salary. (More than 95%) ,
Can I file ITR2 instead of ITR4 ?
Reason I ask is , in the module 6, it is mentioned :
“if you are an individual who is declaring trading as a business income, you have to use ITR 4. ”
So, if I DO NOT declare trading as “business income”, but general income, I can file it in ITR2. That wont require any audit. Will that work?
yes you can file ITR2, but u will not be able to declare your intraday trades. So not 100% compliant way, but ur call.
Hi
I am new to Zerodha trading. I would like to understand how much will be the income tax amount for the trade done for a year. Considered below example for one trade day.
Example:
Tatamotors Future contract for Sep24 – Buy qty – 1000 at Rs.320 and sell qty – 1000 at Rs.321.
In this above trade as per zerodha brokerage calculator with all charges will be Rs.133.10.Brokerage alone is Rs.40 and other charges are Rs.93.10. Profit earned from above trade MTM is Rs.1200. So net gain from this trade is Rs.1067.
Lets say the tax slab is in 5-10lakhs range and taxable income other than trading is 6lakh. So for this trading gain please clarify which calculation method is correct,
Method 1
All other Income – 600000
Trading futures income – MTM – Rs.1200
Total income – 601200
Income Tax for the following,
0-2.5lakh – 0
2.5-5lakh – Rs.25000
5-10lakh – Rs.20240
Total Tax is Rs.45240. Tax for trading income is Rs.240.
Method 2
All other Income – 600000
Trading futures income – 1067
Total income – 601067
Income Tax for the following,
0-2.5lakh – 0
2.5-5lakh – Rs.25000
5-10lakh – Rs.20213
Total Tax is Rs.45213. Tax for trading income is Rs.213.
Method 3
All other Income – 600000
Trading futures income – MTM-Brokerage – 1200-40=Rs.1160.
Total income – 601160
Income Tax for the following,
0-2.5lakh – 0
2.5-5lakh – Rs.25000
5-10lakh – Rs.20232
Total Tax is Rs.45232 Tax for trading income is Rs.232.
Please clarify which method is correct for calculation of tax.
Method 2, suggest you to go through this module we have put up on taxation: http://zerodha.com/varsity/module/markets-and-taxation/
I am a salaried person and trading F & O and having Short term gains also. Details are as below :
1. Income :
Salary – 88740 STCG – 449432 Other source – 32801
2. F & O Losses : 351134
3.STCL Losses b/f (2013-14) : 126358
4. Business(f&o) turn over : 29,50,600 Equity turn over (short turn over) : 55,29.385
My querry is
1. Whether audit is required (Gross income < 250000 and profit less than 8%)
2. Can I show business Income and STCG separately as to get setoff the short term capital losses of 2013-14
1. Since u have no tax liability, u would not need an audit.
2. Yes you can.
Do consult a CA, and also read this: http://zerodha.com/varsity/module/markets-and-taxation/
If I declare myself as a trader and my total profit (primarily fno) in the year is less than 2 lakhs, am i liable to pay income tax? Whether I should file a return of income?
Not liable for income tax, but it is best you file your return of income.
Thank you very much for the reply. I tried to search the forums to know what is the impact of m2m losses in options. I did not want to post too many questions. Can you please let me know what is the effect of m2m loss? Will I need to put in more margin and what is the time i have. I have 3 lots of nifty shorted at 252 rupees and there is a m2m loss. Should i deposit that m2m in my account for tomorrow?
There’s no direct MTM that happens on Option positions. MTM happens by way of increase in margins required to hold such short option positions.
Eg: If you short Nifty Futures @ 7800 and if the market closes at 7912, Rs.112 (7912-7800) gets debited from your account on the same day as MTM loss.
For options, if you’ve shorted an option for Rs.252 (assume margin required to short = 15000), if the price of the option goes up to 300 , the margins required will increase to 18000. You’re required to have sufficient margins in your account for the position you’re holding to avoid the position from being squared off. You can track the margin requirements on our calculator here: https://zerodha.com/margin-calculator/SPAN/
do i need to maintain different books of accounts for speculative and non-speculative business…
and how to account for intraday cash transaction and short term trading delivery transactions…
No not needed. Short term delivery transaction is capital gains. The P&L statement that the broker gives should have already done all the calculations for u. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Words are not enough to be grateful for providing the manual on taxation and markets module 7. Kudos to your distribution spirit.
Please help if I need to get my accounts audited and file ITR4 or ITR2 will do.
– I have no job
– I trade in intraday, futures, short term, long term, all in equity only.
– short term : total shares bought for 2 crores and sold for 2 crores 5 lakh. (i.e., 5 lakh profit)
– futures and intraday together: bought for 8 crores and sold for 8 crores 2 lakh. (i.e. 2 lakh profit)
– I have other income through bank FD interest about 2 lakh.
Please let me know if I need to get this audited and file ITR4? If yes, what is going to happen, if filed using ITR2 and shown everything as short term capital gain.
Check this Vyas http://zerodha.com/varsity/module/markets-and-taxation/, should answer all queries.
Trading in F&O and intraday equity have to be declared under business income. This is not possible in ITR2, and hence u will need an ITR4. If you have tax to be paid, then yeah u will need an audit. But audit is nothing to worry about, check the above link.
Thank you Nithin. HRBLOCK filed using ITR2. They have shown everything as capital gains. Seems FNO trades have been missed out in the calculation. Do I need to get this redone with audit and ITR4 before signing ITRV. Is the revision possible even after ITRV signing too? Until which date, revision of the return is allowed?
Note: I have paid direct tax after calculating as per capital gains and interest, penalty on advance tax as directed by hrblock.
Yes revision possible upto 1 year from the last date.
Thanks a lot for spending your valuable time in helping the community by taking out your time from such a busy schedule of yours.
nithin sir,
please give me replay for my questions
1) salaried person, investing, deriviatives in equity, and mcx commodity which form
2) if house wife doing, day trading ,derivateives and mcx commoidty no other incomes only doing business in share market , then what she do for it
1. ITR4
2. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Hi,
My ca has given chalan to pay tax more than I actually should pay. If I withdrew 10000 and pay same 10000 to my account, does it becomes 20000 for tax calculation. If so any way to avoid.
Thank you,
Chetn
Hmm.. not getting ur question. But whatever u r saying, doesn’t sound right.
Hi, I am an salaried individual and I also trade in equity shares and derivatives.
1) I bought some equity shares in 2011 and sold them in 2014 for some loss. As I am not an investor(since I trade in F&O) where should I include this loss? In capital gain/loss or business?
2) My salary is around 6 lacs and after all the deductions, the taxable income is around 3.5 lacs. My total loss in Futures and Options is around 2 lacs. As my net taxable income is below 2.5 lacs, So do I need an audit by a CA even though my net profit is less than 8% of total turnover?
Which section should I fill the details for the return? 44AB or 44AD
http://zerodha.com/varsity/module/markets-and-taxation/, check this once.
1. Depends on how you declare ur equity delivery business. If u show investments, it can be shown capital gain/loss. If business, then business loss.
2. You cannot setoff trading loss with ur salary/business income. So yeah, u will need an audit. Sec 44AD
Hi There, I am a stock market investor and and a salaried employee. I have only short term gains for this year and want to know what can be considered as expenses while filing the returns out of the below charges. Which form i should file? i believe its ITR-2.
The expenses are..
Brokerage
Service tax (i think this is what has been charged for my brokerage)
STT
Stamp Duty
Other charges
Please help me on this quickly.
Any help that you would be able to provide for this query?
Everything other than STT can be considered as an expense. Yes you have to use ITR2.
**Kindly help me with my query urgently**
I have –
1. Profit from Intraday Cash – 100000 (approx.) / Turnover – 3 lakh (approx.)
2. Losses from Shortselling/Auction Cash – 120000 (approx.) / Turnover – 30 lakh (approx.)
3. Losses from Short term Cash – 275000 (approx.) / Turnover – 3 crore (approx.)
4. Losses from Long term Cash – 75000 (approx.) / Turnover – 17 lakh (approx.)
5. Fixed Deposit Income – 50000 (approx.)
Do I need to fill ITR4? If yes, do I need to go for audit or not (considering that the turnover is more than 1 crore but the overall income doesn’t cross 2.5 lakh)?
Yes, you need to use ITR4. But audit is not required as you don’t fall in a tax bracket. This module should explain everything http://zerodha.com/varsity/module/markets-and-taxation/
Nithin Sir – First of all, thank you so much for answering so quickly and that too on a weekend! Thank you!
However, I’m still uncertain. I have spoken to 3 CAs locally and they asked me to go for audit. They said that irrespective of the income (positive or negative / falling in tax bracket or not), if the turnover is more than 1 crore, then audit is a must. They are charging to the tune of Rs. 20000 for Audit and Filing.
I am really grateful to your advise and do not wish to challenge anything or offend anyone but I will be really thankful if you could throw some more light here and clear the doubts.
I am in great loss and really don’t wish to spend more for an audit but if it is a must by lawmakers / IT Deptt., then I would want to be compliant.
Sincerely,
Reema
Reema, have u checked this: http://zerodha.com/varsity/module/markets-and-taxation/, everything u need to know on this subject. But yes, if your turnover is more than Rs 1crore, audit is mandatory. What is 1cr turnover is explained in the module (it is not contract turnover). Also, if for the year u r in a loss(total income including trading loss +all ur other income), then it would mean that there is no tax you have to pay. If there is no tax to be paid, no audit is required.
Thanks again Sir. We did refer to that article.
A.
We are calculating turnover as follows –
1. Intraday – Sum of absolute value of profit and loss tradewise.
Ex –
Day 1 – Scrip A – Profit 1000
Day 2 – Scrip B – Profit 2000
Day 3 – Scrip A – Loss 500
Turnover = 1000+2000+500 = 3500
2. Short/Long Term – Sum of gross sale value (value at which sell order was placed in the market X quantity) scripwise, of all the sell transactions during the FY.
Ex – Sold
Day 1
Scrip A – 1000
Scrip B – 2000
Day 2
Scrip C – 3000
Scrip D – 4000
Day 3
Scrip B – 1500
Turnover = 1000+2000+3000+4000+1500 = 11500 (we are not removing brokerage, STT, other charges, etc. from the gross sale value while calculating just the Turnover)
B.
Following the above, we are getting Intraday Turnover of around 3 lakh and Short/Long Term Turnover of around 3.17 crore. Profits are around 1 lakh for Intraday and losses are around 3.5 lakh for Short/Long Term. Dividend+FD Interest = 1 lakh (approx.).
From, this we conclude that we have business Turnover of more than 1 crore but since we don’t have (business profit/loss+Dividend+FD Interest) > 2.5 lakh (min. TAX Bracket), so we don’t need to go for Audit of our ITR4.
Please confirm if our point A & B are correct or not.
Regards,
Reema
Reema, yes you are right with all points. But here is the thing, your short/long term can be either shown as capital gains or as business. If you are showing it as capital gains, you are not required to include that in your business turnover.
hi nithin,
when we buy shares, zerodha sends us a contract note via email . should we take a printout of that contract note? and if we sell those shares after 1 year we are eligilble for LTCG . so do we have to show that contract note to tax authorities to prove that shares are more than 1 year old. what is the importance of these contract notes ?
No Shubham, no need to print contract note and all. When filing your return, you just need your P&L statement and the ledger. If there is a scrutiny by the ITO, and if he asks for contract notes, this will be needed only then. Anyways, all the contract notes usually will be in your inbox, in any eventuality like this, you can print it then.
thank you so much nithin. you being the founder of zerodha must be a busy man. still you reply to almost each and every customer query. that is simply outstanding. you and your team are doing great work. i am new to zerodha and i am very very happy with the kind of service i am getting. i wish zerodha keeps on scaling new heights and soon it becomes the biggest broking house in india. keep up the good work team zerodha.
Hi Shubham,
Contract notes are a confirmation for the trades that have taken place in your account on a given day. It establishes a legally enforceable relationship between the trading member and client in respect of settlement of trades executed on the exchange as stated in the contract note. It also mentions the various charges that have been incurred for the trades that have taken place including statutory levies.
You aren’t required to take a printout as such since its available with you as soft copies. Just in case there’s an Audit, you may produce the contract note as a supporting document.
thank you venu 🙂
Hi Nithin ,
I have a query – can we ourselves file ITR4 online ? ( to declare trading loss ) , without using a CA ?
Thanks, Linda
Yup, you can file ITR 4 online as long as you’re familiar with how its done.
Nithin, I had one more doubt. I have salary income and business loss from FnO transactions. Due to the loss, I would not be declaring 8% of turnover as income. This would ideally mean audit of books of accounts u/s 44AB.
However, if you read 44AD, it says eligible assessee is one who has not claimed deduction under chapter VIA. Point to be noted here is, I have claimed deduction under chapter VIA and hence will not be an eligible assessee as defined u/s 44AD. Would this mean I would not be required to have books of accounts audited [even though profits are not 8%] because I am not covered u/s 44AD?
Thanks in advance
Kashyap, yes you would need an audit.
Your inference of chapter VIA is wrong. Just because you haven’t claimed these deductions, don’t mean that you don’t need an audit. You can reconfirm with a CA.
Best,
Nithin, could you please throw some light on maintenance of books of accounts u/s 44AA?
Can you look at the chapter on turnover here: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Nithin,
How do you account for the Winners Payback for 60 Day Challenge credit received as reported in Zerodha Ledger ? Should it reduce my Gross Loss value ? Kindly suggest.
We show it as a credit on the ledger. So yeah for you the gross loss value will reduce.
Nitin when filing tax returns can i treat my MIS activity – 7 times a year, as a separate turnover from Delivery based Turnover. In my MIS turnover which i am involved in as a trader my profit is 15%. In my delivery based transaction in which i am involved as an investor the turnover is 355746.80 with a net profit of 19414. Details –
Intra-day / Speculative profit 258.50
Intra-day / Speculative turnover 1666.50
Short-term profit 19414.19
Short-term turnover 355746.80
So if i treat them separate i have a short term capital gain and the profit % of 8 % does not matter here. And as a trader the profit % is higher than 8 % And thus there is no need for a CA audit. Can i do this ?
saif, if you are showing delivery based trading as capital gains, that need not be included in calculation of turnover. So yeah, you can do it your way. Audit is only required on business turnover (speculative or non-spec). Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Nitin
A very good evening that was indeed very helpful ,i have few more queries to bother you hope you wont mind
1-when i fill itr form 4 it says ltcg @ 10 percent and @ 20 percent in capital gain section.Is ltcg taxable in ay 15-16 ??It was supposed to be zero right?
2-“Income from business(excluding speculation profit and income from specified business) or profession” and “Income from specified business”———- futures and option will come under the ambit of which of the two??
3-if someone acquires stcg of 55000 on an expendicture(brokerage and stt) of 6lakh with no speculation income or business income or ltcg,could she file itr by papers(she wants to avoid filing itr online)??
4-does nri need to file itr if she has aquired ltcg in fy 14-15??
5-thnx in advance
regards
1. You need to fill LTCG from equity in schedule EI (exempt income).
2. Income from business
3. You can’t file any ITR by paper any more. All ITR filing now is online.
4. Not mandatory, but it is best to file.
Dear Nitin
A very good morning. thnx for solving the query.Nitin i read somewhere when income is less than 5 lakh itr could be filed by papers manually and online filing could be avoided.kindly clarify.Thnx
regards
Yes less than 5lks can be manually, but if you have tax refund only online.
Thanks for the swift response Nithin ! Really appreciate it. Yes i have gone through this module 2 times and it is really very helpful. It is from this module that i got this idea so i wanted to run it by you. And like i read from there the example of a salaried professional with 12 lakhs as his salary i got this idea. Otherwise i was thinking that i will need to get an audit done and was dreading the cost and the thought !
Sir, I want to become a full time trader, i want to know whether i should open an individual account or some sort of company to avail maximum tax benefit.
If you are trading with your own money, best to do it in individual name itself.
Dear Nitin
A very good morning
1-lets say if someone doesnt make any income and has acquired short term capital gain of 1 lakh rupee.how much is his tax liability?? would it be 15000 rs or nil (as his total income is less den 2.5 lakh)???
regards
It would be nil. If there is no other income, until first 2.5lks of STCG there will be no taxes applicable. Tax liability will be 15% over 2.5lks.
Dear Nitin
A very good evening that was indeed very helpful ,i have few more queries to bother you hope you wont mind
1-when i fill itr form 4 it says ltcg @ 10 percent and @ 20 percent in capital gain section.Is ltcg taxable in ay 15-16 ??It was supposed to be zero right?
2-“Income from business(excluding speculation profit and income from specified business) or profession” and “Income from specified business”———- futures and option will come under the ambit of which of the two??
3-if someone acquires stcg of 55000 on an expendicture(brokerage and stt) of 6lakh with no speculation income or business income or ltcg,could she file itr by papers(she wants to avoid filing itr online)??
4-does nri need to file itr if she has aquired ltcg in fy 14-15??
5-thnx in advance
regards
2-
My turnover from F&O, intraday trading and from delivery exceeds Rs. 1 crore & incurred a loss of 40,000.
I don’t have anyother source of income and not interested in c/f the loss above mentioned. Do I need to get a tax audit by a C.A .
Rahul, if your total income for the year is less than Rs 2.5lks there is no need of an audit. Check this module http://zerodha.com/varsity/module/markets-and-taxation/ on taxation.
Even though I have traded in stocks and F&O occasionally, since my gross income (before deductions) this year is below maximum exemption limit of Rs. 2.5 Lacs, I understand that it is not mandatory for me to file ITR. Can you please confirm?
Yes, not mandatory to file ITR, but it is preferable to file.
Thanks Nithin!
Hi Nithin,
I have no salary income. My earning from FDs is less than Rs. 2.5 Lacs. I also happened to trade into derivatives (F&O) a few times (9 times to be precise) this financial year. Total value of trade was about Rs. 24000 and loss incurred was about Rs. 2000. Please let me know which ITR form(s) I need to fill in and if I need to get my account audited from a CA?
Thanks!
If you are trading F&O then ITR4. If your total income is less than 2.5lks, there are no taxes to be paid, and hence no audit.
Nitin, your inputs are much appreciated.
So FnO (or is it total income?) “profit less than 2.5 lacs” means no audit for FnO? even if I wish to carry forward FnO LOSSES of say 3lacs on a turnover much less than 1cr or so (losses here are less than 8%)?
This “no audit” holds irrespective of what STCG (I ‘ve losses here) / LTCG (have gains here, as I can’t recall the costs) sections add up to?
Just to confirm turnover is each FnO trade line item absolute value (profit or loss both taken as a plus sign) and premium not added?
Also, for FnO, is it ok to take trades ONLY which were fully closed within March or should one consider trades that were opened in March but closed in Apr (next FY)? This is confusing as P&L Stmt from broker based on daily account debit/credits shows different picture than actual trade line wise profit/loss.
Suggest you to go through this: http://zerodha.com/varsity/module/markets-and-taxation/, we have broken down everything.
If there is no tax to pay for the year (so total income < 2.5lks) then audit is not required. Audit is only on business turnover and hence capital gains don't make any difference. Only F&O and intraday equity trading is business. Can you go through the module, all your questions will be answered there.
Hi, would you recommend couple of decent CAs for basic income tax filing with FnO trade losses?
hmm… CA’s filing ITR4 are usually best chosen locally.
Dear Nitin
A very good evening
i have this itr 4 from infront of me just am curious to know where do i have to filll if i am investor or a trader?? how would income tax authority know if i am a trader or a investor?
thnx in advance!
regards
Filing Income tax returns is like self policing. You can declare whatever/however u want. But if income tax calls you for scrutiny, the impact/penalty of mis-filing can be huge.
Nitin, I really need some suggestions of decent CAs who are knowledegable and won’t charge a bomb for simple IT returns. Any metro Delhi / Bangalore would do.
IF you are in Blore, check taxiq.in
Thanks Nitin. Spoke to a couple of CAs but seems their understanding is quite outdated and most have not done FnO work before (or they charge some ridiculous amounts).
This community seems most educated and reasonable lot – hence the request for referral to a decent CA here … 🙂
Sorry or re-posting on this thread but I think this thread is more relevant for my query. Please do provide a filled ITR 4 excel as I already consulted 3 CAs all giving different turnovers and intraday+capital gain 🙁
Hi,
My main source of income is FDs and Intraday + BTST + short term. Income below taxable limit. Still I received notices asking why I have not submitted returns for past 2 years. They are referring to my above trades under STT-01, STT-02 and STT-03.
So I have decided to file this years return and I know I need to file ITR 4. Please help in providing some ITR4 specimen for stock market traders…..
Suppose as per portfolio position from backoffice I have:
Delivery purchases = 500000
Delivery sales = 492000
Speculation purchases = 6200000
Speculation sales = 6215000
Total of positive and negative values of speculation entries = 50000
Cost price of Stocks with me on 1 Apr 2014 = 56000 (Calculated my be from last year reports and not available directly)
Cost price of Stocks with me on 31 Mar 2015 = 110000 (Calculated my be from this year reports and not available directly)
Market value of stocks (available from backoffice) held on 1 Apr 2014 and same day value = 67000. I dont now why it is required. So I think this is to be ignored and 56000 is to be taken as opening stock.
Market value of stocks (available from backoffice) held on 31 Mar 2015 and same day value = 95000. I dont now why it is required. So I think this is to be ignored and 110000 is to be taken as closing stock.
Margin money in trading account on 1 Apr 2014 = 9000
Margin money in trading account on 31 Mar 2015 = 10000
Please help me with sample ITR 4 for this data.
Assuming that FD + above data is less than taxable limit and my profit is less than 8 percent, am I required to get myself audited?
Thanks
Gaurav, can you check this http://zerodha.com/varsity/module/markets-and-taxation/, the last chapter on ITR forms has a sample ITR4 in excel. If you are below taxable limit, there is no tax and hence no audit required.
Nitin,
I did read that excel and chapter but that excel is for audit/account books maintained. As a trader that too at small level, I wanted some example excel that can be filled from backoffice reports. Ideally I should be filling non accounting case values in PL and BS of ITR. I know you might be short of time but can you help me:
1. filling the example data that i mentioned above in ITR 4?
2. No taxable income = no audit required. Any reference of IT act or something for this as my CAs are not believing this.
3. CA telling me that turnover to show in return is total of delivery sale + speculation sale but in case we want to check if audit is required or not then we take delivery sale + absolute total of + and – values of intraday. Is this true?
I am sure if we can fill one ITR 4 with above sample values, it will be for the benefit of all the readers of this post. Please guide me.
Thanks
Hey Gaurav, ITR4 doesn’t really change just because there is an audit. Audit means that a CA will check your books and records. So that excel sheet is more than enough. You just have to disregard the income that you don’t have. ITR4 is a complex form, best to get a CA do this for you. As I have written many times, this is a grey area and things like turnover/audit is not written clearly in black and white. So it is best to speak to a CA who has filed such returns, and stick by what he says.
Hi Nitin,
I have salry income 6lacs
fd income 70 thousand
Future and option loss 4lacs
can i adjust my Fd income with future and option loss and get refund from IT deptt for TDS deducted on FD….do i need to get an audit . MY total turnover in future option is around 50crore(all buy sell) but if I sum Pl account it 50lacs
Can you check this: http://zerodha.com/varsity/module/markets-and-taxation/.
Yes you can adjust the FD income with F&O loss. Yes, it is best to get an audit done. Check the module above.
What are the tentative charges for the auditing the books for only F&O tranding income?
When i inquired to one company, they said it costs between 25k to 35k. Is it really costs that much?
Could any one refer some CA contact details around south Bangalore?
Why don’t u check with http://www.taxiq.in, they are in Chamrajpet.
Dear Nitin a very good morning
If a person is non salaried and has acquired capital gains from equity market(no derivaties).could he use itr 2 form for filing income tax?thnx
regards
Yes, absolutely.
Dear sir,
I am a retired govt servant ( age 75)and my annual pension income is around 2 lacs and FD interest is around 10k. i had stopped incometax return since 15 years back and year 2013 , open DEMAT account in stock broking firm with opening amount of 10 k. Broker representative has done some transaction in equity share, F&O, commodity which has given loss of rs 60 k to 70 k in a year in total transaction more than one crore sell & buy amount ( not turnover).
I received notice from income tax that non filing of income tax return -reg. They had given notice based on information code CIB -502, STT-01, STT-02,STT-03,STT-04,STT-05 , TDS-194 A.
kindly advice.
In the year 2013, you have no tax liability as total income less than Rs 2lks (considering the loss). You can explain this as the reason for non-filing of income tax. I guess this is an automated notice that you have received as exchanges sharing trading data with IT dept. One of the reasons, why we have mentioned that it is best to file ITR if you have done any trading.
Thanks a lot Nithin for sharing this imp. info and your consistent efforts to answer most of the queries.
I also have a query 🙂
Say, my wife has demat account but she is house wife, so I will be giving her the money for trading in f-n-o.
she earns a profit of 1.5 lacs. Since this income falls below 2L limit, she may not need to pay the tax.
My doubt is since she is a house wife and its my money that is earning profit from her demat a/c,
does this f-n-o business income needs to be clubbed to my income ?
or does she owns this profit by herself ?
thank you,
Nitin
If she makes profit from the loan you have given, it is her profits. You don’t need to club this with your income.
Thank you, Nithin.
New query now:
My wife is investor. Her demat holds stock for last 5 years. Any profit making now would be ltcg which is non taxable. If I transfer her stocks to my demat now, keep them for few months and book profit this year.. would these transferred stocks’ profit still qualify for ltcg ?
I want to convert wife’s account from investor to trader.
thank you for your kind response,
Nitin
Yes, transfer from wife to you can be considered as a gift. So the holding period will remain the same, and once you sell it will continue to qualify as LTCG.
sorry to interrupt but if u convert your wife from investor to trader in that case ltcg will be clubbed with total income and would be charged as per normal tax slabs.if you are a trader in that case ltcg is not nil.Nitin sir am i correct?
regards
You can still show LTCG separately when filing returns as a trader. But this requires clear demarcation between investment and trades. check this module, explained everything in detail: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Nitin
A very good morning.
1-i am investor
2-ltcg is 2.5 lakh
3-stcg is =55000 minus 15 lakh expenses=55000-15lakh=-14.5 lakh
4-cash intraday = loss of 11 lakh ie (-11lakh) on a turover of 25lakh
5-futures =losss of 10 lakh i.e(-10 lakh) on turonver of 35 lakh.
6-interest income from fd is 1.5lakh
my query
1-am i liable for tax audit in my present case??
2-i want to avoid online filing of itr-4 can i file itr manulayy by paper in above case?
regards
1. Your net profit for the year is : 2.5 -14.5-11-10+1.5 = 31.5lks loss. Since there is no tax you have to pay, hence no need of an audit.
2. Today everything has to be done online. Even if you meet a CA, he will file the returns online for u.
dear nitin
thnx a very lot for this very important suggestion…
how about filing income tax return for various client after charging suitable fees?? trust me nitin not even d best charatered accountant knows much about filing return in equity market!!i am fortunate to find this lovely website .thnx once again!
regards
that is a different business all together. But yeah, we might end up doing this in the next few years.
1) A salaried employee fills who has to fill out ITR-2 receives a deposit of Rs. 15 lakhs in his savings bank account.
2) This credit entry is due to the sale of listed equities with STT paid which he had bought 4 years ago for Rs. 20 lakhs. Clearly, the 15 lakhs is non taxable due it being Long Term Capital Loss.
3) An IT auditor, will not know the source of income of Rs. 15 lakhs and will send notice to the person to explain it. How to avoid scenario to receive notice by properly declaring the amount in the ITR-2?
4) Which amount is to be filled in & where to fill in the amounts in the ITR-2?
Kashyap, this year when filling the ITR 2 mention long term capital gain as -5lks. Chances of getting a notice on ITR2 is quite less, and even if you did, I am sure you will be able to show the source of income for the Rs 20lks of stocks you had bought 4 years ago.
Dear Nitin,
What is the difference between:-
LTCG shown in Schedule – Capital Gains & LTCG shown in schedule – Exempt income?
LTCG in Schedule CG asks for listed equities under section 112(1), but it is not clear what they are? Can we include stocks bought in NSE / BSE via Sharekhan / Kotak securities in this?
Yes, you can include stocks bought from any brokerage firm. Any gain made by holding stocks and selling them after a year can be shown in LTCG.
Still not clear. Here are below doubts which are common for lakhs of users:-
1) Amount to be declared in LTCG = Profit only
or Proceeds received (= purchase price + profit)?
2) Sale of listed equities with STT paid to be declared in Schedule – Capital Gains or Exempt Income?
1. yes, only the gain/profit you make has to be declared.
2. Yes
Check this module: http://zerodha.com/varsity/module/markets-and-taxation/ a lot of your queries will be answered.
Thanks, went through the pdf file. However, it does not cover the common case:-
1) Method to declare income received from sale of listed equities after one year with STT paid in ITR-2.
2) I have received different inputs from difference CA’s (including paid ITR filing websites).
3) If only loss / gain is declared and not the actual income credited (proceeds = selling price +/- gain / loss), then how will the IT department know where the income came from?
For example, consider the below case:-
Suppose that profit = only Rs. 5000, but sale price of entire lot was 10 lakhs, then LTCG = only Rs. 5000. But income = 10 lakhs. Surely, it will raise flag in IT dept. automated computerized tracking system and lead to notice.
The ITR form clearly says (Long-term capital gains from transactions on which Securities Transaction Tax is paid), gains is clearly profits. As long as you have income/proofs to validate the purchase of stocks few years back, don’t think should be an issue at all. IT department is more bothered about people who don’t file or trying to do some manipulation. But do consult a CA.
Sir,
I am working in PSU & I am trading in Intraday as well as delivery & I am having loss.
1.Which ITR Form should I fill?
2.Please tell all charges which can be added to my losses so that I can adjust to the Profits in the next financial years.Such as can I add all my broadband bill paid during the Year 2014-15 to the losses, or STT Paid etc.
3. Suppose my loss is Rs 8000 during 2014-15,Do I have to Pay any taxes for that?
1. ITR4.
2. Check chapter 5 here: http://zerodha.com/varsity/module/markets-and-taxation/
3. No taxes have to be paid on losses.
Hi,
I am a salaried person and have been investing in stocks for last few years. For last 4 years, I made short term losses every year and declared them every year too. Cumulative losses are 10 Lakhs. This year, I made 40 Lakhs profit in long-term and 7 lakhs profit in short term. My taxable salary (on which TDS is deducted) is around 26 Lakhs. My turnover has also crossed 1 Crore this year.
Since my STCG of 7 Lakhs is less than the 10 Lakh loss I accumulated over the year, there is no short term tax. Also the long term profit of 40 Lakh should also be tax free.
In previous years, I never declared myself as a trader so should I declare myself a trader this year now that I made a profit? Ideally if IT department accepted my claim of being an investor in all these loss making years, should I not continue to call myself an investor and not pay any tax on these gains?
Thanks and regards.
Yep, I think you should continue to file as an investor and not worry about paying taxes. Congrats on the profits this year :). Btw you can also check this module we have put up on taxation.
Thanks Nithin for a prompt reply. There is a followup question I want to ask regarding my earlier query. Since I am an investor, but my turnover is over 1 Crore, should I go for audit? And if I do go for audit and still file ITR2, there is no provision in ITR2 to update any audit info (I have not looked at ITR 4 but I believe there must be some way to attach audit results there). So even though I file ITR2, does it make sense to get an audit done and keep the report with me in case IT department asks for it or does it make no sense since I am an investor and will be filing ITR2.
Thanks and regards.
No audit required in case of ITR2 irrespective of the turnover. Audit is required only when you have business income.
dear nitin
A very good evening
1-when we say income does it includes profit from shortterm capital gains??
2-As per rules it is mandatory to file itr online for income above 5 lakh..lets say i have salary income of 4llakh and shortterm capital gain of 10lakh, would it be mandatory for me to file itr online??or dere is anyway i could avoid filing itr online??actually i want to avoid filing itr online.
3-as per tax audit criteria if TOTAL INCOME is less den d taxabale limit and even though d profit is less then 8 percent of the turnover one doesnt need a tax audit. Does this total income includes earnings from capital gains(stcg,ltcg)??please simplify the term TOTAL INCOME.
thnx in advance
goodnight
a
Income means all your sources of earnings.
1. Yes income includes STCG. But this isn’t your business income, but STCG income. Income can be classified based on source.
2. It is mandatory to file ITR if your gross total income ( sum of salary, STCG, Business, and others) exceeds Rs 2.5lks. (5lks is for super senior citizens, above 80 years). You can’t avoid filing ITR if your income is above Rs 4lks. On your STCG of 10lks, you have to pay tax of 1.5lks, this can be paid only if you file your ITR.
3. Tax audit criteria comes into play only when you have business income. This doesn’t come into play if you have capital gains and salary, in which case you need to use ITR2 and not ITR4.
Hi Sir,
I want fill ITR4. But its no available to be downloaded on Incometax Dept website for the AY 15-16.
Could you please let me know how can we submit.
Thanks,
Manoj
There are new ITR4 forms supposed to be released this year, and hence I guess the delay. It should be out soon, and my guess is last date for filing the returns might get extended if there is any further delay.
Do we need to use MTM while calculating P&L?
Eg I Sold 100 Nifty Future on 6-Mar-2014 for 6410 and Bought it on 29-Apr-2014 for 6755
I would like to calculate 6755 – 6410 = 345 (*100) as loss for Financial year 2014-15 instead of doing all MTM on 31st March or 1st April.
Also since we have contract notes for actual trade date would it not make it more authentic to use this technique?
If you are following this technique, it would be best to consider this trade for the next financial year (2015-16). But do consult your CA on this. Do check this module on taxation: http://zerodha.com/varsity/module/markets-and-taxation/
Hello,
Can you please let me know the contact details of CA Ompraksh Jain where i can get help in filing my returns or else suggest any one who can do that for me
Thanks
You can contact him through http://www.taxiq.in
Dear nithin ji
If u could suggest auditors who can file our returns , it will be of great help .. i consulted 2-3 auditors and each one is giving different suggestions to file itr … i am from bangalore
Dear Nitin,
I have been reading yours blogs and they have been a important source of our tax education. Thank you.
I have 2 scenarios for you to throw some light on it! I will be grateful.
Scenario 1.
Say that I decided to buy 25lacs worth of stocks(total 25 types of scrips) in a particular month (say January 2015). Once all the stocks have been delivered to my demat account, I pledged them all with the broker and started trading F&O on the margin exposure received from the same broker. Say this F&O trading started in April 2015 and continued for some time. (I have filed my FY2014-15 saying I own 25lacs worth of stocks)
Come March 2016, I stopped F&O trading, released the pledge on all my shares and sold them all in same month(March 2016) for 30 lacs.
Now when I file my IT returns in ITR4 for FY2015-16, I will be declaring my F&O trading as business income and share sales as LTCG.
Will that be allowed as indeed the shares were held for more then 12 months?
Scenario 2
Here there is no F&O trading or anything like that. No pledging of shares also. However out of those 25 scrips I now own from January 2015 in my demat account, I started selling few and replaced them with new scrips. When Mar 2016 arrives I sell all my inventory. On analysis I find that out of 25 original scrips, 10 have been there for more then 12 months and rest have been less then that. In essence because of my shuffling of shares, 10 scrips ended up long term and others short term.
So my question is obvious, can I segregate the sales or shares to LTCG and STCG when I file my return for FY2015-16
THANKING YOU.
Sunil
Scenario 1: yes will be allowed.
Scenario 2: yes absolutely. If you are trading at Zerodha, our Tax P&L will also do this segregation.
Also check this new module we have put up on taxation: http://zerodha.com/varsity/module/markets-and-taxation/
Hello Nitin Sir ,
I want to segregate my portfolio into two say
Trader :- Where I would typically take the delivery of stock and may sell them within few days / or months or say any period within one year.
Investor :- Where I would buy or accumulate the shares over the period ( say 3 Yrs.or 10 Yrs or more ) and typically may earn bonus/Splits shares and earn dividend
As per one of the article posted on our website
Distinction between shares held as stock-in-trade and shares held as investment – tests for such a distinction
CIRCULAR NO. 4/2007, DATED 15-6-2007
CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income.
My Question is , how do I create these two portfolios
Would it mean two Demat account ( of IL&FS Securities) , one which is linked to Zerodha trading and other is not.
Whenever I wish to be hold onto shares for Long term , I move them to non linked Demat Account using the Delivery Note to my other Demat Account.
Yes you could move it to another demat to create a long term portfolio. But you could still keep it in the same demat and show the two portfolios separately.
Hi there.
Please define term “TURNOVER” with examples. I was in hell of a confusion about the term TURNOVER in Stock trading.As I do mostly day trading, I just need to know in which case I need to get my books audited.
Thanks and Regards,
Kuladeep P
Check this chapter: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/, advise you to start from the first chapter.
I have salary income 8 lk and loss in trading some in intra day 30k and some loss in f n o 25k profit 00000 if I file only itr1?
2.Last year was also similar condition but they have processed my itr1 with nil amount. What to do this year.
Since you have intraday and F&O losses, you will need to use ITR 4. The reason ITR1 would have been processed last year would be because you didn’t declare it. Best to be compliant, check this new module on taxation: http://zerodha.com/varsity/module/markets-and-taxation/
Respected Sir,
As am Mahesh herewith want some clarification regarding intraday trading.I had a DEMAT account and am a intraday trader.I have few colleagues they are ready to credit money to my account.I am using their money and do trading.
Say for Example: If they invest 1 lakh rupees to me then I will assure 1.5 lakhs as a investment and profit for 1 year to them.
So in what section I can deduct TDS to that? is their any possibility to do like that? and all the transactions should be done through bank only legally.
lease clarify and guide me in this scenario.
Looking forward for your favourable response and oblige.
Thanks and Regards,
Mahesh
Mahesh, you can borrow money as a loan and give back interest. But you are not allowed to legally raise capital from people saying that you will trade and run profit sharing.
Dear Sir,
I am a house maker and recently moved to USA in March 2015 with my husband who is on H1b.
I am having a trading account in India and was trading F&O only and I do not have any other income except the bank interest on Savings accounts.
I need clarity on filing the IT returns for the Financial Year 2014-15.
I have done the trading of F&Os only and details as below.
Total Buy Amount : Rs. 39915253.45
Total Sell Amount: Rs. 39775541.18
Total Turnover ( Buy + Sell ) : Rs. 79690794.63 ( say T1)
Total Profit: Rs. 130627.00
Total Loss: Rs. 281088.69
Overall Turnover( profit+loss) =Rs. 411715.69 ( say T2)
Total Gain : Rs. -1,50,461.68 ( i.e Loss)
1. Which turnover should be considered for Audit – T1 or T2? If its T2, I believe I need not to have the Audit done.
2. I am under a loss of Rs.1,50,461.68.
Please guide me on how do I file this loss and which form I should be using.
And
Since I am in USA now,
1. is there any other method I need to follow to file the IT returns?
2. If no, then do I need to mention my USA address or India address?
3. I believe, for a person to be called an NRI, he should be out of India for 180 Days. I have not completed 180 days of stay in USA yet. So should I be filing returns as NRI or Resident.
Please clarify.
Thanks in advance.
Pranathi
Pranathi, I guess you are still a resident. Why don’t you read up here: http://zerodha.com/varsity/module/markets-and-taxation/, has all the answers.
Dear Sir,
I read the whole guide and its very informative and helpful. However I have still have a question regarding Audit.
As per the information provided by you, Audit is required if
The total Turnover is Less than 1 Crore and Profit is less that 8% of total turnover.
In my case total Turnover is Rs. 411715.69 ( The total of favorable and unfavorable differences ). Please note I have done only F&O trading.
And I do not have any profit and its only loss of Rs.1,50,461.68.
If I go by the statement ” Profit is less that 8% of total turnover”, my profit is nill and should be considered as less than 8%.
Please clarify if my understating is correct or not and If auditing is required.
Thanks,
Pranathi.
Yes your understanding is correct. Check out our new module on taxation while trading on Varsity: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Sir,
Based on my previous queries, I have couple of followup questions.
1. Since I am required to get the Audit done, What is the due to file IT returns for Fin Year 2014-15
2. Do I need to have a Digital Signature Certificate in order to file IT returns ( Someone told me that I should have Digital Signature Certificate to File IT returns in case if the account is Audited)
Please clarify
Regards,
Pranathi
1. Sep 30th.
2. Not required, your CA can do this.
Hello sir,
My total loss for last financial year is 1.3 lacs ( all in f&O)
My turnover is around 2.5 lacs But i have received a statement from NSE stating the STT paid and it shows that value of transactions is rs 5 crore on which stt paid is around 5000
I want to know
1. Where is this value of 5 crores used while filing returns? I think i should just take turnover of 2.5 lacs?
2. I am a professional advisory and my net income is 12 lacs and gross business income is 21 lacs.
Is audit required?
3. I have to use ITR 4S? Am i right?
Also i read it somewhere that professionals who earn commissions/brokerage can not use itr 4? So what should i use?
Mayank,
Check our new module on taxation, suggest you to start from the 1st chapter. http://zerodha.com/varsity/module/markets-and-taxation/
1. There are different ways to calculate turnover, for taxation it should be this way: http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/.
2. If you are a professional, audit is required if turnover is more than 25lks. Do check out the module if you are determining your turnover of Rs 2.5lks in the correct way. If you are, then no, no audit required.
3. You could use ITR4S, but better to use just ITR4.
Dear Nitin,
I am a salaried person(under 20% Tax slab) and i did some intraday and F&O activities in 2014-15 year. I am in loss for trading activities. I need to know following:
1) Which ITR form i should fill? Can i still consider myself as investor and fill form ITR -2
2) Do audit is required in my case,
1. ITR4
2. Yes
Check our new module, everything u need to know: http://zerodha.com/varsity/module/markets-and-taxation/
Hello,
I am keeping some stocks long term basis and trading also doing same stock. If i am doing buying and selling how it work. while i am selling First in first out startegey work.
If first in first out statergy I have to pay the tax all of the stock so it is best I need to keep two account, one for long term statergy and one for short term. Is this possible with same broker.
Not possible with same broker Dileep.
Mr. Nithin,
I declare myself as a trader because of my dabbling with F&O and have to necessarily fill up ITR 4. Do I assume that since I have to fill ITR 4, is it mandatory on my part to get the same audited by a CA irrespective of my Turnover and the profits I make ?
As examples, the following cases are provided :
1. My turnover is less than Rs 2 lakhs and my profit is less than 8%.
2. My turnover is less than Rs 2 lakhs and my profit is more than 8%.
3. My turnover is less than Rs. 1 crore and profits are less than 8% but my salary and other income combined I come under the highest IT bracket.
In which of the above cases, do I need to get my accounts audited ? All of them or is there any exception?
Naresh
1 and 3 is when u need an audit. Check out our new module on taxation when trading, all your queries and more will be answered: http://zerodha.com/varsity/module/markets-and-taxation/
Hi Nitin ,
This blog is a great guide for income tax purposes.
I am an NRI for quite a few years now.
I was reading various articles and there is mention of following in lot of places.
Central Government Act
Section 115G in The Income- Tax Act, 1995
115G. Return of income not to be filed in certain cases It shall not be necessary for a non- resident Indian to furnish under sub- section (1) of section 139 a return of his income if-
(a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long- term capital gains or both; and
(b) the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income.
now my query is do I still need to mandatorily file returns if my income is as follows unless I want to seek refund in case excess tax is deducted. I have been investing in shares for past 3 years and havent maintained a proper record of the accounts but the summary is below for 3 years.
1.total long term gains of 6 lakhs in last 3 years from sale of shares after 1 year
2. short term investment income in 3 years where shares were sold within a year but TDS was deducted during the sale. I made 1.5 lakh
3. income of 1.68 lakhs/annum from rental income from a property bought in India. I heard of claiming some adhoc deduction on 30% of value towards maintenance. is that true?
4. received dividends worth 1 lakhs from the shares in last 3 years.
5. I also want a clarification on what qualifies as an investment in the 115G? is it long term as well as short term investment in shares? what other investments?
6. also I had started a PPF before I became a NRI and then continued investing some variable amounts till 15 years which is maturing this year. can I extend it by another 5 years. I had read I can not invest anymore but if not withdrawn it will be considered extended by 5 years . is that true and in that case will it be earning interest? if I can not extend will the proceeds around 7 lakhs in my NRO account be considered as an income for taxable purpose?
looking at the above
a. firstly do I need to file returns ? what if it was just short term and long term investment gain from shares? is that excempt if TDS is decuted as per 115 G?
b. if for refund purposes I need to file whats my taxable income and how much refund I can expect?
c. whats the best case scenario for filing the returns with all above parameters as I have been investing in shares for past 3 years and havent maintained a proper record of the accounts? what all information and statements, certificates will be needed and where to get them from?
d. will it be combined in to one single return for the 3 years?
e. which ITR form I need to fill in? what the due date?
Please guide me with the best of your knowledge.
Thanks and best regards,
Pradnya
a. Yes not required to file if you have only short term/long term investment. But if you have rental income, so you need to file.
b. Yes you have to file returns for the refund. You fall in the normal tax slabs, so if you have paid any excess tax as TDS it will be refund.
c. All your statements are already maintained, by bank and your brokerage. Check this: http://zerodha.com/varsity/module/markets-and-taxation/
d. No it is not, it is per FY.
e. ITR2
i need help to file the it returns
my source of income:
1. Salary
2. intra day (91 lacs and loss 40k) and few MFs closed (50k profit 4k)
3. house sale (i bought a house on 11Feb2013 for 40,00,000 + 2,75,000 registration and others) and sold the house for 40,00,000 on 11May2014.
Question :
As per the above advice from you i should be using ITR 4.
What all documents i should be providing as supporting documents while filing return?
With regards
Pradeep.H
Pradeep, while filing ITR 4 no document as such is required. For the property bit your CA will probably ask for sale deed while buying and selling.
For Equity and MF, the P&L statement provided by broker would do.
Thank you very much for your help.
as my intraday transaction is 91lacs one side it comes to ~2crores do i need to get auditted my books?
With regards
Pradeep.H
Also I have one more query.
As i have done only Equity intraday and very few delivery trading.
Can i file as an investor rather trader?
with regards
Pradeep.H
If you file as an investor, you will not be able to declare your intraday trading, so it will not be being compliant. Check out the module http://zerodha.com/varsity/module/markets-and-taxation/
Pradeep read this module, and chapter on turnover. http://zerodha.com/varsity/module/markets-and-taxation/.
Audit is required if your turnover is more than Rs 2crores.
Thank you for the prompt reply
How will Short Term Capital Gains be taxed if not traded through a stock Exchange? i.e. if STT is not paid. If my income is only from sale of shares, Is the basic exemption Limit available?
STCG, if STT is not paid, is as good as your regular income – taxed at full rate applicable to you. Also in such a case capital gain doesn’t become LTCG till end of 3 years (at which point it is taxed at 20% with indexation or 10% without), unlike on exchange where the limit is one year (and LTCG is exempt from tax)
Almost the only reason to sell outside of an exchange would be if you have capital losses, especially if the stocks have been with your for more than 1year (which means you can’t claim tax deduction on the loss any other way).
For example if you made a loss on a stock that you had held for 1.5yrs, if you sell it on exchange (and as a result pay the LTT) there is no tax deduction you can claim – it is long-term-capital-loss on an “exempt” transaction which wouldn’t even enter the LTCG sections of your return (it will go the Exempt Income schedule just like it would have if it were a profit).
If you however sell it to a friend and transfer via DP Slips from your demat a/c to his (an off-market transaction without paying STT) then the same loss is a short-term capital loss (you held it for less than 3yrs) that can then be set-off against other short-term capital gains of ANY kind (not just the ones taxed at reduced rate). Your friend can keep the stocks or sell them immediately (after the 2-3 days it will take for the stocks to show up in his account) on the exchange at a small profit/loss.
If the above example were for 3+ years then in the off-market transaction the losses will become long-term-capital-losses. that can be setoff against long-term capital gains of the non-stock-market variety (why would you set them off against exempt income?) e.g. from sale of property.
While we are on this – holding stocks for more than 1 year (in case of a gain) can be good for another reason – not only is the tax rate 0, the income is not considered “taxable” – the difference is not only one of semantics. For example if your non-LTCG income in a year is 99lacs and you made 5 lacs LTCG then if the income was considered “taxable at 0%) then your net “taxable income” would be 1.04crores -you end up paying surcharge of 10% on your entire tax applicable on the first 99lacs of income thanks the this last 5 lacs you had.
Since the LTCG income is “exempt” (this is different from “taxed at 0%”) in the above case your net taxable income remains 99lacs – no surcharge is applicable.
I know the above is not example is not applicable to the vast majority of people, but this difference is indeed significant for many reasons (e.g. automatic algorithms that decide whose accounts will go through scrutiny will probably be effected)
Thank you Nitin for your prompt and lucid reply. Keep the good work going…
Hello Nitin,
I have a naive query related to tax. Please bear with me.
I’m trading futures intraday and at the end of every day, the amount is credited/debited after deduction of some taxes (like STT, Turnover etc., brokerage). My query is:
1) Is it not the deduction of tax at source the way it happens when salary is disbursed in a company
2) I’ve read your blog which says we can show all these deductions as business expenses. Which means, we have to actually fill our tax at the end of financial year while filing the return (ITR4 form).
I’m a bit confused with the complete process of filling tax in trading since till now I was salaried and all the deductions were made at source. It would be really helpful if you can provide me information or any link which contains information about how the taxes are deducted, whether STT, turnover charges etc are themselves taxes or they are just business expenses.
Really sorry for the long question and hoping to get a reply from your side.
Thank you.
Hey Aditya
1. The taxes you pay everyday like STT etc are statutory taxes. It is similar to how you pay service tax when you eat at a restaurant. There is no TDS deducted, you have to declare the income and pay taxes on it at the end of the year.
2. Give us 2 or 3 more days, we are putting up a detailed module on http://zerodha.com/varsity/ , all your queries will be answered on that.
Thank you for the reply Nitin. Definitely waiting for varsity chapter!!!
hi nitin a very good evening
1-lets say my short term capital gain is X and expenses incurred on dese trade be A .
2-my cash intraday income is Y and expense incurred on these trade be B
3-my futures income is Z and expesene incurred is Z
my queries if i consider myself as investor
a- can i pay 15 percent on {x-a} which can be carried forward for 8 years
b-30 percent on {y-B}which can be carried forward for 4 years
c-3opercent of {z-x} which can be carried foward for 8 years.
regards
Since you have done F&O and intraday, you can’t consider yourself only as an investor. You have to show yourself as investor cum trader, and use the ITR4 form.
a. yes
b. yes
c. yes
thnx a very lot for ur prompt reply ,keep up good work
regards
In the post you mentioned this to calculate the turnover..
For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts…
whereas, As per the guidance note from ICAI ( section 5.12, page 24, (b); it is mentioned as…
(i) The total of favourable and unfavourable differences shall be
taken as turnover.
(ii) Premium received on sale of options is also to be included in
turnover.
(iii) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover.
(i) It is understood..
(ii) it is understood..
(iii) by reverse trades, I assume that one going short on futures or writing a option, the difference thereon i.e profit or loss incurred should be part of turnover.. Am i right?
My Doubt is : Where is it ICAI have mentioned on the “sell side value of the option contract” to be considered as turnover?
My assumption/comprehension aforementioned may be wrong.. Please correct/clarify at leisure..
Thank you..
Basu, Premium received on sale of options is also to be included in turnover, sale of options is nothing but sell side value of option contract (by value I am still referring to premium value and not the contract value).
pls guide on …
my turn over is lesss than 1 crore and last year stauts is in loss of 1 lakh.. but my salary income is 10 lakh… could i get tax rebate on 1 lakh loss from intra day trading in equity
No Shravani you cannot setoff trading loss with salary income. Trading loss is like a business loss, it can be setoff all your business income (including rental if any). We are taking taxation module live on Varsity in the next few days, should have all your answers: http://zerodha.com/varsity/
Hey Nitin,
I think i was pretty vague in my earlier query…
As per the guidance note from ICAI ( section 5.12, page 24, (b), it is mentioned that The turnover to be determined for F&O transactions is as under…
(i) The total of favourable and unfavourable differences shall be
taken as turnover.
(ii) Premium received on sale of options is also to be included in
turnover.
(iii) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover.
Could you please elaborate point no. (iii)? If possible, with an example would be great…
For reference ………… http://www.caalley.com/gn/30357dtc19988.pdf
Basu, you probably know that interpretation of these statements are quite tricky, and the best way is to be as conservative as possible. So I think what that point 3 refers to is short trades. Short trades or reverse trades, where you first sell and then buy back. Difference meaning any profit or loss on such short trades as well. Mentioned separately because reverse trades usually happen only when trading on the markets, and not anywhere else in our normal lives.
I trade on behalf of my distant cousin. As I trade F&O and make intraday trades through his account will his longer than 1yr held investment be also taxed as a business income?
1.Which ITR should be filed by him as he is salaried too?
2.Moreover can he show any expense like his electricity charges and any other which looks like is directly related to this. Can he also show some amount paid to me in cash for trading on his behalf without having any proof to be required?
Dhiraj, he can continue to show investments and trading separately.
1. ITR4,
2. Yep, any related expenses to the trading activity can be shown, including what is paid to you (it can be shown as your salary).
We are putting up a complete module on taxation on varsity in the next few days: http://zerodha.com/varsity/
If in FY 2014-15, one did not trade at all, the turnover as well as income would be NIL. However there were a few expenses on software, books, etc. related to trading.
1. Do the books be audited in this case?
2. Can the expenses be carried forward to future years without getting the books audited this time?
3. Which ITR form should be used?
Assume no other source of income.
Amit, since you have no income there is not tax liability, and hence no need of an audit. So yes you can show these expenses and file your return. This is very similar to how a startup will have expenses before earning any income.
Hello,
as a trader with new ITR forms which shud be used to file returns…
I have salary income and income as trader.
Last year I had used ITR 4….will this year be ITR 4S?
Regards,
Ganesh Keer
ITR 4 itself. Keep a watch on http://zerodha.com/varsity/, we are putting up a module on all aspects of taxation while trading.
i want to ask in case where audit is required, 8% of turnover is to be calculated for gross/net profit or only for profit.
Net profit.
where audit is required, there is no 8% rule – everything works on actual profits/losses etc.
Hi Basavaraj,
Sorry, I couldn’t provide all the details.
Thank you for a prompt reply. This is Kumar, I am a salaried person further I started trading a year back and I am into LTCG, STCG, Intraday & F&O too. I spend 1-2 hours on trading on weekdays.
This will be my first income tax filing as a employee and trader.
Here are my questions, can you kindly explain in detail:
1. How the turnover for a person is decided ? Is this the sum of all the profit & loss or is it the total amount of worth bought & sold ? Like for example, if I get 100 shares of reliance at 1000 and then sold it for 1050. The net profit is 5000. In this case what is my turnover ? 5000 or 105000 ?
2. When do we need to see the CA ? I heard if the turnover is >1Crore or if it is less than 1 crore along with less than 8% returns. What is meant by CA audit ? What all are required for that ?
3. Can a salaried person play a dual role of investor and trader, so that individual can avail all the benefits from the stock market ? My question is can I be an investor for LTCG (where the tax is 0%) & STCG (where the tax is flat 15%) and a trader for Intraday & F&O (where the tax will be according to the IT Slab of 0-2.5 L, 2.5-5 L, 5-10 L & 10 L above).
I mean can I avail the benefit of 0% tax as an invester for LTCG & 15% on STCG (as I will fall into 20% when calculated according to IT slab).
Overall my question is that, Can a person play a dual role of investor & trader ? If so, can you kindly let me know how can we make it ? or should everything goes into the account of ITR4 as a trader.
In my case the total income for year April 2014 to Mar 2015:
1. Salary – 6 Lakhs per year
2. LTCG : 9,000 Profit
3. STCG : 4,00,000 Profit
4. Intraday: 90,000 Loss
5. F&O: 10000 Loss (Every month there were around 2-3 lots of different stocks and they were kept till expiry, total 16L profit – 16.1L loss = 10,000 loss).
Do I need a CA to file the intraday & FO income/loss as an ITR 4 ? Thank you again in advance for your kind help.
Kumar
1. Turnover calculation can be done as mentioned in the post above. For equity delivery based, it will be the selling value of the stock. So in your example of Reliance, if it was a delivery based trade, the turnover will be 1050 x 100 = 1.05lks. If the same trade was intraday or F&O, the turnover will be Rs 5000 which is basically the tradewise profit or loss.
2. If you have only capital gains, there is no need of an audit. Audit is required in case of business income (F&O or intraday). In your case you have a Rs 1lk loss as business income (F&O + intraday equity), and you fall in taxable bracket(earned more than 2.5lks in the year), so you will need an audit. Audit would basically mean creating your balance sheet for the year using your bank statements (with details mentioned on expenses, income, and etc) and the chartered accountant signing this balance sheet.
3. Yes a salaried person can play duel role, check out the CBDT circular that I gave the link for in the previous reply. Yes you will need to use ITR 4 and best to consult and take help of CA for this.
Hi Nithin,
Good morning. Thank you very much for maintaining the blog. This is Kumar, I started trading a year back and I am into LTCG, STCG, Intraday & F&O too.
In this case
1. LTCG : 9000 Profit
2. STCG : 400000 Profit
3. Intraday: 90000 Loss
4. F&O: 10000 Loss
My question is can I be an investor for LTCG & STCG and a trader for Intraday & F&O. I mean can I avail the benefit of 0% tax as an invester for LTCG ?
Overall my question is that, Can 1 person play a dual role of investor & trader ? If so, can you kindly let me know how can we make it ? or should everything goes into the account of ITR4 as a trader.
Thank you again in advance for your kind help.
Kumar
Kumar, if trading is your primary business and you are trading actively, it is best to show everything as a business income. But if you are not trading actively, yes you can show capital gains (LTCG and STCG) and business income (intraday and F&O) simultaneously. But you need to clearly demarcate between the two. The link to CBDT circular that allows you to do this.
As a part to restructure my portfolio,
i sold YAsh papers at cost price in March 15
Next week, in March itself i sold Jet Airways at a loss of 450 per share
I held this shares for more than 5 years.
Then in April 15 i sold Coal India at a profit of 150 per share. I also held them for more than 5 years
Can i set off the capital loss against capital gain? Is reinvestment of the profits required in the case of Coal India?
Long term capital gain is anyways exempt from any tax, so there is no point in setting off the loss against the gain (btw it is not allowed also) as you anyways don’t have to pay any tax on the gain.
dear nitin
did income tax department changed d itr 4 form dis year going forward?? if yes then where coud i find form its not uploaded in income tax site .kindly help
regards
The ITR4 form is not yet updated on the website. That is the reason last date this year has been postponed from July 31st to Aug 31th.
dear nitin
good evening to u just a small question lets say i acquired ltcg and stcg and dont do any derivatives or intraday..am i liable to set off expenses in this case too??15 percent tax on stcg will be given only once expenses(brokerage,stt etc) is dedcuted from stcg?
regards
Other than STT, everything else can be added on as a cost of acquisition/sale. So yes, 15% after these costs (except STT).
thnx nitin tat was indeed very helpful
regards
dear nitin
quote zerodha.
“Irrespective of the nature of trades you carry out your income tax returns have to be filed before July 31 for individuals and September 30 for companies. ”
dis year july 31 has been extended to 30 august kindly add this in bracket so that a new visitors can know that filing date of ay15-16 has been extended to august30!!keep up doing good work
regards
Hi Nitin Sir
I am a follower of your taxation Q&A and really like the way you are trying to consult various legal experts and firms on behalf of the investor community to help them being “legally correct”. Thank you for all your effort!
Recently I came across couple of readings and wanted your opinion.
a. Please see http://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx and search for “Explanation 2.—For the purposes of this clause”. It says- “the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);]”
This clause has a footnote “Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015.”
b. Please also see item 28 on page 14 and 15 of http://icmai.in/upload/Students/Download/DT-Amendments-29122014.pdf. Particularly the box on page 15 brings everything together from income tax law and SEBI law.
After reading these, can we say that gains/losses from F&O be considered as short term capital gains/losses from FY 2014-15 or FY 2015-16?
Thanks once again,
Muthusamy S
Muthusamy, that is just definition for securities. Gains and losses from F&O has to be treated as business income, this is quite clear. I don’t think this will change anytime.
dear nitin a very good evening one important question which doesnt belong to this section but would be oblige if u reply to same
1-my sister who happens to be an nri since 2001 has made nre fd wid 9.25 percent interest rate in 2007 for a period of 12 years ie 2019.which eventually happens to be tax free had she been an nri till 2019.
2-due to some unforeseen circustances now she has came back to india permanentaly in feb2015.
3-till ay15-16 her status shall remain nri but next year onwards she will be indian resident .
4-how would be d fd status affected next year onward.would fd remain tax free for my sister next year onward as she would be indian resident??
5-should she declare it to the bank that she is nri no more??
6-she visited various bank but most of them are clueless so i thought of posting it to your goodself
7-kindly suggest the best way to save tax legally and suggest declaration which are mandatory to be made
thnx in advace
regards
From the time NRI lands in India, it takes two years after which she becomes a normal resident(end of FY16-17). So until then the tax on FD is tax free. Once she becomes a normal resident, normal taxes will apply. It is best to not hide anything, and also do consult a CA.
Sir,
A trader who is liable for tax audit is eligible for deductions under chapter vi with respect to his other income ? For example 80c benefit of Rs.1.5lakhs for deposits in PPF a/c.
Other income refers to pension/interest income.
thanks & regards,
You can claim all the benefits.
Hello Nitin Sir,
It’s great effort you guys are taking for invetsor and traders i heartly appreciate that .
I am active trader from august 2014 on zerodha terminal.
I have made huge loss, exhausted my all saving.
IN f/o : Total turnover – 2218188.75
Total charges – 63719.74
Gross Loss – 90972
In currency: Total turnover – 15097
Total charges – 4046
Gross Loss -4900
which form i have to fill for ITR4 or ITR4s , and please help, any TAX AUDIT required if there is loss????
which document have to attach?? Is CA is required for audit.
Pls suggest me ASAP.
Thanks.
Mahadev, if you have any other income, you need to deduct this trading loss from all your other income. Assuming after deducting your income is above Rs2lks, then yes tax audit is required. If it is less than 2lks, tax audit is not required.
Use ITR4, and for the audit, just have your P&L statement, the ledger (trading account), your bank statement in an excel, and make entry on bank statement for every expense/earning, if it is from/for your business of trading or not.
Hi,
I have some doubt regarding last date for filing tax and form which is applicable for me.
I am salaried and also trade F&O (turnover less than one crore).
Thank you,
🙂
Chetan, if you trade F&O, you need to use ITR4 and last date is Aug 31th.
dear nitin
1-isnt last filing date 31july ?? and if audit is required its september last??kindly correct me if i am wrong
thnx
This year with the new ITR forms, the last dates are extended to Aug 31st this year. Yes for audit case is Sep 30th.
good morning nitin indeed very helpful blod!!! every investor/trader dealing in equity/commodity/forex must visit this website!! keep up good work
regards
hi nithin,
In Q backoffice The Following is show for FY2014-15.
Profits
TOTAL REALIZED PROFIT = 6,45,870.00
TOTAL UNREALIZED PROFIT = -2,30,250.00
TOTAL TURNOVER = 29,61,410.00
As my nickel fut position was not squared off before 31.03.2015. How to calculate the net profit for FY2014-15, and also for FY2015-16.
Rakesh, the MTM profit based on closing price of Nickel on 31st march 2015 is considered to calculate profitability by the Q P&L. For Fy 2015/16, again the same 31st march closing price is considered as your opening price. Best way to do this, and it is already done on the P&L, u don’t have to do anything.
dear nitin
a very good morning and a query
1-lets say i have taken 1 lot of rpower lets say 4000 shares july 2015 expiry today at 53 rs share price.
2-lets say next trading session rpower closes at 52..my profit/loss statment shows (-4000) loss(though actually i havent sold my lots)
3-lets say next trading session rpower closes at 50 ,my profit/loss statement shows (-4000) loss(though yet again i havent sold my positions)
4-so my profit/loss statement will always show some figure in loss/profit everyday irrespective of the fact that i have actually sold my futures position or not.
5-lets say rpower closes july 2015 expiry at rs 53 rs only–that is d buying price at which i made futures positions..so technicallyy i havent made any profit or loss…
6-my query is while calculating turnover in futurs we have to add the profit and losses of ( profit and loss statment) .cos in that case my profit and loss statement willl show daily entries(eider of profit or loss) and when i addd dis both profit and loss my turnover will ballon big way. on contrary if i consider just my positions for turnover in futures ie bought lot at 53 and sold dem at 53 wid zero profit of losss my turnonver would be zero…
7-kindly guide on dis is turnover in futures is based on profit or loss statement???
Nivedita, i’d suggest you to calculate turnover based on trades and not really on daily P&L. All gross profits and losses of individual trades together can be used as turnover. If you are trading at Zerodha, we have for the first time in India given a tradewise turnover report for the entire year on the Tax P&L page on Q. Check this.
dear nitin
thnx thats indeed really helpful..thnx for d prompt replyy..keep up good work
regards
dear nitin a very good evening
1-i acquired profit of 2 lakh as ltcg
2-acquired loss of 5 lakh as stcg
3-intraday losses 12 lakh
4-futures losses 8 lakh
5-i started doing futures only after jan2015 so wuldnt really call myself a trader
my queries
a-wuld it be fine on my part to term myself as investor though i have acquired big loss in intraday and futures but numbers of trades were not really tat frequent..
b-could i file itr as an investor?
c-which itr form should i be using?
b-would i be liable to deductions namely brokerage,stt etc?? if yes den i would have to add dese deductions to cash intraday losses or futures loss??cos if i add dem to intraday i would be able to carry dese loss for 4 years and if i add it to futures loss i would be able to carry it to 8 years!!
thnx
a. It is possible, but you need to build a chinese wall between your investment and trading for which you need a really good CA.
b. No, you will need to file ITR4 as you have done F&O trading.
c. ITR4
d. Yep, you can add all those as your costs.
Hi Nithin,
Thanks a ton for this post, very helpful.
I have a question regarding tax on equity long term investment.
Suppose, I have 1000 stocks of Infosys and I am holding it for more than a year. Additionally, I bought another 500 stocks of Infosys in last month.
Suppose, if I sell 500 stocks of Infosys on today with a profit- how will the taxation done. Will it be considered long term capital gain(and therefore no tax) or will it be considered short term capital gain(and therefore 15% tax)?
Regards.
I bought 15 shares in Oct- 2013 at 1000 rs. and received the delivery.
Later in Jun-2014 I sold 15 shares at 1100 rs. and in Apr-2015 I bought those 15 shares back in 1050 Rs.
My understanding is I will have to pay short term gain of Rs. 50 x 15 (difference of 1100-1050=50).
And I can consider my purchase of 1000 rs as long term investment.
Please confirm if my understanding is correct. STT is paid on all three transaction.
Yes, you have to pay STCG of 15% on the difference Rs 50 x 15.
But your current holding will be 15 shares bought at 1050 in April 2015. This will not be long term holdings, it will be long term only after April 2016. FIFO method(first in first out) is used to determine how long you have been holding. If you are a zerodha client, we give you a holding breakup with number of days. Check this
Thank you for reply Nithin.
I have one more doubt.
Do I have to pay STCG for my purchase of 100 shares in Oct-13 and selling same in June-14 (1000-1100=100*15) Or I can go away with that if I pay STCG of 50 for my latest buy.
Also I understand that to LTCG I will have to wait for one year. i.e. upto June-15
Thank you.
No, you will have to pay STCG on the earlier trade (buying Oct 13 and selling Jun 14).
Nitin,
Your two statements are contradictory, Can you please clarify me one more time. Which tax I will have to Pay.
1. Do I have to pay tax on my earlier purchase and selling i.e. Oct-13 – June-14, or
2. Next Selling and Purchase i.e. June-14 – May-15.
Also, is there anyway by which I can show that my trade between June-14 to May-15 is short term (as it is under 12 month period) and I can avoid taxation on Oct-13 investment.
So,
1st trade: You bought in oct 2013 and sold in Jun 2014. This is one trade, and this is STCG because you sold before 1 year.
2nd trade: what you have bought in April 2015, and it is still an open trade. If you sell this before 1 year it is STCG, if you sell this after 1 year it is LTCG.
There is no other way of declaring this.
Best,
Thanks Nithin…..
Hi!
I have loss of Rs. 104000.00 in FY 13-14 and I have yet not filed the return for FY 13-14. can I still file the return for FY 13-14 and show that lost so, I can brought forward to FY 14-15?
Also, I am permanently moving from Ahmedabad to Bangalore in next month. Stamp Duty in Gujarat Region is 0.002% on total turnover and 0.004% (Rs. 50.00 Max/Day) in Karnataka. So, Once I move to Bangalore and change my address. What would be the Stamp duty? Is it based on Gujarat region or Karnataka region?
Rahul, you can file your returns for FY13/14, but to carry forward your loss you have to file within the last date. Since you have missed this, you cannot claim that loss for carry forward.
Yes once you change your address from Gujrat to Karnataka, the stamp duty will change to what is in Karnataka (it is 0.01% with max of Rs 50/day)
Hi Nitin,
Great blog to educate new traders. I have been trading mostly F&O on Zerodha since quite some time. However, my losses for 2014-15 have been as per below as per Q(whopping):
REALISED PROFIT – 6,87,588.75
TOTAL CHARGES – 2,55,275.48
OTHER CREDITS/DEBITS – 112.35
NET REALISED PROFIT – 9,42,976.58
UNREALISED PROFIT – 56,637.50
Could you please clarify if I can declare 9,42,976.58(is this the correct amount ?) as net loss and carry it forward for next 8 years. I am only into Nifty options since almost 6 months now and plan to continue the same.
I have a strong suggestion that Zerodha itself help us and file our returns so that we can be stress free and only concentrate on our day to day trading and don’t worry about the tax bit at all.
Kindly help. Zerodha rocks 😉 even though I made huge losses but I have laid a foundation for sure with your help.
Regards,
Chandra Prakash
DC0239
Yes Chandra, you can actually carry 9.42+56k as losses for FY14/15.(both realized and unrealized). And yes you can carry it forward for next 8 years, and netoff against any future business gains (F&O or any other business).
The issue is that since this is ITR4, there is a limit on how many an individual CA can file every year. Also, it becomes really tough to do if the CA is in a different city.
Wishing you best for this year, :). The biggest difference between winners and losers is risk management. Bet not more than 5 % to 10% on a single trade, anything more you trade with scared money(because the loss can damage your account significantly). If the money is not scared, you think using your brains, if it is scared heart comes into play which is never good. It takes longer to earn this way, but there is nothing like quick money in life.
Hopefully this helps,
Thanks so much Nithin. Will keep those words of wisdom in mind. All the best…Chandra Prakash.
Nithin,
Can i open multiple Tax saving FD in a financial year without exceeding total FD investment of 1.5L and claim tax deduction for all FD?
Say, FD1=25K and FD2=25k and FD3=1lac => Total FD amount is 1.5L
Can i claim tax deduction for all these FD?
Yes you can claim on all FD’s
sir
Ii am a salaried person. I submit form16 in every year to income tax department .Now shall i have to submit itr4 seperately to income tax dept. for intraday trading.
You need to add your salary income on ITR4 along with trading income and submit only this.
sir my yearly incom is below
incom from bank intrust–200000
incom from ambrodary work–84000
incom from cash positional trading(2days to 364 days) (Not intraday & F&O)—10000
by turn over is 500000
can audit of book is nessasary for my case
Pravin,
If you are doing cash positional trading it comes under Short term capital gain, so you have to pay 15% of the gain as taxes. But there is no audit requirement in terms of capital gain.
Hello Nithin Sir,
First of all, i would like to thank you and your team for such great efforts.
It would be great if you could answer this.
i traded in futures in last financial year.
Total loss= 1,17,000
total turnover=2,51,000
brokerage= 17000
other charges like stt etc= 13000
So 1. my total loss would be 147000??? (gross loss+brokerage+charges)
2. Is audit required?
3. As mentioned in your blog, i can carry off the loss to next 8FY. Can i carry whole of it or part of it?
Thanks
Mayank Mehta
1. Yes
2. If your total income (Trading loss + all your other income) is above Rs 2lks, that means you will have tax liability. In this case you will need an audit. If your total income is less than Rs 2lks, no need.
3. You can carry forward the entire loss for next 8 FY.
[…] Taxation Simplified […]
Is there any entity that trades in NSE derivatives (options/futures) and does not pay income tax in India. I have an account through Navia and trading as an NRI, what are the tax implications? So far I have not paid any tax on profits (few lacs in past 2 years). Is it possible to trade through P notes etc and not pay taxes in India?? Experts kindly reply… Thanks
Kris, if you are trading derivatives, you have to pay taxes whatever route you take.
Thanks Vinayak
Now new ques arises.
Till now i have not filled ITR4, If i file it now there could be serious repercussions. Can I fill those loss with my mothers income. Can I include these loss in her ITR4
Thanks a lot, Eye opener
Unless you traded on the basis of insider information (or at least it can look like you did; e.g. you traded in a company that supplies to your organization) I will be surprised if there are any repercussions; but to avoid any hassles I wouldn’t volunteer this information (unless you have to give your bank and other details every year as a matter of routine) now if the trading activity was done only last year.
These service rules are meant to curb corruption and insider trading, nothing else. I wouldn’t even disclose the activity at this point (except long term investments; those are allowed and should be disclosed) and would just forget about it. If they don’t find out on their own then nothing happens anyway. If they do find out then also the clerks would hardly know what to do – so many govt. employees have been moonlighting as insurance sellers that nobody really cares that much. If they do decide to do something – the worst that can happen is that they can put an inquiry about any wrong-doing at a later stage, which there is NONE – keep in mind that service rules are guidelines to proper conduct and in usual course should not be broken, but breaking them by itself is not a crime (unless some other law is broken OR there was mal-intent in the first place when you broke/bent rules OR it caused direct harm/loss to the govt. or other interests) nor does it invite censure for a few harmless instances where the employee broke the rules unwittingly (as is your case). So if it does get to an inquiry it will be an open and shut thing – not even a censure. However don’t make it a habit; on your next couple of promotions I would guess there would be some serious background checks and while the agencies will likely ignore a few instances, a habitual breaking of rules may get into your records.
Specific for this year – Govt employees are NOT barred from using any specific ITR form; for example if your “gift” (as against a “loan for reasonable consideration”) you wife some money and she uses it to trade then her income (to the extent it arises from the “gift” money) will be deemed to be yours; obviously you’ll end up filing ITR4 in that case.
Just be careful in future to do it right – it may have tax benefits too if your wife is not yet in the highest tax bracket.
For future (a modified version of this can also be done; see the end of the post):
This is one option easily open to you (talk to a lawyer/CA friend to do it right): “Loan” some money to your wife at a reasonable interest rate; get a Promissory Note signed by her for that (and give her a Attested/Notarized copy of that WITH DATE OF ATTESTATION; don’t notarize the Note itself; a P-Note is not supposed to be Notarized; the date will help if there is any tax dispute later). Then “she” can use the money to trade. Any income arising out of this activity is her income to be filed in her name. You get the interest from her – on that you’ll pay taxes of course, but a “reasonable rate of interest” on a P-Note type loan is similar to what you get on a savings/current account (a P-Note is by definition a callable loan; callable loans can’t be more expensive than a savings account) so tax wise you are covered; and in any case the “interest income” that this generates will be an expense for her business so she doesn’t pay tax on this amount (can even show a loss and carry forward in years where her returns are less than the “interest” she pays you).
This way you get one further step away and you can use ITR-1 or ITR-2 for your own filing. Your wife may need ITR-4 (or 4s; depending on whether audit is needed).
If you are doing any long term investments then those you should do in your own name under a separate account (allowed by rules in any case; and this way there is no investor/trader conflict)
On losses this year:
You can file losses in your own ITR4 this year however things are tricky – those losses can only be setoff against your own business gains in future – there will not be any if you do it right, so setoff wouldn’t work.
The only way you can recoup those is by giving a “gift” (rather than a loan) to your wife/mother and then trading on their behalf (in theory they are doing the trading) and then including any income from that activity on your ITR4 next year. You can continue this till the losses are fully recouped (it is risky; what if you make more losses; till when will you continue this scheme?) and then revert to the loan-only part. But check with a CA.
Thanks a lot, Mr Vinayak
You have very fine knowledge on the subject. I dont have any insider information. traded well on the popular stocks of stock market. All mix matches.But nothing in particular .Like tata motor deals with defense, ashok leyland which I can rem now. Other than this nothing. But how can I have such information. Strictly no.
So Mr Vinayak lets come to the point.
I have some loss in 2013-14,and 2014-15. if i file loss of 2013-14, it will be of no use. Am i rt.
now regarding loss 0f 2014-15, can i claim that loss in the fin year 2015-16.
i still dont know whether to file ITR4 or not. I have not used any inside information. Just traded. if this is a crime then I will stop it.Plz share ur mail .
Thanks a lot 9402014391
In addition to above, as u said I can include other expense like internet charges, electricity bill,.
My question is
1 Do I have to produce bills for the same.(I dont have any)
2. Whats about advisory charges, no bill exist as such?? Can I claim without bill.???
3. I have purchased trading signal software worth 25000/- amibroker type. ? Can I claim it and declare as expense in business??
4. Do i have to take printout of all contract notes.?? I have taken out summary of transaction(P/L) which gives every minute details of profit and loss. Will it not be sufficient as a proof??
Thanks
Col Rajeev
1. Best to keep bills.
2. Yeah you can claim, I guess there will be a debit entry for this on your bank statement.
3. Yes
4. Yes P&L should be enough. Contract notes will be required only if income tax officer asks for it in the future.
Colonel sahab
you might find this useful:
https://in.answers.yahoo.com/question/index?qid=20090815041841AAd7ZyQ
Speculative trading is strictly prohibited according to service rules; my suggestion – what has happened has happened; in future do it in your wife’s (or children’s, especially if a child is older than 14) name. Later for the purpose of taxes the income can be included on your tax form and then you’ll be filing ITR4 in any case.
Even when you do the thing in family members’ name – keep strictly away from company’s that you can be reasonably or unreasonably expected to have insider information on (e.g., in your case companies with significant revenues from defense contracts); you will not only be liable for insider-trading charges but serious departmental issues too.
Ah, thanks for pointing out Vinayak.
Here’s another link to the rules:
http://www.persmin.gov.in/DOPT/EmployeesCorner/Acts_Rules/CCSRules_1964/ccs_conduct_rules_1964_details.htm
There may be newer rules too.
You should have access to employee handbook too, especially at the command office. I would be surprised if you find it hard to get to it given your extremely high rank.
Hi Nitin
Most of the queries are answered. Still left left few.
i m loosing consistently in the market.i have not declared my losses till now. This year onward I m planning to file loss made in 2014-15.
my ques are
1 i m salaried Govt employee(defence) I m expecting rent income of 40-50k per month. As you said loss from business can be set aside from rental income in the same fin year. whats about losses if any balance after deducting from rental income??Cant we set aside balance of loss in next year from next year rental income??
2. As a govt employee, can I file ITR4 (trader) ? Is there any ruling particularly for defence persons.?? Can Govt employee do trading??
Thanks Mr Nitin
Col Rajeev Sharma
1. All business losses can be carry forwarded for upto 8 years, and net off against any future business gains. So yeah, you can carry forward this loss and setoff with your business income (rental) next year.
2. Yes, everyone can file using ITR4. Unless specified, I don’t think there is any rule barring you from trading. But best to find out once.
Cheers,
Hello Sir,
I have a query regarding speculation loss to be carry forward.
I m a Trader. I filed my Income tax return for the AY 2013-14. There was a speculation loss from trading & other business Income.
I.T Dept had added that loss to the income and impose tax instead of giving refund u/s 143(1). I filed rectified return. After processing, they added it again as income u/s 154 & imposing tax. Neither I am getting refund nor got carry forward of loss.
Need your suggestion, what to do further.
Divya, can’t really comment, but my guess is that you probably didn’t file your earlier returns correctly. One of the mistakes many have been doing is that if there is a speculative loss, and if your profits is less than 8% of the turnover, you need the books to be audited by a CA. Best to go meet a CA.
ok,thanx nithin, I have been asked for gumastha ka license (lolz) when i told i’m self employed
Hi Nithin,i’m full time trader. My annual income of last two year is around 5.5 lakhs and i have filed itr for two years ,can i get a personal loan on those itr files and as i’m self employed is there any provision to get license for stock trading as business
It will depend on the bank, but a little tricky for business people to get personal loans if it is unsecured or not enough track record (atleast 3 years IT returns). There is nothing like a license for stock trading.
Sir,
I am a student and take tutions classes for earning and do share trading from it. which ITR should i fill?
None if your trading activities don’t need audit AND you don’t have taxable income (i.e. total income less than taxable slab).
If you do have taxable income, it will be either ITR4 or ITR4s depending on whether or not you need audit.
Dear i am intraday trader in stock market. From 2012 to till i never submitted it return as i think i have each year loss and current year i have profit of 5,57,000. But my total TURNOVER of year is more than 4 crore each year from 2012. So is their any requirement to submit any document to Income tax dept. I have no profit any year do i am liable to audit u/s 44AB?
Before 1 month their is notice from Tax dept for “Non filing of Income tax return” from 2013.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
I read that for Intraday trader there is no requirement of to do Audit, which is required only for derivative trader how to calculate intraday t/o?
From 2012 i have other income such as return filling fees and interest income which is around 1,00,000.Please help, any TAX AUDIT required if there is loss??
Is their penalty for 2012,2013,2014?
Case 1. I calculated Turnover= total buy amount+total sell amount.
Case 2. But on some website I read that Turnover=Settlement profit+ Settlement Loss
For ex. If RIL shares bought@1000 x qty 100, and sold @1010x qty 100
Trade volume= +2lakh and Turnover is just 10 x 100=1000
So which case is true???? How to really calculate turnover ,which I required for only Audit which is costly for me now , as I am in loss.
Please suggest too much confusion my mind.
Case2 is the correct way; if your turnover is more than 1cr you need audit no matter what. Otherwise you need audit ONLY (1) if you have a net taxable income (including salary, other sources …); AND (2) the profit from the trading activity was less than 8% of the turnover (calculated as case2)
For you (2) is TRUE, if you did have taxable income then you need audit and pay taxes. From your message it seems that is not th case – if so then you can respond to the notice with “no taxable income” option.
Thanks.
In CY i have profit of Rs.5,57,000 so as per your reply my assumption is that i have to file income tax return and do audit as my t/o cross more then Rs.4Cr, also my assumption for turnover calculation of Rs.1Cr is i have to count Profit and loss as my turnover if i had incurred loss then it has to be counted for turnover.
Previously i was assuming that i have to count t/o based on total pur+sales.
Please correct me if my assumption is wrong.
You are correct Aditya,following guidance note on Tax audit under section 44AB (Section 5.12, Page 23).
For Intraday equity — absolute sum of settlement profits and losses per scrip
For Delivery equity — sell side value of the stock
For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contract.
Thank you very much sir.
Hi Nithin,
1) I have incurred derivative trading loss of approx. Rs. 1.64 L for FY 2012-13, however I haven’t filed the same in my ITR. Would it be possible to claim it now?
2) I have savings of around Rs 2.1 L from per diem allowance provided to me while being out of the country. Can I square off the loss with this savings?
1. No.
2. No
Dear sir,
My name is koti , i am an NRI presently living in gulf.Till now i am remitting money to my NRE account(POA for this account is my dad) and my dad is buying real estate for me and when i came to india i am changing to my name.
similarly can i open dmat account on my dads name and transfer money to his account and i will buy the shares on his name where as i will be the nominee.Buying shares only for long term minimum 5 years holding.
My father is an farmer.
is this process is good in stock market. can i proceed this plan for me.
please replay.
Yep, if you transfer money to your dad’s Indian savings account. He can use that to invest in the Indian stock market using a demat/trading in his name.
thank you sir
Hi Nithin,
Say i am a senior citizen and currently my total income per month is 8000 which comes to 96k per year.
Now, consider a scenario where i only trade in F&O ……and my turnover is more than a crore on which i make a profit of 20 lakhs.
Do i need to file my IT returns? (i hope not since my total income is less than 2.5 lacs).
Pankaj, you make a profit of Rs 20lks? So yes, you definitely need to file your IT returns as you have to pay taxes.
Assuming your total income is less than Rs 2.5lks. If you are trading F&O, you should ideally still file your IT returns using an ITR4.
Dear Nitin Sir
Background-
I am an unemployed person (unemployed as of today, 47 years old so you can’t call me retired yet) with money put in liquid funds and equity funds. I hedge my equity fund holding by buying NIFTY PUT options equivalent to 100% equity MF holding. For example, to cover my 10 lacs equity MF, I buy 125 deep in the money NIFTY PUTs (say 9000 PUT as of 17-Apr) every month on expiry day. Depending on how the market goes, either I make money or I lose money in options (to buy deep in the money PUTs, I need to spend cash worth approx 3% of the equity MF holding every month). I never sell my equity MF but rather get dividends from them which are around 10% per year. I keep re-balancing liquid+cash and equity whenever it goes out of balance by 5%.
I have two questions:
1. So far, in the IT return, I have been showing everything under capital gains along with my salary income. All my returns so far have been accepted and processed by IT department with no questions asked yet. Question- Just because I am going to be unemployed from this year onwards, do I need to show everything as stock in trade from now on?
2. (I think you have answered this earlier, but still repeating) Is it OK if I show all NIFTY PUT transactions under business income and all liquid+equity MF transactions under capital gains? I never sell equity MFs, but whenever I switch from liquid fund to equity fund, I have to show as STCG/LTCG depending on date of buy.
Thanks
Vavhal
Vavhal, Ideally you shouldn’t have shown your derivatives turnover under capital gains till now. You should have used ITR4 and this should have been shown in business income. Exchanges have started sharing data with IT dept now, and with IT dept going completely computerized it will be easy to spot these kind of things in the future by the IT dept. So I’d say because you don’t trade delivery often, still show stocks/MF’s as investments and all gains under STCG/LTCG. Show all your derivatives as a business income. User ITR4 for this. But still consult a CA before filing your returns.
Best,
nithin i paid those taxes in trading from this witch tax can be deducted when i pay income tax PARTICULARS………………………………..DEBIT
SERVICE TAX……………………………….. 8209.03
TRANSACTION CHARGES A/C………19819.63
STAMP DUTY……………………………… 8456.2
COMMODITY TRANSACTION TAX…15978
JOURNAL……………………………………..19524.2
Santha, all these taxes that you have paid can be reduced from your income as an expense. So you have to pay income tax on your net returns after these charges.
I read somewhere, maybe on caclubindia’s website that STT and CTT cant be considered as expenses and these can not be used to calculate net profit for filing returns. Please advice.
STT can’t be considered in cost of acquisition or expense in case of capital gains (gains made on stocks you take for delivery). If you are a trader, STT/CTT can be claimed as a business expense.
Dear Nitin,
I do trade intraday and short term in shares. I am treating this as business income. Can I carry on with a separate Dmat account where in I buy and hold shares for more than one year and claim LTCG?
I do have equity mutual fund investments. Can the sale of these MF schemes be considered under STCG/LTCG based on period of holding?
regards
Anand
Yes Anand, you can have a trading and investment portfolio separately. Show your MF and long term investments under capital gain.
what are all taxes can be deducted in income tax (brokerage charges , transaction charges , transaction tax )
All of them, all are expenses for you.
dear nitin thnx for d reply. my many queries have been answered.what i feel taxation side of equities is quite complicated and i am sure not even 10 percent people would be filling correct itr.people like u must take up d matter wid finance minister to simplify d tax process lets say 10 percent on eeveyting be it ltcg short derivative or anything and d same must be carried forward upto 8 years!! all dis complexity in tax only increases corruption in government machinery,thnx for d answers,by d way reliance communication is looking strong at 73!
regards
dear nitin
1-following are the expenses i shall be putting on my itr kindly share which one seems to be problematic as far as assessing officer is concerned
2- office on rent–2.4 lakh
3-salary to my mother in law who assist me in compling report-2 lakh
4-salary to my sister in law who is a lawyer and works for me -2lakh
5-fuel expense—-96000rs
6-stationery–25000rs
7-telephone billss-12000rs
8-i have visisted few seminars in different states regarding investors conference and had stayed in luxury hotels which costed me some 1 lakh ruppeees,i have bills can i add tat to expense too??
9-kindly check d list and suggest which expense sounds illogical and would bother assesing officer?
regards
Salary to mother in law, and salary to sister – this might be an issue especially considering they are related to you.
Others are okay. But still speak to your CA.
Salary to mother in law, and salary to sister – this might be an issue especially considering they are related to you.
Others are okay. But still speak to your CA once.
thnx a lot for d reply nitin.
1-intraday income is speculative business income and can be set off against speculative business income and can be carried for 4 years
2-derivatives is business income and loss can be carried for 8 years
3-when i deduct expense i should be deducting it from intrading business income or it should be deducting it from derivative business??naturally if i dedcut d same from derivative income i could be able to carry d expense to 8 years as against d intraday where iwould be able to carry it for 4 years??kindly guide
thnx and regards
Yep, consider this as a normal business expense (which means that like derivatives it can be carry forwarded for 8 years).
dear nitin tats indeed very helpful
1-i have acquired loss in btst around 8 lakh,would it come under d ambit of intraday loss?
2-can i square off dis loss wid the derivatives profit if i show myself as trader?
3-somewhere are i read btst comes under the ambit of stcg?
4-how about compile a book of this entire blog and put it for a sale??i bet many many retails boarders will vouch for d book if published..just a thought
regards
1. In BTST you sell stocks before you take delivery, so it is considered as speculative (similar to intraday).
2. No you can’t set this off with derivative profits even if you declare yourself as a trader.
3. No BTST is speculative.
4. Don’t know about book, but we will have a module on this on Varsity. http://zerodha.com/varsity/ 🙂
dear nitin
1-good morning to u
2-i acquired profit in ltcg of 1lakh
3-acquired loss of 2 lakh in cash intraday
4-acquired loss of 3 lakh in futures
5-acquired profit of stcg of 4lakh
6-lets say i decalre myself as trader
7-how would i file itr ??
8-what income can be set off against each other?? i wil have to pay taxx on holding more then one year too??
9-can gain acquired in holding more den 1 year be set off against derivative loss for a trader??
regards
Intraday equity trading is considered speculative, so intraday losses can be carry forward and setoff only against intraday profits in the future. (in ur case 2lks)
For others you have two options
Declare yourself as a trader, you can setoff LTCG/STCG against F&O losses. (preferred option, but yes would mean not using the benefit of exemption on LTCG)
Declare yourself as a trader but show investments separately(STCG/LTCG, so LTCG is exempt, STCG is flat 15%).
ok thank you nithin
sir iam trading in mcx & ncdex my turnover single side was 421500000.00 & my profit is 1143000.00 for this how much i should pay income tax , can i deduct office rent , salary given , internet charges , ca are confusing me so plz clarify , i should maintain books ?
Santha, everything is explained on the blogpost and also in a lot of Q&A above. Turnover is not your contract turnover but absolute sum of settlement profits and losses (read the post above). Yes since you will have to declare yourself as an active trader (trading as a business using ITR4) you can deduct all expenses incurred towards trading that you have mentioned. If your profit is less than 8% of the turnover then you need an audit. It is always best to maintain books.
ok thank you nithin
Hi Nithin,
I am an NRI based in Dubai who has been regularly investing in stocks for last 3 years and have invested a total of 62 lakhs in last 3 years to date the value of which has just crossed 1Crore recently. I have already booked profits of around 5 lakhs some of which was short term gains where I was paid after deduction of TDS and have got dividends of aproximately 4 lakhs in last 3 years.
1. I have not filed income tax till date do i need to file income tax as I had read in lot of places that NRIs do not need to file income tax if its a investment income and if the TDS is deducted where ever its required.
2. if I have to file the returns or not in either case is an audit required as in this blog above I have read that if turnover is above 1 crore audit is required. in my case how do i calculate the turnover if the total I have invested plus the profits have reached 1 crore but this has happened in last 3 years of investing?
3. I am mostly holding the stocks for more than a year sometimes even longer mostly as a investor but am planning now to start some short term trading too where in I might sell and book profits on 10% plus minus upside with in 1-2 months. if I start doing so regularly will I be termed as a trader or investor?
4. if its a issue do I need to open a seperate account for the short term trading or its even better if I open the same in my wifes name who also invests as of now on long term basis but if its advisable I can keep investing on long term and she can trade on short trem basis?
5. what are the tax implications on a NRI in long term and short term trading? Do you know of any other website/blog which has a good detailed info about NRI taxation/audit requirements/short term long term/trader investor profiles and when and how to file the IT returns etc etc. may be Zerodha can create a good FAQ section regarding the same.
Thanks,
Peeyush
1. You can file for the last two years Fy13/14 FY 14/15. Here is the thing, just because a TDS deducted doesn’t mean that not ITR filing is required (this is a common misconception). You have to still file your returns, and if you have paid more TDS than what is applicable, you can also claim for a refund.
2. You are coming through the PIS route, so everything you buy and sell are only delivery based equity. So you are an investor (even if you are buying and selling delivery frequently). So the tax audit is not applicable for you and hence you don’t need to bothered about calculating turnover. You will have to use ITR2 to show your capital gains.
3. As long as you are doing only delivery based (which you are forced to as an NRI), you are an investor.
4. Not required.
5. Tax implications are exactly the same for NRI and residents. Zero tax on Long term gains (over 1 year) and 15% on Short term gains. Most things are similar for NRI in terms of taxation, if you have any other query, do post it here.
Hi Nithin,
This query is regarding my previous query.
As there is no need for audit, does the person has to maintain proper books of accounts also (by proper books i mean cash book, bank book, profit and loss and balance sheet) or only P&L report from broker and bank statement will work ?
Regards,
Gaurav
IF you are using ITR4, yeah balance sheet is required. But if you have bank statement (explaining credits/debits), Ledger from your trading account, and P&L statement, that should do. A CA will be able file your returns in no time at all.
dear nitin
1-i dont have any salary income
2-my ltcg is 3lakh
3-loss in cash intraday is 10 lakh
4-loss in derivatives is 9 lakh
5-is it mandatory for me to file itr online??
thnx in advance
Yes Nivedita, it is mandatory for you to file ITR4 but you don’t need any tax audit as you are not liable to pay any tax. The issue with not filing is that tomorrow in case you have a tax scrutiny and if you haven’t declared your trading business, you might be asked to pay taxes based on your turnover+ a penalty.
dear nitin but wont 8 percent rule apply here?as my profit is less den 8 percent of the turnover?
regards
Nivedita, since your total income is less than 2.5lks, there is no tax liability, hence no need of an audit.
dear nitin.
now thats bit confusing me..
1-i did futures wid a total turnonver of 20lakh in which i acquired a loss of 10 lakh
2-technically and as previously discussed in this blog if the total profit is less then 8 percent of the turnover one is liable for tax audit.in my case i am acquiring loss which in any case is below 8 percent profit criteria.
3-in my case my turnover is 20 lakh and my loss is 10lakh(which is below 8 percent of turnover).
4-tax audit is required only once one make profit(which should be less den 8 percent) and tax audit is not required if one makes loss??kindly clarify on dis issue
regards
Nivedita the section says that if, ” your turnover is less than 8% and if your income is over 2.5lks” only then an audit is required. If trading is your only income and nothing else, and if you are making a loss, there is no need of an audit. But assuming in your case, you had a salary income of 14lks and a trading loss of 10lks. Now your total income is Rs 4lks, which is over Rs 2.5lks, and only then u need a tax audit. Hopefully this clarifies.
dear nitin
good evening
1 my futures turnover is 45 lakh
2-i made a loss of 9 lakh in that
3-my expenses including brokerage,electricity bill,gasoline bill etc is 2 lakh
4-what losss should i be carrying forward just 9 lakh?? or i shall be carrying forward 9lakh(actually acquired loss)+2lakh(expenses)=11lakh??
You will be able to carry forward the entire 11lks.
Sir
Please suggest appropriate ITR Forms to be filled by the following Trades : (Individuals)
1. A person who trades in Equity – intraday and delivery having a STCG and LTCG.
Apart from this the source of income is Salary and Interest earned from FD.
2. Point No. 1 + trades in Options only
3. Point No. 1 + trades in Options and Futures also.
4. Trades in Options only. No other income.
5. Trades in Futures only. No other income.
6. Trades only in equity – intraday having income from Salary.
7. Let me know the last date of Return to be filed for the trades done from
April-2014 to March-2015. What will be the Financial Year and Assessment Year for the same?
Thanks and regards.
Raju Shinde.
1. ITR2
2. ITR4 or ITR4S in case of presumptive (u declare 8% or more of your turnover as profits, and ur turnover less than 1 cr)
3. ITR4 or ITR4S in case of presumptive (u declare 8% or more of your turnover as profits, and ur turnover less than 1 cr)
4. ITR4 or ITR4S in case of presumptive (u declare 8% or more of your turnover as profits, and ur turnover less than 1 cr)
5. ITR4 or ITR4S in case of presumptive (u declare 8% or more of your turnover as profits, and ur turnover less than 1 cr)
6. ITR4 or ITR4S in case of presumptive (u declare 8% or more of your turnover as profits, and ur turnover less than 1 cr)
7. FY14/15 AY 15/16 last date with audit is usually Sept 30th.
Hi, Nithin sir,
I am trading in stock option. In fy 2014-2015 my total sell value of options is approx 80 lakhs. If i add my total positive and negative trades than total value is 18 lakhs. Total profit is 2.8 lakhs. Other income is 50 k.
My first question is my turnover is 80 lakhs or 18 lakhs?
Is audit is compulsory or not?
From last three years my turnover and profits are same as this year. I am filling itr 4 and not maintaining any books of account.
Turnover is absolute sum of positive and negatives. So if you made a profit of 1 lk and loss of 1lks, the turnover is 2lks.
If your turnover is 80lks and profit is 2.8lks, then yes audit required as profit is less than 8%.
With IT, the turnover is what you declare, the issue with declaring a wrong turnover is that it can come back to haunt you in the future in case there is a scrutiny.
My total sale value of options is 80 lks.
Trades of profit 10.4 Lks
Trades of loss 7.6 Lks
And net profit is 10.4-7.6=2.8 Lks
What I am asking is that
My turnover is 10.4 + 7.6 = 18 Lks
Or total sale value 80 Lks
If I take turnover 18 lks then my profit is >8%
then audit is required or not.
Hmm.. there are 3 schools of thought on calculation of turnover, but since the rule is not clear, it is quite tricky.
1. Calculate the way you are doing 18lks
2. Along with 18lks, add the selling value so 18+80 = 98lks (conservative view that we are following while calculating).
3. Gross sum of Tradewise profitability. Currently no broker offers you this, so you will have to calculate on an excel on your own. (that said, we at Zerodha should have a tradewise turnover report in the next few days).
Nithin,
Thanks once again. Which ITR will be filed in this case? ITR 4 or ITR 4s?
Regards,
Gaurav
ITR4 is what you would have to use. ITR4S if you are showing presumptive income, 8% of your turnover as profits.
Nithin,
Thanks for your reply.
I also think the same but there is one thread on traderji wherein they mention that section 44AD is an independent section and you need to get the books audited. It doesn’t matter whether your total taxable income is below 2.5 Lakhs or not? If you make a loss in trading in F&O, you need an audit.
What to do?
Big confusion.
Thanks,
Gaurav
Gaurav, there is no need of audit if your total income is less than 2.5lks.
Hi Nithin
I have queries regarding taxation and audit of F&O.
Following is the scenario:-
A person has traded in F&O (NSE, Currency market) and has made a small loss of Rs. 250/- only (following are the details).
Total Profit: Rs. 500/-
Total Loss:Rs. 750/-
Total Turnover: Rs. 1,250/-.
Apart from this, he/she has some money deposited in Savings bank account from which he/she earns interest which is around Rs. 30000/-. He/she doesn’t have any other income. His/her total taxable income thus becomes around Rs. 29,750/- only.
Here are the queries:-
1) As the total taxable income is less than Rs. 2.5 Lakhs, does he/she need to still file ITR ?
2) Is he/she liable to audit (as the person has made a loss in trading) or there is no need for audit as the total taxable income is less than Rs. 2.5 Lakhs?
Thanks,
Gaurav
1. Yes, you need to file your ITR.
2. No need of audit as taxable income less than 2.5lks
Hi Nitin
For calculating if the profit earned in F&O is greater than 8% of turnover, should I take net profit or gross profit only? I also have short term gains from equity, so as per your blog, I should be adding sell side values (and not the gain amount) to the F&O turnover to calculate the total turnover- is this correct?
If I am paying advance tax, should I be deducting advisory and brokerage and only pay tax on the net gain or are the expenses to be included only at the time of filing ITR4?
thanks
Mahesh
Net profit
Yes, that is how you calculate turnover for delivery based trades.
Yes you can deduct advisory, brokerage, other expenses before making advance tax payment as well.
In Zerodha contract note, there are turnover charges and sebi charges. While filing ITR-4, can I include these in commission or to be shown as other expences?
STT can be put in other taxes, turnover charges and SEBI charges can be put as other expenses.
Sir
I never filed IT return. My turn over in options 2013-14 is 38 lakhs and loss of 61000. and of 2014-15 is 38 lakhs and a loss of 35000. can you help me to file ITR IV. DG0230.
thank you.
Girija, we don’t have the facility to help file returns yet. Maybe in the future.
hi
nithin
i am a psu bank employee and also doing fno trading so is it possible for me to do a psu bank job also do fno trading and should i also file itr4 only? or should i do trading on my fathers name because he is retired now?
Dahaval, you will need to find out with your bank if you are allowed or not. Yes, you will need ITR4, and yeah you could probably do this in your dads name.
Hi Nithin,
I have a full time employment. I do trade in F&O. While filing returns last year, my CA told me that … since I have a full time job, getting salary after TDS, getting Form 16, etc. I don’t have to show my F&O income as BUSINESS INCOME and he is considering it as Short Term Capital Gain/Loss. Is this logic correct? If not, should I add F&O profit to my salary and pay tax at the relevant slab? Can I show other expenses, if I declare F&O profit as business income.
Regards,
Guru.
Hmm.. surprising that your CA suggested that. It is not correct. F&O trading should be shown as business income on your ITR 4, and yes pay taxes as per the tax slab after adding Salary on ITR4. Yes you can show all business expenses.
hi nitin
do u have chartered accounant services at zerodha who can fill up itr..
if not please help can u provide details of chartered accountant who has expertise in filing returns which include F&O trading..
thanks..
Pradeep, nothing in house. You can check taxiq.in
Hi Nithin,
I see following terms in P&L Report for FY 14-15 in Q Back office.
1. Realised Profit
2. Unrealised Profit
3. Total Charges(Brokerage, STT, service tax, SEBI Charges etc.)
4. Other Credits/Debits(DP Charges,Payment gateway charges)
So what is my Taxable Income?
Taxable Income= Realised Profit- Total Charges- Other Credits/Debits
or
Taxable Income= Realised Profit- Total Charges
Also when I see Tax P&L in Q Backoffice for FY 14-15, it shows different Value.
Please let me know which is correct P&L Report or Tax P&L?
Ashok, Check out this post, we have different kinds of P&L statements available. For filing returns, use the tax P&L as it gives you your speculative and capital gains separately for Equity trading.
Yes Taxable income = realized profit – total other charges – other credits/debits
For tax loss harvesting; can different strike price derivative be used.
e.g.
Booking loss in April-15 SBIN 300PE;
and taking new position on same day in
April-15 SBIN290PE
Your clarification on this will be appreciated.
Yes Sanjay you can. If you have net profit for the year, and the last few days of this year you want to reduce your tax outgo by booking loss on some open option position, this can be done. But the thing with F&O is that you can very easily get your CA to consider MTM value of option as on 31th March. This way, you would not have to worry about selling and buying, this can be easily done on the way you consider the closing value of open F&O positions on 31th March while filing your IT return.
I have a query.
1] For options trading, tax P&L report on q.zerodha.com shows contract turnover ( i.e strike price + premium ) *quantity. But settlement tunnover will be sum of absolute values for profit and losses.
Which turn over should be considered while calculating 8% profitability criteria for audit requirements.
2] If settlement turnover is criteria for 8% profitability, can we ignore the turnover shown in tax P&L report on q.zerodha.com
1. Amit Tax P&L doesn’t consider Strike price. It considers: absolute sum of settlement profits & losses for F&O per scrip and the sell side value of option contracts.
2. We are being extra conservative in calculating turnover by considering the sell side value of the option contract. You can speak to a CA and disregard this bit if you want.
I have couple of questions:
1) If I am an active trader in F&O and at the same time make investments in Equities both long and short term, whether the gains from investments in equities should also be treated as business income?
2) In ITR 4 there is no provision to show the turnover
1. Ideally yes. But if you ensure that you keep your books separate, you could still show the equity business as your investment business. Speak to a good CA.
2. Yes, you need to show all your positive turnover as gross sales and negative as gross purchases. Sum of this will be turnover.
Please answer my Query!
My Father gifted me 1000 shares of ITC by transferring to my Demat A/c. My Father was holding these shares for many years(more than 10).
I sold some shares in less than 1 year and some after 1 year after I got them into my Demat A/c. Will these shares be considered as LTCG ?
I trade actively in F &O , but I have net loss in my trading. Will my turnover increase by the value of ITC shares sold by me?
Regards
Kapil
Your holding will be considered long term itself as it is gift/inheritance from your immediate family.
You can show your long term investment separately (maintain a separate book of accounts), and show this gain under capital gains itself in your ITR4. In this case, this won’t get added to your turnover.
Thanks a Lot..
Thanks for reply Nitin sir, but following is para from post you posted on which whole discussion is going on: In my case turnover is below 1cr & there is loss means GTI is also below exemption limit.
“Turnover Calculation
Calculation of turnover is to determine if you need your books audited or not, so audit by a CA is required if:
Turnover for financial year is > ₹1 crore
If turnover ₹1 crore”
Please clarify the same.
Didn’t get what you meant. Along with audit required above 1 crore turnover also since your turnover is lesser than 1 crore, and you are making a loss (profit less than 8%) as per section 44AD you need to have your books audited.
Hi,
Will you please explain, what are the meaning of the word ” Profit ” and the word ” Loss ” with respect to Income Tax Act ?
In my opinion, this is important because in case you have incurred a ” Loss ” how does the clause ” profit less than 8 % ” apply for determining audit applicability. Here the words ” Profit ” and ” Loss ” are the key.
” Profit ” and ” Loss ” are two different terms with different meaning. When one uses the word ” Profit ” it is clearly different from the word ” Loss “.
” Profit ” means receiving or incoming or gain or earning or receipt or positive cash flow or benefit or something which is more than what you started with.
” Loss ” means giving or outgoing or losing or expense or negative cash flow or charge or penalty or something is less than what you started with.
Income tax philosophy is to give to government part of some thing which you earn or gain or profit or end up with more than what you started with.
The words are ” income tax ” and not ” outgoing tax ” or ” expense tax “.
Hence if you are in ” Loss “, you are not liable for tax audit.
Am I wrong ?
Rgds,
Oscar
Oscar, the issue with IT in India is that it considers the business of trading like any other business. So like how a normal business has total turnover for the year, the trader is also supposed to declare his total turnover for the year. (Total turnover is sum of all settlement profits (Sales in a normal busines) and losses(purchases)).
Like a normal business if turnover is more than 1crore, you are mandated a tax audit.
Section 44AD was introduced a few years back, where there were normal businesses botching up books to avoid paying taxes. So the Govt decided that if businesses had profit less than 8%, they also had to get tax audit.
The same rule also got applied to the business of trading, unfortunate it is, but that is how the rule is right now.
hi,
how to get tax p & l for financial year 2012-13…in q.zerodha backend…im getting only from 2013-14…
is there a way ?
Yuva, if you want for 2012/13, you need to use our old backoffice. bo.zerodha.com and use internet explorer for this.
[…] post “Taxation Simplified” is probably the most popular post on the internet with over 1200 comments for all your basic […]
Sir,
I have made trading in F&O in the financial year 2013-14 & filed ITR 4 on 31/07/2014 claming loss of Rs. 267000/- in no book case section without mentioning Gross Receipts/ Turnover. Now I have received notice from IT dept about defective return, they mentioned the defect of
1. not mentioning gross receipts
2. negative gross profit or net profit
3. If return of loss then why not audit done?
sir as the my total turnover is 73 lakhs (total of profit & loss) so i have not done audit.
But now at the time of online solving the defect by filing ITR 4 there is remark flagged that in “no book case no gross profit or net profit should be negative”
How can solve the all above problems & file correct return?
Thank in advance
Pratik, section 44AD requires you to get an audit done if your turnover is less than 1 crore and your profit is less than 8%. That is why you are getting that flagged message.
The only way to solve this is by getting an audit from a CA.
Do I need to add the dividends received in the business income? Assumptions here are
– I actively traded in cash and F&O, thus will be considered as trader
– Cash positions are held for couple of months to an year (since I started in the last financial year, there are no stocks held older than an year)
Thanks
Dividend is an exempt income, so you don’t need to add this to your business income. Before you receive dividends, the company would have already paid taxes on it.
Dear Sir,
If my salary is say 8lacs….n my employer deducts tax according to d tax slab.
N my fno loss is 4 lacs
So total income is 4 lacs (salary minus fno loss)
So after deduction of 80c limits and other tax saving schemes, my taxable income is less than 2.5 lacs.
So, can I claim refund of income tax rebate already paid by the employer as now after fno loss my income cums below 2.5 lacs.
Salary income can’t be adjusted against your FNO loss. So no you can’t.
Thanks sir for your quick reply.
Suppose I have carry forwarded loss of 2 lacs last year and dis year I carry forward loss of say 4 lacs
So d total loss I can carry forward is 6 lacs.
So if I make say 6 lacs profit then I can cancel my loss and thr is no requirement to pay tax for my profit
But point I want to make is if I HD not made a loss of 6 lacs for 2 years, and tht same money I had kept in a fixed deposit say I would have earned 70,000 Over 2 years.
So this is actually a loss for me even after break even
So is thr anhwhr I can come out of this as I could have had more money in my pocket if had not lost d money
Hope u could understand my question Wat I want to make
Yes, if you have a 6lk loss carry forward, and you make a 6 lk business gain (note this is a business gain, so it could be business income other than F&O trading also), you can set off the gain with the loss.
But no, you cannot setoff an opportunity loss, assuming that you would have kept that money in a FD.
Is thr no other way WHR I could save or benefit from tht so I could have some extra money in d pocket even after making loss earlier n then sqaring it off?
By carrying forward the loss, you save on taxes that you would have had to pay this year. But other than this, there is nothing else that can be done to save more.
A person having income only from share and commodity trading not exceeding Rs 200000 have to file ITR every year or have to pay tax on this income. What is the exact rule relating to taxation for income earned from share and commodity trading for persons like students or house makers who have no other source of income. Do they have to maintain income tax file ?
Aswin, yes you have to file your ITR every year, even though you may not have any tax due. The rule is the same for everyone, if you are trading the markets in F&O and/or commodities, it is considered as a business. So be it a housewife or a student, once a business you have to file your ITR. Exchanges share the turnover data with the IT department, and if you don’t declare that would be a red flag. Hope this helps.
Best,
Thanks a ton Nithin ! You are amazing person . I dont think i could find some other CEO of a company in whole universe who is willing to engage with customers like you do. May be i will trouble you later also:) Have a nice Sunday .
Hi Nithin ,
Double Thanks and Sorry ! I missed that.
Regarding audit I would like to get more clarity from you since in many earlier replies and comments what i could understand is that if one does F&O then only he needs audit not for intraday trades. Further as per my understanding you are saying that in above scenario if i had made profit then I would need audit irrespective of whether I have done F&O or not ? Also I haven’t maintained any books ? What if I had made profits ? What will i give CA for audit? 🙁 Should i maintain books and if yes how? I was thinking i would take printout of P&L statement from Q and i am done .
Also What is absolute income or indexed income ? Which Income I have to show in ITR from either of two ?
Thanks again and many regards !
Sanjay, intraday trading in equity is called Speculative “business”, since it is a business you will use a ITR4 and hence yes audit is required even in this case. If your total income (salary + trading loss + any other gain) is less than 2.5lks, that means that there is no tax as such you have to pay. Since there is no tax for you to pay there is no need of an audit. But assuming it is over 2.5lks, that means you come under a tax bracket. In this case, if your profit (business income) is less than 8% of your turnover, an audit is required.
You don’t have to fear about the word audit, take the P&L statement from Q, take your bank statements, your CA should be able to do this for you in quick time. In your bank statement, make a note of all the expenses that you have incurred towards trading, and that’s it, your books are done. 🙂
Hi all
I am a salaried person and I also dabble in short & long term stock trade and also intra day trading . I had also made STCG and LTCG from MF SIP investments which i had redeemed this FY2014-15
My income is as below for FY 2014-15 —
1) Gross Salary Income before PF Deductions – 1,98,000
2) Short term MF CG – 9,950
3) Long term MF CG(absolute) – 45,000 (Indexed CG-31000)
( should one take absolute or indexed CG for filing or calculation)
4) Loss from intraday trading – 2,70,000
My Questions are –
a) Which ITR form is applicable to me?
b) Pls advise under which heads i should mention each of above income or loss in ITR form
c) If i fill my return online which documents i have to submit along with ITR ?
d) Will I get a notice from IT dept for incurring such loss which is more than my salaried income but i have used my redeemed money from MF SIP which i had invested over years and also taken personal loan (not advisable though sic. 🙁
d) I have never done F&O
e) Do i have to get audited from CA
Thanks in advance . Hope you do reply
Answered already once above,
1. Use ITR 4
2. Mutual funds in the capital gains head. Positive turnover of intraday trading in Sales and Negative turnover in Purchases.
3. Since you need an ITR4, it is best to do this through a CA.
4. As long as you haven’t deposited huge amounts of cash into your account, and you have lost more than your income, there is no need to worry. Since you have lost your MF redemption’s and on the personal loan, you don’t need to worry about this.
5. No you don’t need an audit as you don’t fall in any tax slab for this year.
Sir,
In case a salaried employee, has incurred losses in Commodities Futures say Rs. 4 lac (Total turnover is Rs. 22 lacs), whether he needs to compulsory show this loss in ITR even if he does not want to carry forward the losses.
Whether he can file return of only salary income?
In case he decides not to show commodity trading losses, whether i.e. 8% profit on turnover condition will be applicable? (I think this should not be applicable since the person has incurred loss and he is not opting to carry forward those losses, the same would have been applicable if decided to carry forward those losses)
Dear Mohit
the section 44AD (exemption from audit) is applicable only if either you make (or declare) more than 8% or your net-income after including all sources of income but excluding deductions such as PF and other savings is less than the taxable threshold.
So let’s say your salary income was 20lacs – you’ll probably need an audit.
My suggestion is that get an audit anyway; it will not cost that much and your losses are business losses (non-speculative variety if you paid CTT; which you probably did) – they can be set-off in future against ANY kind of business income.
And Mohit, yes you have to show your trading losses.
Appreciate the contents in this column. I have a query regarding ‘Prepaid Brokerage’ – How to handle it in accounts while filing returns.
Last financial I opted for the ICICI Securities prepaid brokerage plan and paid upfront prepaid brokerage of Rs 25000, for which they offer reduced brokerage. For each transaction I do, they calculate brokerage for the transaction and credit cash to my account for that brokerage amount and they reduce the balance in my prepaid brokerage paid.
In essence I am getting back brokerage I had paid in advance whenever I do transaction(may span across years). However for a ‘trader’ tax profile, can I show the brokerage as an ‘business expense’ although I am getting back the amount from the prepaid bulk amount? Or will this not be eligible?
Need help to handle this.
The best way to do this is to show the Rs 25000 as an advance(don’t show this as an expense). The brokerage that actually gets debited on your contract note – cash returned from the advance = net brokerage paid (expense). And yes this is eligible.
Thanks for your kind and ‘prompt’ reply. Accurate and useful information are a scarcity. To get clarity on our doubts on such a forum by experts is indeed a good public service. Appreciate your /teams endeavour in here.
Hi Nithin
this isn’t tax related, I’m not sure which forum to use for this so here it goes – NTPC is offering Bonus Debentures to its stockholders; record date is Mar23 (Monday)
I had some shares that I sold about 30Min. ago. Monday is the T+2 day, I believe at close of market on Monday however bought them today will get the share will get them in his demat account.
My question – will I or will not get the debentures. Basically I don’t want them, and am just wondering whether I was too late to sell.
NTPC has fixed the record date as March 23,2015. Typically, the Ex Date will be 2nd business day before the record date. If the Stock is in your demat account before ex date, you’d be entitled to all corporate actions.
You’ve sold shares today, the settlement of which is on 23rd. So typically the shares will be in your custody. So in my opinion, you will be entitled to receive the debenture.
Hi Nitin,
What is the criteria to decide if one is a Trader or an Investor?
My scenario – Income from 1) Shares (long term) – 60% 2) Shares (short-term) – 10% 3) Interest on NCDs – 20% (NCDs bought mostly on stock exchange) and 4) Interest on FDs – 10%. There is also a small consulting income. Most of the year I was writing a book so my main occupation was that of an “author”. I have proof of expenses for editorial and a contract with a literary agent.
In all I have about 150 trades in a year. I have always taken delivery and never done any trading. Most of my trades (75%) have been done in 4 months of the year.
My queries:
1) Is there a chance I might be categorised as a trader since most of my income is out of investments made via instruments bought on the stock market.
2) As an “author” which IT form should I be filing?
Thanks in advance,
Yuvaraj
1. Since you haven’t done any F&O trading or intraday trading, I think you can very safely consider yourself as an investor and not a trader.
2. As an author, you will fall under the “Business and profession” head. So you will have to use ITR4.
Do consult a CA.
Thanks for the prompt response, Nithin.
I visited your website and good to know about your pioneering pursuits. Best wishes.
Do check out this link on your website – it needs repair, 404 error.
http://zerodha.com/index.html
Thanks again.
Yuvaraj
Hi Nithin,
About 2 years ago I had asked you this query. I have the same query but this time I have about 300 trades, partly also because of the convenience of having easy access to the stock exchange (thanks to Zerodha!). I have no trades but all delivery-based. Also today, my main profession is consulting.
The reason I query you again is because an expert told me that lately cases such as mine can come up of scrutiny. Has anything changed in the last two years to warrant a scrutiny?
Will appreciate your response – thanks.
Yuvaraj
Can’t think of anything that has changed in last two years. Even if it comes for scrutiny, I guess you could explain this easily. Recently there was an IT court ruling in a similar case in favor of Sachin tendulkar. Check this.
Thanks, Nithin.
News item on Sachin Tendulkar is interesting. It also says, “however, it was noted in the case that investment in shares through portfolio managers was merely to the extent of 4.8 per cent of the assessee’s total investments.”
In my case 40% of my investments in shares and 40% in NCDs…and both I buy and sell via stock exchanges.
Do you still think I need not worry, Nithin?
Thanks,
Yuvaraj
Hmm.. I don’t think there is anything to worry, but do consult your CA once.
Nithin, there seems to be a circular by CBDT in Feb 2016, I found a mention in the link below. Frankly, I am not clear what it means – “If the taxpayer himself opts to treat his listed shares as stock-in-trade”, “If the taxpayer opts to treat the income as capital gains, the AO shall not put it to dispute. This is applicable for listed shares held for a period of more than 12 months” and “decided basis the concept of ‘significant trading activity’”.
Does “stock-in-trade” mean trading without delivery?
https://blog.cleartax.in/whether-sale-shares-taxed-capital-gain-business-income/
Will request clarification, Nithin.
Thanks,
Yuvaraj
Here is another interpretation by ET of the circular, Nithin.
http://economictimes.indiatimes.com/wealth/tax/taxation-of-income-from-sale-of-listed-shares-cbdt-circular-to-reduce-disputes/articleshow/51627307.cms
Thanks,
Yuvaraj
Stock in trade is essentially when you are showing this as business income. If you show as investments, you show under capital gains. I have given links to the CBDT circular here: http://zerodha.com/varsity/module/markets-and-taxation/. My bad that I forgot to mention when you asked if anything changed. IF anything this circular is more in favor of you the investor to decide if you want to show as business or capital gains. But whatever u decide, it is best to stick to it.
Thanks a ton, Nithin, for answering my queries.
Yuvaraj
I’m assuming that most of your stock holding have given you dividends. Your short-term stuff is small to begin with and based on your email there is case to be made that you intended to e paid dividends on that one too but sold because prices increased too fast.
Based on this you are obviously an investor.
Yes, Vinayak. For a long term investor the past year was extraordinary. And most companies were dividend paying ones…but since some appreciated fast I exited.
Thanks for your reiteration.
Yuvaraj
Hi Nithin, I’m regular trader and I don’t have any other income source, can I get a loan from banks ??
Hmm.. bank would never give a loan for the purpose of trading. But yes, you can take a business/personal loan if you have decent credit rating. But best to avoid borrowing and trading on the markets.
Dear Nithin,
If i had made a loss in previous financial year 2013-2014, and now have made profit in this financial year….Which ITR i need to file? Also my profit are more than 8% of the turnover.
And if i have carried forward the loss in 2013-2014.
Can i do the filing on my own or have to do with CA?
If you have carried forward last years losses, you would have used ITR4 last year.
So you can use ITR4 this year also, and setoff last year losses with this years gains. If your turnover is less than 1crore and profit above 8% of your turnover, you don’t need a tax audit. But I’d still advise you to use a help of CA to file your returns.
Hi there, my annual turn over is 45 crore but i did lost 1 lac so do i need to audit my report?
Thanks in advanced…
Dipam, turnover is not your contract turnover but settlement turnover, it is explained above. If you buy 100 Nifty at 8800 and sell at 8900, your profit is Rs 10000 which is considered as turnover and not Rs 19lks. Sum of all such settlement profits and losses together make up for the turnover. But yes, if your turnover is Rs 45 crore and you make a loss of Rs 1lk, you will need an audit.
But note that if your total income (trading + salary+ business income) is less than Rs 2.5lks (less than the min tax slab), there is no tax to be paid, and hence no audit required.
Sir your tax blogs are really good i have got lots of information from it. I appreciate your effort very much.. I have some queries to ask –
a) I have worked as a part time consultant and providing services to a small firm and received a payment of 2 lk as a salary through NEFT…. now i have to pay taxes for FY 2014-15.
b) I also did trading for short term like intraday and delivery (less thn 1 year) i incurred a loss 1 lk and profit 20 k..
c) by trading in future derivatives i earned a profit of 2 lk and loss of 50 k…
Can you please tell me –
1. what documents should I have to submit for filing the returns ?
2. How much tax will I have to pay with full calculation and explanation…?
3. which forms should i use for filing the returns ?
Use ITR4 forms
Since you are an active trader, consider all your trading activity as a business.
Net loss from Equity : 80k, Net profit from F&O: 1.5lks, Teaching income: 2lk
Total income: 2+1.5-80 = 2.7lks.
IT Slab currently is 10% for above 2.5lks, and upto 2.5 nil. So you pay 10% of Rs 20000 (2.7-2.5) = Rs 2000 as tax. But if you show some savings and expenses, you can drop below the Rs 2.5lk threshold and you will have 0 tax liability. You will need a CA to file your IT returns though, so consult him once.
If he does savings worth Rs 20k or more then his taxable income would be NIL – no audit required.
Considering the audit costs this is the best thing to do; once that is done the CA has a simpler job of filing the return.
Thanks a lot for the Prompt Reply… Thanks a ton for all the information 🙂
Hello,
I am new to trading. If one is trading in F&O segment and his turnover (as per the method mentioned here i.e by adding scrip wise settlement profit and losses) for a financial year is below Rs 1 crore and his net profit is below 8% of the turnover and also his total income (after adding F&O net profit, savings bank acct interest etc) for that financial year is below the taxable bracket (i.e below Rs 2,50,000 for fy 2014-15), then does he need to file the IT Return for that financial year??
He doesn’t need to, but it doesn’t hurt (no audit needed in this case, just file a ITR-4s); tax department sends notices to “non-filers” from time to time, these are automatically generated based on several parameters (e.g. did you do any trading of total value more than Rs. 25000 in the year)
If you file even a no-income return (you don’t have to pay anything) then the above hassle is avoided.
What is the rate of capital gains tax for an NRI?
What is the maximum period one can stay abroad without losing the Indian residen status
Same like resident, Long term waived off, Short term 15%. If you are residing out of India for more than 182 days, you are an NRI
Hi Nithin,
This is a really helpful blog that you have put up. I am actually facing a problem with my Tax filing. I had done some Future transactions in the FY 2012-13. Total value of these transactions crossed 1 crore (by total value I mean – sum of all transactions after multiplying Lot Size*Cost of one share). My CA says that is how we should be calculating the Turnover – and by his calculation the turnover crosses 1 crore mark and hence a tax audit is necessary.
But based on what you have detailed here in this blog, I understand that it is the absolute sum of the profits and losses that I make on the Future transactions that would account for my turnover. And going by this calculation, the amount is only close to 10 lakhs. Which is mostly loss only. So, I don’t need to file a tax audit – right? Can you please confirm that. Also, can you please point me to the specific article in the IT law that states this – so that I can take it up with my CA as well.
Please reply back to this post. Hoping to hear back soon from you regarding this.
Thanks,
Kunal
Check this, page 24, point b, http://www.caalley.com/gn/30357dtc19988.pdf . Yep, you would not need an audit according to me, but it is best to still talk to the CA as I would not have exact details of your trading account.
As per your article, as per section 44AB isn’t audit necessary as profit is less than 8%(herein loss)? Or am I missing something?
If all your income (salary + trading loss + any other income) together doesn’t come in the taxable bracket (which is less than 2lks), you don’t need an audit. You need an audit if you come under the tax bracket.
I am a trader. So, if my short term delivery turnover is Rs 50 lakhs. My profit from short term delivery is Rs. 1 lakh and I have no other sources of income. But according to section 44AB my presumptive tax at 8% comes to Rs. 4 lakh.
If I consider 4 lakh, it comes above the tax bracket, hence audit is compulsory.
If I consider 1 lakh, it is below the tax bracket, hence audit is not compulsory.
So, which profit amount is to be considered and in my case, is audit necessary?
I am planning to file return as an investor.
1) Would section 44AB be applicable to my intraday (speculative) and F&O trades?
2) If yes, doesn’t it mean that even an investor who trades in intraday and F&O needs to get his books audited for intraday and F&O part if profit in intraday and F&O is less than 8% and turnover less than 1 crore?
If you have traded F&O, that automatically makes you as a business. If your profit is less than 8% of the turnover and you fall under the taxable bracket, you will need to get the books audited. Yes, it will be applicable to both speculative and F&O trades.
2. Yes.
Out of my total trades, 90% are short term delivery, 9% are intraday and 1% are in F&O.
1) So, can I file my return as an investor for short term delivery?
2) If no, then doesn’t it mean that any person who has done intraday trading of even one single share or has traded even one lot of F&O cannot file his return as an investor (for short term delivery)?
3) If yes to point (1), than does it mean that I can file return as an investor for short term delivery and as a trader for intraday and F&O?
Kunal, this is the million dollar question and no perfect answer. But it is best to consult your CA
What I would do, I will show short term equity trading as an investor. Intraday trading and F&O trading, I will show it as part of my trading business. But it is important that if you are doing this, ask your CA to clearly demarcate your trading and investing activity.
One final clarification, am I allowed to show Intraday trading and F&O trading as an Investor?
No, Intraday and F&O is considered as a business. Investing comes under capital gains. If you are filing using ITR2, you can’t show the business income. So you will have to use ITR4 (which is meant for a business), show F&O and intraday as business, and then show your investments under the capital gains head.
Sir,
I have an income of Rs one lakh this financial year. I also have a incurred a loss of Rs 1.5 lakhs from trading In Nifty options, (with a total turnover of Rs 20 lakhs. Kindly let me know if I can set up this loss against income earned from Fixed deposit interest
Yes it can be set off against your interest income.
Sir,
Thank you very much for the prompt reply. I have a another query Request you to kindly clarify
1) Income from FD interest 1.0Lakhs
2) Short term capital Gains from shares : Rs0.5lakhs
3) Longterm CG 1.0Lakhs
4) LOSS from Nifty Option trading in F&O segment Rs 1.5 lakhs
Can this 1.5 lakhs can be deducted from my income Rs1.0L ( from FD interest)+STCG of 0.5L so that my total taxable income is zero from the above. (as LTCG is exempted from tax)
Am I correct?
Thanks and regards
Hmmm.. can you read the blogpost and some of the Q&A above. If you classify yourself as a trader (trading as a business since you trade F&O) all your activity should ideally be considered as business.
So make sure to speak to your CA and clearly demarcate your trading and investment business. Your STCG of 0.5lks should ideally be considered as a business income. So your net business loss is 0.5-1.5 = 1.0lks
This 1lk loss can be adjusted with your FD interest of 1lk. The remaining 1lk of your LTCG, is anyways exempt. But make sure to tell your CA to maintain separate books for trading and long term investments.
Hi, very much thanks for such a topic.. Helped to clear lots of confusion. I have a question.. I am a salaried person of about 5.5 lk /year and trades in equity and F&O segment. (mainly do BTST/intraday) for about a year. Till date there is only net loss in my account. Do I have to at all mention about the losses in my ITR file as there is no profit ? What if I don’t declare it ?
Susanta, you have to declare it even if you are making a loss and file using the correct ITR (ITR4). You will get the benefit of carry forwarding your losses and taking benefit of it with any business gains in the future. If you don’t declare it, and assuming you have an IT scrutiny, this will be looked at as if you were trying to hide something. Remember trading in F&O is like a business, and if you don’t file thereis risk that you are asked to pay a penalty based on your turnover. Also the exchanges/banks have been sharing data with the IT department.
Also in addition to my above question, do I need an audit ? as it says– audit is required “If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB)". Kindly answer..
Yes, you would need an audit.
Nitin,
I am building an investment portfolio that consists of stocks i want to hold for long term (a few years).
I mainly trade Nifty and Bank Nifty futures on the trading side. but once in a while i buy stocks in the cash segment for positional trade. i,e, holding for 2-3 months. if my long term stocks and positional trade stocks are common, how would the tax treatment be? to elaborate – say i hold Reliance in my long term portfolio. i bought those in Jan 2015. Now i want to buy Reliance for 2-3 months period. but when i sell it in 3 months, ” first in first out” will be applied and it means i will suffer paying STCG on long term holding stock. Can i mark certain purchases as ” trading” and set-off equivalent sells with these?
If this is not allowed, will zerodha allow me to open to separate accounts on my own name? i will then keep 1 account for trading and other for long term holding.
Mandar, you will not be able to open two accounts with the same broker. You can show both trading and investing activity from one demat + trading account, but you will need someone who can maintain your books well and separately. Do speak to a CA once.
What is the tax treatment of ETFs? I am considering to invest in NiftyBees. Thanks
Just like stocks.
Dear Nitin,
my wife trade both in equity and F&0 and Commodity ,she is considered as investor or trader.
Trader.
dear nitin
1-dear sir i filed fy 13-14 as an investor
2-can i file fy 14-15 as a trader and den fy 15-16 again as investor?
3-i ididnt do any trading in fy 13-14 and i dont wish to do any trading in fy 15-16
4-in current fy 14-15 being a trader i will have to treat short term capital gain as specutlative busines income or business income? as i will be showing myself as trader?
regards
If you are trading intraday equity, it is speculative business income. If you are trading derivatives, it is business income. Yes, you can declare this year as a trader, and move back to being an investor from next year.
dear sir,
my name is vikas, i have a query regarding taxation. i’m a salaried person. my annual salary is 2 lakh. i also do intraday and options trading and earn around 30 to 40 thousand annually. so my question is, do i need to file the income tax return? if yes then how would i calculate my tax and which form i would have to fill? i have read that intraday profit comes under short term capital gain and you have to pay 15% of your annual profit to government. so suppose i earn 50 thousand in intraday and options trading annually and my annual salary is 2 lakh. so do i need to pay 15% of 50 thousand which i earned from the intraday and options trading. im totally confused plz help me out.
Vikas, both intraday equity and options trading is considered as a business (do read the blogpost above). Yes do file your income tax returns, and use ITR4 (ITR4 is for business). You need to add your income from trading to your other income, and pay taxes according to the tax slab you fall in (not 15%).
So Rs 2lks + Rs 50k (profit in intraday and options) = Rs 2.5lks. As per IT slab, you need to pay 10% for income above Rs 2lks, so you have to pay taxes of Rs 2000. This can be avoided, by doing some tax planning.
Dear sir,
So it means if my annual salary is 2lkh and i also earned 50 thousand in equity intraday. My annual income is 2.5lkh. And as per current tax slab below 2.5 lkh..u dont need to pay any tax. And above 2.5 lkh to 5 lkh u need to pay 10% tax… so in tht case i think i dont need to pay tax.. am i right?
Yes Vikas, if you are in the age group of 60 to 80, the tax slab starts at 2.5lks (it is 2lks for under 60). If your income is below that, then no tax liability.
Dear Sir,
Im 25 years old and my annual salary is 2.5 lkh ( salary + equity intraday earning) So it means i have to pay 2500 Rs. In income tax return (10% of my annual income) do i need to deduct my expenses like internet bill and other small expenses like travelling etc. While filing income tax return. And in wht case people pay 15% STCG. Im so much confused.
Vikas, do read through the main blogpost once. If you do short term delivery based trading(anything that you hold and sell after taking delivery) comes under Short term capital gain and the tax is 15%. Since you are doing derivative business, you can take the benefit of all expenses towards your trading business (internet, financial books/newspapers, computer depreciation, and any others).
Dear Nithin sir,in this budjet any good news for share traders about taxation ? ie turnover calculation, tax audit reg.Pls share.
Nopes, nothing at all. The only good news is FMC merging with SEBI, but need to see how it help traders in the future.
in continuation to my last message what shall be d brokerage sturcture that i would be subjected to ?kindly share
regards
Check this http://zerodha.com/pricing , 0.1% or Rs 20 whichever is lower per executed order. So you will never pay more than Rs 20 per trade.
dear sir
1- i am operating icicidirect account and now i want to shift to zerodha, ihave some equities in delivery in my demat and i live in delhi what i need to do to switch to zerodha?
thnx
You need to open a new account, and transfer all your stocks using the DIS slip that ICICI has given you. Mention the new Zerodha demat account number on the DIS slip and submit it back to them.
Thanks a lot 🙂
on a lighter note I think September had only 30 days… 🙂
Thanks for responding so fast , and as you said that dates are long gone i am talking about current financial year 2014-15 which will end on 31st march.
Thanks and regards
September 31st 2015
my questions are as under:
1. what are the dates for filing returns .
2. do i need to get audited from a CA.
3. Do i need to pay any income tax?
thanks and regards
1. Dates for 2013/15 are long gone. The last date was Sept 31st 2014
2/3. Since your income is 5lks and losses is 4lks, and the net income is 1lk, there is no income tax required. Since you don’t have any tax liability, no audit also required.
Dear Nithin,
I never filed ITR because my incomes never crossed tax free slab ever. I am doing trading in f&o and commodity from 2013-14. but in losses. I am not a salaried individual , nature of my work is like a commision agent and almost all of incomes are in forgien currency.
Now this year 2014-15 my gross income is around 5lacs after expences and my losses at trading are about 4 lacs. I really am now very confused about ITR can you please suggest me on this?
with best regards
vijay
dear nitin ji
I have few questions , kindly answer them
(a) I earn a dividend of Rs 1000 from the shares. I know that this dividend is alloted to me after deduction Dividend Distribution tax. If I am an investor , I will not have to pay tax on it under section 10(34). Am I right. Further If I am a trader do I need to pay tax on the dividend earned.
(b) I run a coaching any my presumptive income is 2.5 lakhs . expenses are 25,000. My turnover in Intraday trading is 1 lac and my income is 1000. My turnover in short tern capitall gains is 6.5 lakhs and my income is 30,000. My turnover in long term capital gain is 1.0 lakh and my income is 15,000. Expenses incurred is 10,000
Thus my total presumptive income is = 2.5 + 1 + 6.5 + 1 = 11 lakh
My expenses = 25,000 + 15,000 = 40,000
My actual income = 2,50,000 + 1000 + 30,000 + 15,000 – 40,000 = 2,56,000.
I fill ITR -4S.
Under these circumstances do I need to under audit as my total presemuptive income is less than 1 crore and my profit is more than 8%.
Thank you
Finally , I must congratulate you that you are running very informative blog and by your answers thousands are being benefitted.
Raj,
1. Dividend income is tax free irrespective of if you are a trader or an investor.
2. This is a little tricky, coaching according to me is like a profession and don’t think section 44AD (presumptive income) is applicable here. Best to speak to a CA about this. But if you file using the ITR4S, you will not need any audit for the condition you have mentioned.
Dear Sir,
Thanks for all the info you are providing in your blogs. Cheers.
Have a small query as below.
Suppose if i have invested 1lac rs in the stock market and does option trading frequently.
If with 1 lac rs i did llots of trading so that stock market turnover in FNO is say 20 lacs (Profit/loss + settlement value wit selling of the option). So i order to avoid the audit i have to have 8% of 20lacs as profit which is 1.6lacs.
So at the end of d financial year i end my account with 2 lac rs. Which means 100% return on investment. But still i have to do the audit and show the loss of 60 thousand?
It sound wrong to me. Could you pls. correct me where i have gone wrong.
Regards,
Mahadish
Yes Mahadish, if at the end of the year you have a turnover of 20lks and profit of 1lk (5%), you will need an audit as your profit is less than 8% of the turnover. Hopefully someone at the Income tax department and govt wakes up to this. We have raised a petition against this, you can support this I guess.
Dear Sir,
Thanks for the prompt reply.
If some one is making profit in the market it would be good for him as he has made a loss of 60 thousand in IT records but actually he has made 100% profit on his investment (1lac).
He could save tax on the profit earned and can also carry forward the loss by just doing the audit. So it actual is good for the individual rite?
Or does he have to pay tax on the 1 lac profit earned?
Mahadish, Don’t think you understood what I wrote.
If for 20lks turnover you have made 1lk profit, even in IT records you are profitable. And yes, you have to add this 1lk to all your other income and pay taxes accordingly.
The turnover calculation is just to determine if you have to get your books audited or not. Turnover doesn’t come into the picture anywhere else.
THe books needs to be audited only if turnover is more than 1 cr or if have made a loss.
But the case above shows 1lk profit. But the turnover says its a loss which is wrong.
So audit has to be done?
Its lots confusing
Books need to be audited if turnover is more than 1 crore or if your profit is less than 8% of your turnover. In your case 20lks turnover 1lk profit, so profit is less than 8% of the turnover and hence you need to get books audited. (Turnover doesn’t say it is a loss)
Thanks a lot 🙂
Continue your good work…Cheers…
Thanks a lot gentlemen.
This is very helpful.
Additionally, my heartfelt commendations at such an efficient and prompt service.
You guys keep it up. 🙂
Jindal
another link (with many court decisions referenced) http://taxtitans.com/tax_questions_and_answers/index.php/if-i-deal-in-shares-will-my-gains-on-shares-held-for-investment-purposes-become-business-profits/
Read this article http://taxguru.in/income-tax/shares-investor-or-trader.html
Dear Nitin / Om Prakash ji
I am a Zerodha customer and I have a question.
Scenario:
1.Suppose someone has large investments (approx. 1 crore) in equity for a long time and would like to be classified as an investor. Long term capital gains (LTCG), unrealised as yet, to the tune of 25 lakhs.
2.Also one does a few F&O trades for some extra income (say 10,000 per month).
Now, as per your FAQs one would have to be classified as a trader. Which means all the 25 lakh LTCG will become business income. The tax on this itself would be large enough to not justify doing F&O trading. Also it would be hard to have expenses for 25 lakhs to offset against business income.
Question:
How can one take benefit of being a trader as well as an investor?
a) Can one use the vehicle of an LLP and do F&O trading in there? or form a Pvt Ltd company?
b) Would that be allowed by law?
c) would such a company or LLP be classified as NBFC and require RBI permissions? (which itself would makes it a herculean task)
The point is how can a person genuinely do both activities legally in India?
Jindal
I would like to see Nithin’s reply; my advice – open a separate account (you are allowed to open 2 accounts with the same broker in your own name; and as many accounts as you wish with different brokers) for both the activities.
You are legally allowed to be BOTH an investor and a trader (there is a high court decision), but must maintain separate books of account and preferably separate brokerage+bank accounts (two account numbers, not two brokerages or two banks) for both the activities so that you can literally prove that the two activities were never mixed together (otherwise you are at the mercy of the Assessment Officer’s discretion, or the lack thereoff).
If you have already done it, then just maintain two sets of books of account for now and move to the above method as soon as you can.
LLP etc. are not needed (and have major implications for tax and compliance)
Yep, I’d agree with Vinayak.
Both you Gentlemen,
Thanks a lot for the prompt reply.
This does simplify life a lot.
However, Vinayak, would it be possible to provide the High-Court judgement citation ? That will help.
Thanks & Regards
Jindal
I will have to search; you can do it too.
Vinayak/Nitin
I called up Zerodha yesterday and asked them to open a second account for me in my name (trading a/c and a demat a/c), as advised by Vinayak (see below)
[
vinayak
“I would like to see Nithin’s reply; my advice – open a separate account (you are allowed to open 2 accounts with the same broker in your own name; and as many accounts as you wish with different brokers) for both the activities.”
Nithin Kamath Post author
Yep, I’d agree with Vinayak.
]
I was told that only one trading account can be opened by a brokerage firm in one person’s name, which contradicts what Vinayak has mentioned and what Nitin seems to agree with !
What’s the problem??
jindal
Jindal,
Yes, the easiest way to show your investment and trading portfolio separately is by having two different accounts.
You can do it in the same account as well, but by keeping separate book of accounts. You can probably map two bank accounts to your one trading account with us. Do all investment activity using one bank and all trading through another.
You can take the LLP/partnership route as well, a little more complex. But if you have a decent CA, shouldn’t be a problem.
Coming back to your query, as per exchange compliance rules, you are not allowed to have two trading accounts with a single broker. You will have to go to another broker and open a new account.
Dear Nithin
I had read somewhere that it is allowed to have two trading accounts with the same brokerage (can’t remember or find the webpage now). Is the one-account-per-broker restriction imposed by regulation or is it a self-imposed one?
Vinayak
Vinayak, exchange doesn’t let us create two UCC (unique client codes) with the same PAN. You can have two demat accounts, but only trading account.
[…] Taxation Simplified – Zerodha – … – Traders, I have been trading personally for a very long time and the tax filing times have always been the most painful part, sitting with a CA and… […]
[…] Taxation Simplified – Zerodha – … – Traders, I have been trading personally for a very long time and the tax filing times have always been the most painful part, sitting with a CA and… […]
Hi Nithin,
I am getting my tax audited as I got notice from IT. I am trading in derivatives
There is a doubt regarding the Gross receipt vs Gross Expense.
I have Shown the sum of net profits in various scrips as Gross Revenue and net Loss in other scrips as Gross expenditure in P&L schedule.
With regards to options how should I show it? I think the sell leg is only used for calculating turnover.
So if I buy option for Rs6000, Sell for Rs.10000/-. How do I show this with regards to showing Gross receipts/Gross Expense. What will be gross receipt and what will be gross expense?
Hi
wrt to your query the turnover with respect to options will be ONLY the total sale value of options .
So suppose u bought total option of value Rs 50000and sold them at 60000 ,,,,,your turnover ( for ascertaining income and P/L account ) wrt options trading will be 60000Rs . Profit will be 10000 which is the income from options trading .
Hi Varughese Eappen
wrt to your comment “I have Shown the sum of net profits in various scrips as Gross Revenue and net Loss in other scrips as Gross expenditure in P&L schedule. ” Yes this is 100% correct as the way you have shown ( I guess this is in futures )
In Option The purchase value of options will be under Expense /purchase while the sales value of options will come under turnover / sales receipts ( and the difference will be your profit or loss )
I am confirming this after discussing with CAs and Consultants ,
Thanks
I have been going thru the comments and discussions posted above regarding turnover wrt FnO trading
The info I have gathered from CA and auditors it clearly indicates as describes by Lemondew
1) In case of Futures its calculated as per total summation of losses and gains settled daily .
2) In case of Options It is Just the SALE VALUE of The Options sold ( It doesnt matter whether the option is bought first and then sold or Vice versa ) The usual rule ………………” The total of positive and negative, or favourable and unfavourable differences shall be taken as turnover; ” will apply only in case of Futures and NOT in options .
In Options you need to add the total amount ( premium ) received on selling the option .Pls note here selling does NOT mean only selling the option first and buying later ie short selling ) Even if you buy the option and then sell it ……………the amt you receive on selling the option ( after buying ) will add to the turnover .
So at the end of te financial year Total value of Options premium received on sale minus Total value of options bought will give you the profit ( or loss )
Hope this will clarify ,
Thanks
Dear SPS
some CAs on traderji have mentioned the same thing. can you share your traderji handle (or some other forum handle). I would like to send you a personal message.
sure …………….I have infact written about this in traderji as well by the name : shankarbobby
you can see the link below
http://www.traderji.com/taxation-matters/14176-fire-your-tax-related-quieries-i-would-get-solved-189.html
thanks
Sir, this year I have loss in F&O approx 4.5 lakhs
I donot have any other salary, business income. I have to tax audit and file or donot show this trading, because i donot want to do in future trading.Please guide me.
Thanks
If you are planning to invest in any business at all in the next few years, you may want to get an audit – without audit you can’t carry-forward your losses.
Hi,
My turnover from equity investing is 17 lakhs in current financial year and profit of 86k.
Turnover from trading in derivatives is 10 lakhs and here i have made loss of 2.25lakhs.
Can you tell me if i have to get my books audited?
Vivek depends on what your other income is (salary+any other business). If your other income + trading loss is less than 2lks, there is no tax to be paid and no audit required. If your other income + trading loss is less than 8% of 27lks, then yes audit required
I am a woman and my earning is through coaching and interest from fd. i file itr. My father in law has made an fd in which my name is the first name and my father in law has second name. the fd is prepared as he transfers the amount from his account. I want to know in whose income the interst obtained from the fd will be added.
It can be shown in either yours or your father in laws. But personally it would probably be better to show it in the name of your father in law, as he is transferring those funds to you.
I had bought 653 shares on MindTree at Rs. 1415 on 17th Jan ’14. Sometime in Jun 2014, 1:1 bonus shares were announced and 653 shares were credited. This also resulted in its market price drop by half.
In Sep ’14 I sold 100 MindTree shares at Rs. at 978.
How do I calculate my tax liability for this? Should I consider the buy price at 1415 and sell price at 978? Or, is there some other factor I need to take into consideration?
Would appreciate if you could let me know on this? TIA.
Best,
Anurag
Anurag, the cost of Bonus shares is 0 and yes for the first 653 shares(the way you have calculated), your buy price is 1415. For the second 653 shares, the cost price would be zero. The loss that you incur selling the first 653 shares, can be adjusted with the profit on the second 653 shares.
Thanks, Nithin.
Nithin – a quick Q on this again.
The 100 MindTree shares I sold would come from the first 653 shares (bought at Rs. 1415), correct?
In which case I should show a ST loss since I sold them at Rs. 978?
Are there other traders who have received notices like mine above?
If so please let me know what have you done in the above case. Have you gone for auditing?
I have received 3 defects in my IT returns. I have to file corrective return. One of the defect is as under:
Assessee has claimed loss under the head “Profits and gains of Business or Profession”; however,
he has not filled Balance Sheet and Profit and Loss Account and has not got the books of account
audited.
This is regarding my declaration of business loss due to trading in F&O. Do I need to fill the Balance Sheet in case of trading. Also do I have to get the books audited when my turnover is a couple of lakhs only?
Varughese, we have taken a petition to finance ministry asking to exclude derivatives from section 44AD. The reason you have this notice of defective return is because of that. Check this: https://www.change.org/p/minister-of-finance-exclude-business-of-trading-in-securities-and-derivatives-from-section-44ad
Hi Nithin thanks for the timely reply.
Please advise what should I do.
How do I rectify. Should I simply remove my business (loss in my case) from tax returns.
In any case I don’t have to pay taxes for losses. So will it be ok. I know that if I do that I wont be able to carry forward the losses to next year. I am supposed to act on the notice in 2 weeks time and 3 days are already over.
Best you go meet a CA. If you hide your trading business, it might come back to haunt you later. As per section 44 AD, you will need a tax audit in case your profit is less than 8% of your turnover.
Thx. The articles are very helpful. Also read the article on notices being sent to other traders.
Dear lemondew
which article is that (on notices to traders)?
Specifically on your question (what happens if you do get notice) – if it is finally deemed that you should have gotten the audit but didn’t then (as long as no net tax is due on you i.e. you did pay the taxes, just didn’t do the audit) you are guilty of not getting the audit done – penalty is 0.5% of the turnover upto a maximum of 1.5lacs;
This will entail a lot of headache and CA fees also.
http://zerodha.com/z-connect/traders-zone/taxation-for-traders/notice-under-section-139-9-possible-reason
This is article I was talking about. Also after doing a lot of search learnt this.
http://www.traderji.com/taxation-matters/97465-discussion-section-44ad-act-4.html#post1048391
That may be helpful. My CA himself didnt know it properly. It is very unlikely that a person can make 8% on all his sale turnover in options and equities. So auditing is a must otherwise just file 8% turnover as your income,
I didn’t know that you are the lemondew from traderji.
If you go up this thread the link to ICAI guidelines has been posted quite a few times (I did, Nithin did). the guidelines are ambiguous on options – the absolute sum of Profits and losses has to be taken while the premium received has to be “included” (people assume it is “added” the guidelines use the word “included”). The point is premium is already “included” when you calculate profit or loss.
The special treatment for options is simply because they can expire without settling (unlike futures or day-trades) if they are OTM – in such cases there is no reverse transaction.
I think whoever wrote the guidelines was trying to elaborate on how to account for profit or loss in special situations for options, he ended up confusing more than clarifying. Again I have written a long post on this above on this blog.
As for notices you were talking about, they were sent last year and the year before that for non-filers and the like from compliance-management-cell (I’m not talking about the notices sent by the AO); no followup was done even by the tax department on the automated tax notices. The purpose was probably to scare people and get as much revenue as could be obtained via voluntary compliance (it achieved that goal) to meet the budget numbers. IT is doubtful tax department itself had much intention to go after people given the absolute humongous numbers of notices of which a large number were sent erroneously. So far as I know this year they haven’t been issued.
On traderji I have seen posts by a member (he is a CA) who does the turnover calculations based on Profits and losses (trade-by-trade basis) only. I don’t rememebr his name, I’ll find out and send it to you sometime, you can send PM to him over there.
Another thing – if you are going to get an audit anyway then the method of calculation doesn’t really matter.
Thanks. Thats what my CA told me. And I filed that way last year. With the petition going around and so many different views I am confused. Bottom line of any money management is to make more money and do it the correct way. You dont want to venture in any risk business where you spend time, make money and there is a chance you may ve to end up paying all profits or most of profits as a fine. It is better to have clear idea what you are getting into.
If audit is required then better have it and reduce your profits by fees of auditor.
So basically in FD you earn 9% /annum + no audits
In FO you earn x% but audit fees extra or uncertainty whatever……
FD and options are obviously not comparable even without considering the costs and audit etc. – one is a guaranteed return and other is not so guaranteed (for many it is a guaranteed loss).
How much did your CA charge if you can share? My wife and I need an audit this year and I’m just trying to get a ballpark figure to see.
I didnt do an audit last year, He charged me standard 1000 or 2000 Rs. I dont remember
My CA (recommended by a friend) charged me 2k/year for filing ITR-2 (I got three years filed together), did a shoddy job (gave me the calculations after a month and asked me to “verify” – my response was why would I verify if I’m paying you; next it turned out it was full of errors; they has calculated 30% taxes on LTCG on stocks ! mentioned someone else’s voucher numbers in form than from my advance tax receipts …) AND then didn’t file till Mar 31 ! – I would have been barred from filing if I didn’t use my own common sense and filed a few days before on my own.
It also turns out this is not a one-off incidence with one CA, most CAs apparently are bad.
Hence I asked to get a ballpark idea.
yes some CAs are bad is best to interview them on phone. check how would they do and so on before giving them.
Ok I just spoke to my CA. He told me we can explain the IT authorities if they send notice. I just want to ask you too what is repercussion if few get notice for taking small number of F0 trades and didnt make 8% out of turnover and didnt do audit.
Explaining the IT authorities is the tricky bit. The repercussion could be having to pay tax with penalty at a later date. The IT might ask you to pay tax considering your profit to be 8% of your turnover, even if you have made a loss and not declared.
Turnover = absolute sum of settlement profits & losses for F&O
Calculation of turnover is to determine if you need your books audited or not, so audit by a CA is required if:
If turnover < 1 crore and profitability is less than 8% of turnover (Section 44 AB)
Now here was the above point there last year as well or it has been introduced this year only?
This has been there for a while, but automated notices have been started being sent from last year. There is a petition running to exclude this, you can support it: https://www.change.org/p/minister-of-finance-exclude-business-of-trading-in-securities-and-derivatives-from-section-44ad
I signed the petition, but it is a long shot.
I remember you had earlier asked for clarification fro IT department on options turnover calculation – any progress?
Long shot it is, no response for the earlier correspondence.
Dear Nithin
I have a question – is the calculation Zerodha employs any different in case an ITM option is exercised (allowed to expire ITM) I’m asking because for the purpose of STT they do include the strike-price but even the conservative method of turnover calculations you use for income tax doesn’t account for strike price.
Also apart from STT is there any other drawback in letting the option expire if it is ITM? I know it is preferable to square it off, however this week I had BankNifty options that were very deeply ITM and as a result the square off value wasn’t exactly what I expected; I still made a profit overall but the bite was too much and I would have preferred to let the options expire.
Vinayak
Vinayak, nothing changes if an option is exercised in terms of taxation or calculation of turnover. The tradebook of an exercised option is very similar to an option which is sold on expiry day. The only issue with letting an option expire is the STT bit. If you are trying to time an exit in the last 30 mins on the expiry day, the STT is already most of the times factored in the price. So if you are trading 8900 calls and NIfty is at 8950 30 mins before expiry, you will see the 8900 calls trade at around Rs 45 and not Rs 50.
What can hurt is when your options expire just ITM. So if nifty closes at 8901, and you held 8900 calls. You get back Rs 1, but loose Rs 6 in costs. These options, have to be sold on the market.
One more question related to that – if I let some long ITM option expire on Thursday, can I use the money expected from it for trading on Friday morning?
Same question for short options also – when I let the short options expire (last Thursday of the month) when is the earliest the margin money is reverted to my account, is it Friday or the next Monday?
Yes to both.
hi nitin
sorry to bother u again,8 percent tax audit rule applies for intraday losss too?? or it is applicable to business income(derivates) only…lets say i acquire loss of 5 lkh on turnover of 10lakh in intraday am i liable to tax audit??in futures i acquired profit more den 8 percent of turnover.kindly reply
Nivedita, it is the total income, so speculative(intraday) + derivatives + any other income, if together the profit is less than 8% of turnover, you need an audit.
dear nitin
i acquired 10 lakh loss in intraday and made 15 lakh profit in futures ,how does 8 percent rule applies on this??would it be 15lakh-10lakh=5lakh@8%=40000rs.do i have to show atleast 40000rs profit?secondly in your previous message you mentioned intraday income and futures income can not be negated while filing tax?kindly clarify on this.thnx
So you are net Rs 5lks profitable. So you need to add any other income that you have to this 5lks, and then see if it is more than 8% of the total turnover.
Yes, unless you classify yourself as a jobber, you cannot setoff intraday equity (speculative) with futures.
Dear Kamath , i find zerodha.com as very informative.
I buy shares and my agent is angel broking. I buy share as the value of share is increased by 10% , I sell them.
(a)Do I call myself an investor or trader.
(b) whether the tax implication on intraday is 30%?
(b) The P & L issued by angel broking show as follows
Intraday : gain 1522 ( tax 465)
short term gain :30366 (tax 4509)
In case I call myself trader / investor , do the charges made agent brokerage , STT , inetrnet charges , amount spent n buying printer , depreciation , telephone costs can be deducted
a. If you are trading actively, then I guess best to call yourself a trader.
b. You add the income from trading with all your other income, and then you pay tax according to the slab you fall in.
c. Yes as a trader you can show all expenses incurred towards trading.
thanks
Dear Nitin
A very good morning.Thnx for enlightening doing a very good job
1-i made 10 lakh as profit in futures and options and i lost 9 lakh doing intraday trades..can we offset both? i will have to pay tax on 1 lakh??
2-i made 30 lakh profit doing futures and options, can i pay my mother 10 lakh as advisory fees and show d same as expenses??
regards
1.Technically you cannot setoff profits from intraday equity trading (speculative business) with F&O trading (non Speculative). Speculative losses can be setoff only against speculative gains. But that said, if you are doing trading very actively, you could probably show yourself as a jobber, in which case this can be done. If you have a scrutiny tomorrow, you might have to then defend this stand you have taken. So best to consult and take your CA’s opinion on this.
2. 🙂 you can, but anything you do that cannot be justified can come back to haunt you tomorrow.
dear nitin
Thnx for the prompt response.If i show myself as jobber wont that tax my longterm capital gain and shorttermcapital gain under normal tax bracket?? i guess in that case even my longterm capital gain will be taxed?
regards
You can still show your investment portfolio separately (as long as you are not actively trading on those as well), so that you get benefit of zero LTCG.
Dear Nithin and Nivedita
Congratulations to Nivedita for making such profits ! If she can share the methos somewhere that would be nice !
Section 43(5)(c) of income tax act lays the exemption for jobbers thus:
“a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;”
who is a “member of a forward market or a stock exchange” ? can a retail investor claim to be a member of NSE for the purpose of this section?
absent the above classification there is no way speculative losses can be set-off against anything else. In fact speculative profits/losses get some of the harshest treatment in tax law.
However allow me to explore another possibility – FnO profits/losses used to be speculative and only recently gained the exemption from being treated as speculative. Can a tax payer (in this case Nivedita) claim that the FnO profits were in fact results of speculation (rather than normal non-speculative business)?
If so then net profits from her “speculative” activities are Rs.1Lac (speculative profit of Rs.10lacs in FnO – Speculative losses Rs.9 lacs in day-trading)
The second approach may be viable; I did a little search and found this link:
http://cajainmohit.blogspot.in/2013/07/section-435-v-explantion-to-section-73.html
this catches the eyes “Section 43(5) has no application over section 73.”
Section 73 governs set-off of speculative losses. In the above cases Delhi High court ruled that FnO losses are speculative for the purpose of section 73. This would mean the profits are too. That then means that other speculative losses can be set-off against such profits within the meaning of section 73.
Here are some other links:
http://www.taxmann.com/budget2014-15/file/t68/budget-2014-proposed-amendments-relating-to-speculation-transactions-and-speculation-business.aspx
http://www.caclubindia.com/articles/section-43-of-the-income-tax-act-1961-13631.asp
http://indiankanoon.org/doc/149837438/
The last link is the whole judgement of Delhi High Court (a very interesting read). This may or may not be applicable to the present situation, but there may be other cases.
Anyway, you’ll need to see a CA to audit and file the returns anyway (I’m guessing, based on the figures, that your turnover if pretty huge)- get a good one and mention the above case, the fees will be worth the trouble.
Thanks Vinayak
You are welcome Nithin
another case (more similar to Nivedita’s situation) from Bombay High Court
http://indiankanoon.org/doc/129354173/
This is a very interesting case, the Plaintiff made some losses till year 2006 in FnO segment and they were carried forward as speculative; for the next year he made profits, but by then the law had changed and the profits are no longer deemed speculative (and so can’t be set-off against previous years losses). The Commisioner of IT disallowed the set-off. The assessess appealed.
The judgement above is long but basically it gave relief to the appellant (the set-off was allowed) on the grounds that losses in a given activity ought to be allowed to set-off by profits in the same activity.
Clearly the above was a special situation (you make losses in a speculative business, next year that business is declared non-speculative – so you can’t set-off). The appellant got the relief probably based on higher laws than income tax act (e.g. the constitution and principals of natural justice) on a one-off basis only (i.e. no broad precedent set). However the judgement shows the thought process of the court in arriving at the decision and that clarifies the position courts will take later.
The High Court didn’t question whether speculative losses can be set-off against non-speculative (in fact High court seems to say this is none of the courts’ business) and in Nivedita’s case the two activities are not same (day trading vs. FnO) plus their is no special situation created via change in law.
Accordingly the second path I suggested (declare FnO income as speculative and then set-off) is not really legal.
Basically there is no way out here except the “jobber” thing Nithin suggested (and that is open to members of the exchange in their usual course of business only)
Perhaps Nivedita can become an Authorised Person
Dear vinayak and ntin thanks a lot for your suggestion and for that great detailed discussion.would definately bother you guys again thxn once again
regards
Hi Nithin,
I am choosing Zerodha to trade(Intraday Trade-cash segment). Also I am a regular tax payer. As there is a lot of confusion while filing the IT return, I request you to help all the traders who are interested to file the profit/loss by opening an IT File section where you can charge some fees and hire some CA’s to help all the Zerodha traders to file IT. It will be a win-win situation for both zerodha and all the traders.
Please think about this suggestion.
Thanks,
Abhijit
Abhijit, unlike ITR 1 and ITR 2, ITR 4 especially the ones with audit is very tough to be done online and over the phone. Once a CA puts his seal, he is accountable for it, the laws have gotten stricter for a CA in the last two years. So very tough to find a CA who will audit clients he doesn’t know personally.
Hi Nitin
I don’t know much about tax filing so please answer my query in simple way so tht i can understand it. My salary is 20,500 per month so per annum 2,46,000. Hope no tax for this salaried income. Apart from this i am a trader and investor of zerodha. Doing intraday in commodity and gaining some decent profits each day. Heard that in commodity 30% of tax should be paid this is something cannot be digested. How to overcome this by providing any bills etc or i can just zero tax file…Kindly assist me…..
Om, upto 2lks there is no tax. So for your 46000 there is a 10% tax or Rs 4600. But that can easily be avoided by investing into one of the tax saving instruments.
Commodity trading is considered as a business. So assume that you make 1lk profit trading commodity in a year, so now your total income is 346000, so you have to pay 10% tax on 1.46lks (since upto 2lks there is no tax). But since commodity trading is a business, you also can take benefit of any expense towards business, I have given a lot of examples in the many queries above. do have a look.
Thank You so much for the reply Nithin. Here you mentioned 10% tax for commodity intraday trading but i heard from one of the broking company for commodity intraday need to pay 30% tax. which one is correct iam very much confused. If it is 30% tax there is no use of trading commodity intraday and please suggest me benefit of any expense if any …
Om, you have to pay tax as per the income tax slab you fall in. 0-2lks nil, 2-5lks 10%, 5lks-10lks 20%, and above 10lks 30%. So, only for the income(salary+all other incomes including trading) you make above 10lks in a year, you have to pay 30%. Since you fall n the 2-5lks slab, you have to pay 10% for whatever amount above 2lks.
Whatever expense you incur towards trading, internet bill, depreciation in computer, books, subscriptions, and all such can be shown as an expense. But be sure to declare your commodity trading while filing ITR, can have repercussions in the future if you don’t. Also, most of your queries are already answered on the blogpost and the Q&A.
Sorry nitin for asking the same query again as i told other broking company was sharekhan who told me for commodity intraday trading is 30% tax since it was speculative one. Just now i cald concerned person she told me the same once you trade in commodity consider as future speculative so have t pay 30% tax is this is right. Kindly please answer me…
Firstly Om, you don’t have to ask two or three times to get an answer. Once is enough, and some patience.
Until last year there was debate on whether commodity trading is speculative or not, that was cleared in the last budget. Check this link. If you trade on a recognized exchange, it is considered as a business income. Even if it were to be speculative transaction (like intraday trading in equity is speculative), you still pay taxes according to the tax slabs like I have mentioned above. So your Sharekhan friend is wrong, you can go speak to a CA.
Hi Nithin
Sorry for troubling same old turnover calculation for options turnover calculations
I havent got any clarification from above post.,my query is same anyone’s
Case 1 : If i bought 8000 CE @ 55rs for 200 quantity (8 lots) and sold at 66Rs. My turnover would be A) the sell side value of option contracts 66*200 = 13200 or
b) absolute sum of settlement profits & losses ie Rs 11 (66-55)*200 = 2200 + the sell side value of option contracts 66*200 = 13200 , 15400? or
C) just profit 2200
Case 2 : If i bought 8000 CE @ 85rs for 200 quantity (8 lots) and sold at 66Rs. My turnover would be
A) 66*200 = 13200 or
B) 17000?ie (13200+loss) or
C) just loss 3800
Pls clarify
Thanks in advance
Prasanth
Please reply my query
Thanks in advance
Case I: 13200 + 2200 = 15400
Case2: 3800(loss)+ 13200 = 17000
Again, this turnover calculation is debatable. The method that we are using is the safest way. Some people would consider only the profit/loss. So in case 1: 2200 and Case 2: 3800. Best to speak to a CA before filing returns.
My taxable income is nil.
I have made some losses on shares as a long term investor
I file an IT return
Is it possible for me to get refund if yes how and for how long can I carry forward the loss and then can i claim deduction from my salary income or by doing less investment under section 80 of IT act
Thanks
You can setoff long term loss only against long term gains. We have had a bunch of discussions on this above.
Hi Nithin,
Can traders (no other income) claim deduction for payments to PPF & Tax Saving FDs (Under 80C)?
Thanks
Yes, as a trader(trading as a business) you can. But if you are an investor, you can’t.
Nithin/Vinayak..
I need your suggestion on the following.
2 days back, ,my ITR 4 has been processed. but they has been demanding
234B INTEREST, 234C INTEREST components (sum of 16500/-) from my account.
But heard from some of you that, these tax components are not reqd to pay.
I have filed for trading income along with Form16 (fixed salary).
From my wife account we have not filed these tax components but, its processed with out any demand. offcourse she filled only for trading income.
So any thing wrong in this to complain or i should pay this amount ?
Could you guide me?
234B and 234C is interest on advance tax which has not been paid. Advance tax needs to be paid as a business, we haven’t mentioned that it need not be. What we might have said is to be conservative in calculation of advance tax as trading is an unpredictable business.
Hi Nithin,
Request you to please clarify on below points.
I am a salaried employee from last 8 years and did share trading for last 3-4 months (including the delivery based and intraday as well). However I incurred losses only and my turnover is less that 1 Cr also. I have never done F&O trading. Since I not do trading as a Business…
1) I will be treated as an investor or trader ?
2) Do I need to have a tax audit done ?
3) If Investor – is tax audit mandatory if turnover crosses 1 CR ?
4) Which IT form I need to submit ?
5) For a salaried person – Is Share sale/purchase treated as Business or Investment ?
Thanks,
Sudhakar
1. If you have done intraday trading actively, it is considered as a speculative “Business”, so you will need to declare using an ITR4/ITR4S
2. It is best to get an audit done.
3. If you are an investor, what you do in the markets is not considered as a business, so no audit.
4. ITR4 or 4S
5. If you invest into stocks, it is investment. If you intraday trade or trade on F&O, that is a business.
Thanks much for the reply Nithin.
Hi Nithin,
Salaried Employed people have so many tax exemptions like Provident Fund, Voluntary Provident Fund, Public Provident Fund, Conveyance Allowance, House Rent Allowance, Leave Travel Allowance, Mobile Allowance, Medical Allowance, Exemptions on Insurance premium paid, Rajiv Gandhi Equity Savings Scheme, National Savings Certificates, Tax Saving Fixed Deposits and many more.
However for business men the only exemption they get is on their business expenses? Is there any other investments that businessmen (whose income is from business) can make to reduce their tax liability?
Thanks
Sukesh
Sukesh, if you are trading as a business, you actually have the benefit of showing every expense that you might incur towards that business. So if you are trading, from depreciation of your computer, to your internet/mobile bills, books/newspaper, if you are using a section of your home for trading (a portion of your housing rent), and everything else that you are incurring to run the business can be shown as an expense.
Got it.. But we cant have some benefits that employees get rite? Like Insurance Exemption, Preventive Heal Checkups etc..
This is something you must talk to a good CA about.
You can be an employee of your own business (you will be the majority/minority shareholder). I’m certain that is the case if the business is registered as a company; quite certain this is not the case for a deemed business under section 44AD (there is no point; you’ll have to pay taxes on at least 8% of gross receipts), not so clear what happens when you are not incorporated. And in that case the salary your business pays you will have the same deductions. The rest your business can pay you via dividends (that has double taxation) or via capital gains (if you sell part/whole of the business later) – CA will tell you all the pros and cons.
Salaried people do get certain exemptions but many other exemptions are common, for example tax break on savings are same (you can put your money in PPF; salaried employees do EPF; same net amount for exemptions) and some other expenses can be shown as business expenses (murky legality, but people show their holiday travel as business expense; cars are purchased in the name of the business and then depreciated, I even know of a guy whose rented house is also his registered office – rent is paid from his business) – these tricks are used by many and not used by many others (I guess most); you’ll have to take your pick
either way, talk to a good CA in your town.
This Year i made LTCL from shares of 2.5lkh and F&O profit of 1lkh
My question since i’ll file return as trader can i consider long term loss as business loss
So that will be total loss this year [2.5 – 1(profit) = 1.5 lkh] and this 1.5lkh loss can be considered as a business loss and net off against any income other than salary for upto the next 8 years.
Yep, but make sure that you don’t randomly keep switching between an investor and trader.
Dear Nithin
wouldn’t that open a pandora’s box if he is ever audited (which he will probably have to, he is planning to declare a loss) and/or scrutinized?
I mean since these are LTCL there is a chance our friend might have paid only STCG tax or worse nothing (LTCG) in last years on shares purchased alongside the ones he is planning to claim LTCL on now. So if I’m the assessment officer then I can say that either he misclassified the LTCL this year and tried to evade taxes (problem enough) OR he didn’t pay proper taxes in last several years on business income.
On whether an investor can change to trader (or vice versa) – the process is to declare it in books of account and change investments from “capital assets” to “stock in trade” then whichever date this is done on he has to pay relevant CG taxes on mark-to-market gains (if done the other way round pay taxes on business income) If he has been an investor so long, when did he change his status to trader? on the date he did were there any capital losses? and if there were than how will those offset against business income anyway (e.g if he changed his status on April 1 2014, earlier than which he can’t declare it now, how do we compensate for Capital losses before that date with business losses in the relevant financial year)?
I think he needs some great CA rather than a DIY solution – again he probably needs that anyway given the FnO dabblings + loss-declaration he is covered under 44AB if overall income (including salary and bank interest etc.) is taxable.
Yep, agree.
Thanks a lot Vinayak and Nithin for my query, reading Vinayak’s comment I am having a second thought on what should be done about it .
Till date I have not showed anything about shares in my returns (not sure if that qualify me as investor or not)
Need a suggestion from you guys :
1. forgot about LTCL , file a return as trader with 1 lkh profit and pay taxes accordingly or
2. As vinayak said “whichever date this is done on he has to pay relevant CG taxes on mark-to-market gains” :
I have not made any CG in all my previous FY so even If I compensate for Capital losses before that date with business losses in the relevant financial year, what is the problem as there was no CG before.
Better talk to a CA as it seems (based on the little you have written here) whatever you do can have very significant ramifications going back years.
I can tell you about “investments” vs “trading” a few things (purely as general principles):
1. you are allowed to both invest and trade; however it is better not to do both from the same account. The onus of proving which one you were doing is more or less on you (not exactly, but practically yes), the Assessing Officer (AO) can decide whatever he wants if you are doing both and challenging him is expensive. Keeping two separate accounts helps bolster your case (and I believe is a recommendation from IT department)
2. If you trade then you must maintain books of account; if you do both investments and trading then better maintain books of accounts for both.
3. In the books of account you’ll then need to declare the shares you buy for trading as “stocks in trade” on the day they are purchased.
4. Shares bought for investments have to be declared as “capital assets” on the day they are acquired.
5. if you sell “stocks in trade” later then the difference is a trading P/L
6. If you sell “capital assets” then the difference is a capital gain (loss)
7. If you want to start trading in shares that are already in “capital assets” books then – (a) you need to show them as “sold” at market prices in “capital assets” books and (b) show them as “bought” in “stocks in trade” book. When you do (a) you’ll make a capital gain/loss – you need to pay taxes on that accordingly (remember – this transaction is off-market so the STCG is 30% and LTCG is 20%; it is better to actually sell shares and then re-acquire)
8. If you want decide to hold stocks you purchased with the intention of trading as a long term investment the reverse on 7(a) and 7(b) needs to be done. When you do that you make a trading profit/loss – taxed at 30% irrespective of how long you kept the shares (and in this case off-market doesn’t matter)
The above is roughly what you need to do; obviously unscrupulous guys can do it share-by-share and after-the-fact (i.e. make the books at the end of year to show all losses as “trading losses” and gains as “capital gains”). The AO will accuse you of doing exactly this if you did any significant trading (for insignificant trading he wouldn’t even care) hence the advisory to do it from two different accounts – there is no way to mix the two then, because to move anything from one book to the other you are actually doing a market transaction which can’t be done “after-the-fact”
Anyway, as you can see there are technicalities involved even with clear rules and here the rules are not absolutely clear.
Better talk to a CA with details
Nithin / Vinayk,
I have filed ITR4 for 2014-15. Its not processed yet.
May i know the tentative date by when these usually gets processed?
Any bodies ITR4 filing processed? I am worrying because, total turnover is calculated based on earlier
backoffice FNO Profit loss statement. it was around 99lakh. in present back office, it is showing 130lakh.
this difference is because of turnover calculation on options. i didnt get my books audited. So worrying a bit .
Best talk to a CA known to you, but two questions:
1. Did you correct the profits correctly and have all taxes, interest on late payments etc. been paid in full?
2. Take the statement from Q; now add all the receipts from option sales (don’t count the money paid to buy options at all. Add to it the money received if any of your options expired in the money – use this number as your “Gross Receipts” from options (rather than “turnover”). —with this done do you still cross 1crore?
If (1) is YES and (2) is NO – don’t do anything now. Tax law under section 44 (AB and AD both) talks of turnover or gross-receipts without indicating which one is applicable and/or how to calculate turnover. (2) above shows ho to calculate gross receipts.
If (1) is YES and (2) is also YES – you can choose what to do but my suggestion is talk to a CA. You can still change the ITR4 submission, though the last date for audit is past.
As long as (1) is YES, the penalties on you will be very minimal (if any) – almost all penalties in tax law are tied to the amount of taxes due on you and that would be nil. The only penalty possible is for not getting the audit done on time, but I believe that is nominal (if levied at all).
If (1) is NO – first thing you must do is calculate and pay the taxes immediately. Every end of the month you delay adds 1% to the remaining taxes AND you are guilty of understating income and making a false declaration. Once you have done that then get a CA to do the audit (whether or not your turnover is 1crore by any method) and upload the new return.
In all cases keep the ledger, contract notes and PnL statements from zerodha and any other brokerages; and all the bank statements etc. with you within reach – the tax department may ask you to show those as “books of account”.
Correction on one thing- I just checked about the penalties for not gettting the audit done on time; they are substantial ! 0.5% of the “sales, turnover or gross receipts as the case may be” up to a max of Rs. 1.5lakhs.
If (1) was a NO you better talk to a CA immediately. Otherwise I wouldn’t change a thing if I were you (except prepare a PnL on my own showing “Gross Receipts”)
By the way Seenu, are you relying 100% on the reports you got from backoffice? My sincere suggestion – check them at least once. Like in any software there can be bugs.
For example in my PnL reports right now the turnover and profits are messed up completely because I held Axis Bank options through the stock split and the system seems to be unable to account for those. Tradebook etc. are correct.
I’m using the tradebook spreadsheet to calculate the turnover and profit as a result (very simple to do once you have all the trades listed)
Seenu, it can take upto 3 months. @Vinayak, the axis bank options issue must be sorted, can you double check and let me know?
I had sent an email (this is from my wife’s account; I do long-only, she has enough time to think about FnO); the account is still showing anomaly.
I’m not too bothered at the moment, filing time is still a while away.
My point was not to EVER rely on PnL statement coming out of a software and ALWAYS cross check. I have had situation where my CA’s professional grade software computed 30% taxes on my LTCG (and his associates then arguing with me that the calculation can’t be wrong)
Specifically on the question of whether his ITR-4 has been processed, I don’t think so. None of my colleagues have had their ITRs processed yet including for a few who filed back in early-June (ITR-1 at that). This was an election year and one where the audit process went to courts; I think we must expect delays.
His problem is – assuming the PnL calculation is correct and audit is a must, he has missed the (relaxed) audit deadline by 4 days today. The conservative approach Zerodha takes for turnover calculation will burn him now (for that matter for 99lakhs turnover he should have gone to a CA in the first place – too close to 1crore limit, no “margin for error”; and the CA might has more than paid for himself by including some costs like electricity and rent). Better to drop the conservatism at this stage and go for an approach consistent with hos receipts/turnover are calculated in a normal service/manufacturing/professional business – add up the receipts in one column and expenses in the other; then use the first column as turnover and the difference of the columns as profit (loss). This can be done from the tradebook directly (and since tradebook has only trade entries, no calculations, chances of calculation bugs are extremely limited).
Even now the best thing is to talk to a CA whom he has connections to (direct or via friends)
Dear Vinayak,
Sorry for the late replay as i was out of access for a while.
My filling was done by CA guy to whom i gave my PnL statement generated by old Back-office of zerodha.
As you are saying nobodies are processed yet, what should i do now.
I filed before july 31st. and as per inputs didn’t pay any taxes.
Let me contact the same CA.
If at all any notice, it will be informed by mail or call?
As per your point mentioned in the above ans: “The conservative approach Zerodha takes for turnover calculation will burn him now”, does it cost huge in this regard if i get notice.
Just to avoid the audit, i have stopped the trading in this account at 99lakh turnover as per bo report.
May i have your contact number plz?
Thanks,
Dear Seenu
calm down first. Chances of you getting a notice are very small (though not nil). And if you do get a notice first they will ask for your records – send the records downloaded from original BO thingy (99 lacs) if that happens.
Second why is there any difference between the two BO reports? is it that the two BO reports have calculated the turnover in a different way on the same transactions or is it that the transactions accounted for themselves are incorrect?
To check whether all transactions have been copied and nothing else – take your tradebook, tally it with your contract notes (if there are too many of those then do it randomly) and then tally the tradebook with PnL report – pretty straight forward stuff if you download these into EXCEL from zerodha.
Be especially careful for contracts around special events (e.g. if there was a stock split, bonus stocks, lot-size changes etc. while you were long/short options) – these are the “corner events” most likely to be missed by software developers and hence prone to have bugs.
Once done with the above you will have a pretty good idea what (if anything) went wrong.
Once this is done then sit down and calculate the turnover again – it is possible that the first report was correct. It is also possible that both the reports are correct but use different methods of calculation (in which case you can decide which method you want to use).
Assuming the first (or both) reports have all the trades accounted for correctly; then forget about method of calculation – stick to the first report.
Most importantly – one of the methods to calculate is gross receipts; on traderji.com there are CAs who use that method. They simply add up ALL premiums received. Also add up the gross value if you had bought an option and it expired in the money (e.g. you bought nifty options strike price 7900, expired at Nifty=8000, gross value = 8000*number of options). This will certainly be less than zerodha’s method.
Another method is to account ONLY for the differences (e.g. bought an option lot – sold it, take the difference just like in case of futures) where on/before the expiry day you had squared off the positions; then add to it the money received on expiry (like nifty example above; will be 0 if the options expired OTM) minus the premium paid every time you let a long position expire without square-off; add to it the money paid on expiry (like nifty example above; 0 if the option expired OTM) minus the premium received every time you let a short position expire without square-off.
This will be WAY less than zerodha’s method and is also the correct way (ICAI guidelines points number 2 and 3 use the words “included” and “considered” not “added”; the preceding explanatory paragraphs on turnover calculations are clear that where no delivery-settlement happened and was not even intended only differences matter)
I’m sorry, it wasn’t AXIS Bank; it was SBI
this is the entry from PnL statement:
SBIN14NOV2750CE 2,500 ₹174.50 ₹4,36,250.00 2,500 ₹8.52 ₹21,293.75 0 0 ₹-4,14,956.25 0
in reality it was two lots (250 units) of SBI options shorted which then became (2500 units) due to 10:1 split. When it was covered eventually it became SBIN14NOV275CE (not 2750CE)
the software probably works by matching the names of the contracts – they will not match.
Tradebook has it clear (shows that I shorted the 2750CE contracts and covered them later with 275CE contracts) for a simple reason – only the transactions are listed by date.
Checking this, thanks
Somebody called up to check it and it seems they have fixed it in Absolute PnL; tax PnL still showing the same bug.
Great job.
Anyway, take your time, I’m not in a hurry (I would rather you guys spend time getting the Pi and Kite going faster) – tax time is a full quarter away.
Different team handling this, will get it done on TaxPNL also.
Hi Nithin,
One more query. Suppose i have 2 sources of income (other than salary) like rentals/income from profession etc along with F&O trading, in such cases should the profits be > 8% including both my sources of income OR only the profits in F&O business should be > 8% to avoid audit?
Example: I am a doctor and have income from my practice however had losses in my F&O (Profits 8% and can i avoid audit by saying so?
Thanks
Sukesh
Assume that your gross total income is more than 2.5lks (that is before considering the loss) (the new tax slab starts at 2.5lks, will update the blogpost), than you need an audit. If it is not, you don’t need.
So if you are a doctor who earns Rs 4lks, that means your gross total income is more than Rs 2.5lks. Now assume you have made a loss in trading of Rs 5lks, since your gross total income before applying this loss was more than Rs 2.5lks, you will need an audit.
If you don’t have any other income, and have a trading loss only, than you don’t need an audit.
But best that you clarify with a CA.
Hello Nithin,
For F&O trading, Anybody who has profits below 8% of turnover OR turnover above 1 crore needs to be audited.
However in some cases above you have mentioned that audit is not required if the total income is not crossing 2 lacs pa. Could you please elaborate on this one? How is it exempted in this case?
Thanks
Sukesh
Hello Nithin,
Audit is not required for F&O traders if profits =/> 8% of turnover & turnover is less than 1 cr.
My doubt is should the 8% of profit be before or after deducting my expenses like STT, Brockerage, Stamp, Service Tax etc.
What if i have > 8% of profits before deducing expenses and once i deduct expenses (those mentioned in the contract notes like STT, Brockerage, Stamp etc) it goes below 8%?
Thanks
Sukesh it is profitability after deducting all expenses. If it is less than 8% after expenses, you have to get yourself audited.
So if my initial profits are above 8% of turnover and after deducting expenses its going below 8%, its better to not show that expenses to avoid an audit on my account?
Yep, you could not if you don’t want to claim the benefit of the expenses.
Hi Guys..
Does everybody ITR-4 are processed? Usually we get mail once it is done. But this time i didnt get any confirmation yet. Even in the net, status shown as ITR-V received. Any idea by when its get processed?
I’m a salaried person. As I understand
1. Profits in Derivatives should be added to my salary income and will be taxed according to tax slabs.
2. Losses in Derivatives can NOT be deducted from salary income but offset against any other income in 8 next years. (It can be offset against interest income)
Is my understanding correct?
Also can expenses such as monthly mobile and internet charges, depreciation, any fees paid be deducted from the gross profit before paying taxes on the net profit? Can I depreciate the car in my name?
Really great initiative. Thanks for the education
Thanks,
Vidya
1&2 Yes you are correct.
Ideally you should show only those expenses that you have incurred towards the business of trading. So if you use your laptop for trading, show depreciation. If you are using mobile phone to make call n trades or check stock prices, you can show a portion of mobile bill as expenses. Depreciation of car 🙂 , that will be pushing it, unless you trade sitting in your car.
Cheers,
Hi,
A query on the audit requirement if the turnover for the currency futures is less than 1 crore in a financial year.
Is it the gross profit from the derivative trades be less that 8% of the turnover to attract an audit clearance or the net profit (after deducting brokerage, STT, Stamp charges etc.) be less than 8% of the turnover to mandate a compulsory audit?
If it is the former, can we still net off the expense (brokerage, stamp, STT etc.) while filing ITR4?
Please let me know. Thanks for the help.
you can only avoid audit if your NET PROFIT margin is 8% or more OR your net income (including all other sources) is less than the tax exempt limit.
otherwise you can either declare a net of 8% (and not get any deductions further to that) or get an audit done.
Thank you.
Raju
You can consolidate all your Income and file the Return.
Thanks TaxIQ for the reply.
My income just enters the 30% tax slab.
Since there is no TDS for me, i was wondering should this be shown under ‘Other Income’/’Business Income’ OR can i show it under ‘Salary’ itself?
Is it legal for a small employer to pay salary without TDS and other benefits like PF etc?
Also, I have derivatives income apart from salary, would TaxIQ help me in filing returns for next year in my case?
If yes, please give the contact details with whom i can discuss. Proving the fees that you charge also would be helpful.
Thanks
Raju
whether your employer must deduct TDS or not is really his problem isn’t it?
While very small businesses may not have to deduct TDS (those covered under section 44AD; basically turnover less than Rs. 1crore, net profit margin better than 8% etc. AND must not be incorporated as a company), if your income is touching 30% slab and there are more than a few such employees it is highyl unlikely that your employer is exempt.
Anyway, whether the employer deducts the TDS or not, liability remains on you to pay the taxes. What is more whatever taxes are not paid via TDS are liable to be charged advance taxes (and penalties for non-payment of advance taxes).
It is better you talk to a local CA; fee for helping you file will not be much.
Hello Sir,
I am an employee of a small time business owner. There are only 2 employees for him (Including Me). The employer (owner) transfers the salary to my bank account every month.
There is no PF/ESI/TDS or any other benefits like a usual employment. I don’t even get Form 26 at the end of the year.
How should i file and declare my taxes in such a scenario? Should i just calculate and pay all taxes by myself? (As there is no TDS?).
Please help.
Thanks
Is your income high enough to be taxable (after accounting for all deductions)? If so then you have to pay taxes. Since there is no TDS you may have to pay advance taxes as well.
Hi Nititn I often get this kind of problem in your Zerodha q. Previously u told me to complaint in support. They rectified it but again in a week i am getting the same problem. Profit loss reports not showing. Everything displays as zero. Kindly do the need full for me not to occur these kind of bug in future…
Om, can you force refresh your browser? press ctrl and refresh, I guess it must be the cache. Or else use a different browser and try seeing the reports. If you are still not able to see, can you leave a message here.
Hi Nitin,
I must say you have created a wonderful forum here to educate traders/investors.
I am an NRI who is investing in stocks for last 2-3 years and sitting on a profit of 6 lakhs if I sell some of the shares now. As a NRI I dont file any returns as my only income was through shares besides a house that I will be putting on rent soon which will give me 1.8lakhs/annum rental.my questions are
1. since I dont get time on a regular basis I usually buy the shares take the delivery and leave them for long term mostly more than a year and sometimes have sold within 2-3 months also if they have gone up considerably. in this case I will be considered an investor or trader?
2. If I sell lets say some of these shares now ( mostly held for more than a year) and lets say I am making profit of 8 lakhs and a loss of 2 lakhs on some shares which will be a net profit of 6 lakhs. do I need to pay taxes?
3. being a NRI Do I need to file returns to declare the profit in shares and show it as income?
3. If there is no tax on selling of shares do I still need to file returns to declare this income?
4. the 2 lakhs loss that I will be making by selling some shares can I offset that against my rental income which will be 1.8 lakhs. I understand that if I am a investor I will not be able to do that but can I declare myself as trader for the year when I book losses and offset it against the rental income? and change back to investor next year?
5. another case is If I do not need to file returns as a NRI in case there is no tax on shares Do I still need to file returns for the rental income of 1.8 lakhs as for NRIs the tenant has to decuct 30% TDS.
I am confused as to do i need to file the returns or not? whats your best advice considering my case above.
Thanks a lot.
Peeyush
1. Investor.
2. Long term capital gain is exempt, so no there is no taxes on this 6lks.
3. You need to file returns only if you have taxable income. In your case since LTCG is exempt, there is no need to file returns. You need to file returns only if your taxable income is above the minimum tax slab of Rs 2lks (taxable income doesn’t include LTCG).
4. It is best not to switch between trader/investor, stay consistent to what you do otherwise might come back to haunt you later.
5. If you make 1.8lks in rental income, that is still below the minimum tax slab, so technically you don’t need to file your returns. But if you file, you can get the refund of 30% or Rs 54,000 that is deducted as TDS
Hope this helps.
Thanks Nitin,
That was quick
after reading your answers I have one more query.
so I can claim the full 54,000 TDS by filing returns and in those returns I do not need to mention the LTCG on the shares sold. what about some shares which I have sold in 2-3 months time of buying the shares in past 3-4 months. I have made some 1.5 lakhs through that where short term tax was deducted. is that considered income? do I need to show them in returns? can I claim the tax deducted on them as my income does not come in taxable bracket?
Thanks again for all the insightful advice.
Peeyush
If you have 1.8lks in rent and 1.5lks in short term trading profits, your total income is now 3.3lks. So your tax liability is 10% of 1.3lks (anything over 2lks) which is 13k. So if you have paid any TDS more than 13k, you can get a refund of that. If you don’t have rental income and only 1.5lks in short term gain for which the short term tax is already charged, yes you can file your returns and claim refund of the entire tax you have paid as you are not in the taxable bracket.
Thanks Nitin for the reply
If that short term profits are considered trading income will I still be considered an investor while filing returns as majority of shares I have held for almost last 2-3 years. this part is a bit confusing to demarcate the line between an investor and trader. whats the clear demarcation?
Regards,
Peeyush
Unfortunately there is no clear demarcation, but you will definitely be in the investor category. Unless you are trading like as though it is your profession, you should ideally consider yourself an investor.
Hi,
I have few queries.
1) I am only an intraday trader in commodities futures. I incurred losses around 60,000. In addition to these, I made 25000/- profit from short term equity trading. Am I eligible to sum these two ( -60,000 + 25,000 = – 35,000) and carry forward the loss.
2) I am a retail trader and this is not my profession. If I want to provide expenses for my trading (like internet, computer depreciation, electricity etc.) how can I provide them. I do not have a office space and all. I trade from my home. Also, how to show these expenses?
I have few queries .please answer them
1)If income through salary is 4.5 lakh and
consider I receive profit of 2 lakh through trading(intraday and short term)
Now will the tax slab be determyined by suming up my profit total I.e 6.5 lakh or will it be tax slab for 4.5 lakh and 15% tax for trading?
2)how can I get my total profit/loss for a year?
As I do both intraday and short term trading it is difficult for me to calculate the total profit/loss(may be more than 300 contract notes)
3)I know u have mentioned this many times but still please clear this once again
How to calculate profit/loss for a contract note(for a given day)?
Is it Net total for a given day – the brokerage charges?
Hi Nithin,
Wonderful and detailed article here. Thanks! Even after such a simple article tax just isn’t simple there is always a doubt left.
My doubt is if I just does Option trading. Lets say I bought options worth Rs. 10000/- and sold them for Rs. 20000/-. So is my turnover Rs. 20000/- or 30000/- (20000 + 10000 profit)??
Also what about all the taxes that are charged? Can be they be considered as expenses?
Thanks & Regards.
Rs 10,000 profit + Rs 20000 that is the selling side volume, so 30k. But this is live a very conservative/compliant way to calculate.
Yes, you are taxes are only on your net profits, so all charges work as an expense.
My question is,if someone has joined paid service for stock consultancy,gets short term capital gain & long term capital gain in a financial year .does he has to deduct fees (paid for stock consultancy) from short term capital gain or from long term capital gain for computation of income?
If a person has another business too apart from investing in stocks . can he add short term capital gain in another business income if another business income with in tax free limit ?so that after adding if any amount exeeds after tax free limit ,he can pay 15% tax on that
Yes you can show the fees paid for consultancy as an expense.
If you declare trading/investing as a business then all income you make from trading becomes a business income and you can’t take benefit of the 15% tax on that. You will then have to combine all your business income and pay taxes according to the income tax slabs mentioned in the post above.
Hi Nithin,
One more query on how advance taxes work?
As per my understanding we estimate our income from business (trading) every quarter and we can thereby compute the tax payable for that quarter and pay it online at the government tax portal.
When we pay this advance tax we get some kind of acknowledgement (may be through Email?) with an identification number for that transaction, we can make a mention of these payments when we file the returns at the end of the year somewhere in the ITR so that it can be deducted from the total tax outgo for that year.
In case our total tax outgo for that FY is lesser than what we have already paid, we get a refund automatically (or should we apply for a refund separately?)?
Also what are the repercussions of not paying advance taxes? Can i choose to pay it all at the end of the FY, specially because trading is kind of uncertain and difficult to estimate future returns?
Thanks
Sukesh
Ideally you should get refunds automatically.
It is tricky for someone trading to pay advance tax.
Yes, you can pay at the end of the year. But there will be a penalty of 1%/month on your advance tax liability that you haven’t paid.
Hello Nithin,
I trade in F&O, The way turnover is calculated in ‘Q’ Tax P&L report is a bit different than how it has been discussed in several post above:
Method 1: Turnover = Sum of Settlement Profit + Settlement Loss for each unique contract traded (as discussed in few posts above)
Method 2: Turnover = Sum of Settlement Profit + Settlement Loss for each unique contract traded + Sell side value of all Option Contracts.
My problem is that no audit is required for me if i follow 1st Method (Turnover above 8% of turnover) however i would require an audit if i follow 2nd Method of calculating turnover (Profits less than 8% of turnover).
Please help.
Thanks
Sukesh, the second method is more compliant to the rules set by the IT department and since we are putting it up in writing decided to write what is the most compliant way of declaring turnover, have updated the blog post above, do check it. This is a grey area, even the first is very close to what the words say, very tough to give you an advice, best to consult a CA.
Hi Nithin,
I am a salaried employee, When i see some good opportunity in the markets i take leave from my office on LOP (Loss of Pay) and do the trading work.
Now can i claim this Loss of Pay (LOP) amount as business expense for taxation purpose?
Thanks
Hello Nithin,
You seem to have missed this question, request your guidance on this too.
Thanks..
No Sukesh, you can’t. Expense is what you have spent, and not an opportunity loss.
Hi Nithin,
Everybody with income above 5 Lacs are compulsorily required to file returns online. I have created my account in the website “https://incometaxindiaefiling.gov.in” for this purpose.
My auditor/accountant (Not CA) tells that he will file my taxes online. Should i give him the password to my account to him? Is it normal practice to give account details to tax filing firms so that they file it online?
How will it usually work if i take help of a CA to review and file my returns? Will he file it online on my behalf or will he give me the final file which i can log in and upload in income tax website?
Thanks
Sukesh
MY suggestion – ask him to fill out the downloaded Java file OR XLS file and send it to you. Then verify it yourself and upload yourself.
Even better, if you are not up for audit, file it yourself, no need to go to a CA. Even for the first time it takes less than half a day. If you have all the data in hand (Form 16 etc.) then sitting with a friend it will take less than 30min to file ITR-1 and 1hr if you have to file ITR-2
ITR 1 or 2 would have been fine. Its ITR 4 and delayed
I guess if this is your CA, you could give the account details to him.
Thanks.. Can u tell me what is the general industry practice like?
Does all clients usually give their passwords to their CAs?
In India, your CA is like your Financial Doctor, so people typically give him everything 🙂 .
Dear Zerodha,
I want to compute turnover. Please help me with following example
On any single day
Bought TAMO 1 lot @ 502
Bought TAMO 1 lot @ 495
Sold TAMO 1 lot @ 500
Sold TAMO 1 lot @ 501
What should be my turnover
1. 1000*(500-502) =Rs (2000) + 1000*(501-495)=Rs 6000 = Gross turnover Rs 8000
or
2. 1000*(500-495) =Rs 5000 + 1000*(501-502)=Rs (1000) = Gross turnover Rs 6000
I just want to know how to compute one-to one correlation between deals. Is it FIFO method or Average method or anything else. Please let me know. I am confused.
Regards
Sunita
There are different schools of thought, on the contract note which is your official document from the broker, there would be a combined entry for these two trades. In your example it would be, 2000 Buy @ 498.5 and 2000 Sold @ 500.5 Profit Rs 4000. This Rs 4000 is what we consider as turnover, most professional traders do it this way.
But again this is open for debate.
thanks for the reply.
It means i have to take the average sell rate and average buy rate for a single contract in F&O to arrive at the gross turnover.
e.g. during September 2014, i traded in TAMO futures of September 2014 series. I bought the future for 85 times and sold it 85 times. So i have to take the average buying rate and average selling rate to arrive at the gross turnover.
please suggest whether my understanding is right?
Regards
Yep, that is one of the popular ways of calculating the turnover. The gross profit or loss by trading 85 lots of Sept TAMO is the turnover.
i am not show bank loan entry at this time when take the loan against flat rs. 3200000 fy 2011-12 and not show stamp duty, registration fees but payment show advance for flat show entry 600000 in fy 2012-13.i have found this mistake in fy 2013-14. what can i do
Sonam,
Consult a CA, you can rectify your old returns.
Suppose My Family has below PAN Cards:
1) My Father’s HUF Account
2) My Father’s Individual Account
3) My Mother’s Individual Account
4) My Brother’s HUF Account
5) My Brother’s Individual Account
6) My Sister In Law’s Individual Account
7) My HUF Account
8) My Individual Account
9) My Wife’s Individual Account
In this case suppose there is a corpus of about 10 lacs in my Dad’s Individual account.
Can my Dad transfer these funds to his HUF account and then from there transfer these funds to each of the above mentioned accounts and trade till the income reached the higher tax level in each of these accounts?
Should we pay a nominal Interest to my Dad’s HUF account when he transfers funds to my Sister in law’s account or my Wife’s account so that the transaction is complete and valid in accounting/taxation terms?
Sukesh, this is a grey area and can’t really talk about such planned tax reductions (which is not really compliant to rules). It is best you speak to your tax consultant about this.
Hi Nitin, found this article a very nice initiative to explain the complexities involved with taxation for a short term capital gainer. I had a doubt though.
Suppose for FY 2014-15, my gross profit/loss is Rs. -8k. I read that even for losses, we should declare it in our form. So should we enter -8K under the option “Other capital gains” for ITRV we fill for salaried individuals ?
Thanks.
You will have to file ITR2 not ITR V
When you give the details of your trade in the respective columns under Capital gains, the loss will be automatically computed and carried forwarded if you use the Income Tax Department Excel utility to fill the form
Thanks Shravan
Dear Zerodha,
I have a query regarding calculation of gross profit for below example:
– purchased 50 shares in previous year 2011-12 @ 100 Rs. (closing price as on 31-03-2012 is 110 Rs.)
– purchased 40 shares in current year 2012-13 @ 115 Rs.(say on 01-05-2012)
– sold 70 shares in current year 2012-13 @ 120 Rs.(say on 01-06-2012) – meaning 50 shares sold from old
stock + 20 shares sold from the 40 shares purchased on 01-05-2012.
– Assume I want to go for Indicative P&L –
Then what is the cost price of the 70 shares sold ? Will it be 110 Rs.(closing price as on 31-03-2012) or will it
be 110 Rs. for 50 shares from old stock (2011-12) and 115 Rs. for 20 shares purchased in current year (2012- 13) averaging to (110 * 50 + 115 * 20) / 70 = 111.43 ?
Note: This query is pertaining to ITR for financial year 2012-13 during which your new Indicative P&L report in the new BO software did not exist.
Thanks and Regards,
Bhavesh
Yes you are correct.
Dear Nithin not sure if you replied “Yes you are correct” to my query, however my query remains unanswered, what would be the cost price in the scenario illustrated as above will it be Rs. 110 or 111.43 ? It would be of immense help if you could answer the query.
Thanks and Regards,
Bhavesh
HI BKO
It has been clarified in the earlier posts that profits and losses on equity transactions are always calculated on FIFO Basis (First In First out) and not on averages.
So you have to 1st use the 50 shares of 2011-12 and calculate the profit based on 110/-
Then you need another 20 shares so you come to the next lot of 2012-13 wherein you will take the cost price of Rs 115/-. and calculate the profit based on this purchase price. This is how the P&L are calculated
Thanks Shravan
Thanks a lot Shravan will let you know in case any additional query comes up !
Dear Zerodha,
I have a query regarding calculation of gross profit for below example:
– purchased 50 shares in previous year 2011-12 @ 100 Rs. (closing price as on 31-03-2012 is 110 Rs.)
– purchased 40 shares in current year 2012-13 @ 115 Rs.(say on 01-05-2012)
– sold 70 shares in current year 2012-13 @ 120 Rs.(say on 01-06-2012) – meaning 50 shares sold from old
stock + 20 shares sold from the 40 shares purchased on 01-05-2012.
– Assume I want to go for Indicative P&L –
Then what is the cost price of the 70 shares sold ? Will it be 110 Rs.(closing price as on 31-03-2012) or will it
be 110 Rs. for 50 shares from old stock (2011-12) and 115 Rs. for 20 shares purchased in current year (2012-
13) averaging to (110 * 50 + 115 * 20) / 70 = 111.43 ?
Note: This query is pertaining to ITR for financial year 2012-13 during which your new Indicative P&L report in the new BO software did not exist.
Thanks and Regards,
Bhavesh
Is the date extended to 30th Nov only for those who have a turnover more than 1 crore or those come under section 44 AB only not section 44 AD ?
what is the difference between section 44 AB & section 44 AD .
Turnover less than 1 cr & profit is less than 8 % of the turnover has to get it audited , in which section do they come & what is the last date for filing ?
Please clarify …. thanks in advance .
The dates are extended only for those who come under tax audit, that if if you use ITR 4 and your turnover is either above 1crore or if profit is less than 8% of the turnover.
If you are declaring presumptive income under 44AD, the last date is still Sept 30th.
I think due date for those declaring themselves exempt from audit (including those taking benefit of 44AD) was July 31, not Sep 30.
He must file as son as he can, it is a case of better late than never (and better before March)
How to calculate total turnover from Zerodha P&L report (pdf file) of last FY .
Do we have to add -> Net Receivable amt + Net Payable amt = Turnover
is it right ?
Check out the new Tax P&L statements available on Q our new reporting tool.
Hi
Is the date also extended to 30th Nov for those F&O traders who have turnover less than 1 crore but their profit is less than 8 % or have suffered loss & they have to get their books audited by a CA … please confirm urgently …. not much time left in 30th sept .
thanks .
The date is extended only for those who have mandatory audit. Yes if your turnover is less than 1 crore and profit less than 8%, you will need your books audited and hence yeah date upto 30 Nov.
Hi,
I would like to know how i can avoid double taxation ,if i am trading on profit sharing basis with money from friends and family ,do i need to form an LLP ? does declaring self as a business work in this case?,please advice.
Mithoon, there is no double taxation as such. If a client pays you money, it reduces from his income and taxation would be at your end. Yes, it has to be as a business.
Dear Sir
Is it possible to update data in Tax P&L for the current year for advance tax computation ?
With regards.
Yes, we will try to have this up asap.
Is last date for filling ITR4 extended to 30th Nov 2014?
Dear Sir,
Awaiting your reply.
For now Income tax website https://incometaxindiaefiling.gov.in/ says it is extended only for residents of Jammu and Kashmir
But it also tells that people who has to do Audit as per 44AB the date for filling is extended to 30th Nov. on the same website.
Could you pls. check and confirm.
Please don’t get confused yourself and confuse others also.
Its crystal clear.
If you are liable for Audit under Section 44AB, the due date for filing is 30th September for entire India except J&K
However, If you are a resident of Jammu & Kashmir, Only then the date is extended till 30th November.
Please do not go on repeating the same thing. The notification is very clear and there is no ambiguity
Shravan,
Pls. read the other circular dated on 22/08/14 and not the one dated on 17/09/14.
Dear Nithin,
Could you pls. read the other circular dated on 22/08/14 and not the one dated on 17/09/14 and confirm if it is for all the people?
The IT filing due date is still Sep 30th, only the audit report can be filed by 30th Nov. You have to file your IT returns by 30th Sept .
Is it possible to file IT return if the Audit Report is not already filed? I thought online return could not be filed for those who require audit under section 44AB unless their CA had uploaded the report AND they had approved it.
I found this (there was a news item a few weeks ago, before CBDT put the J&K exemption) on the internet: http://www.taxwiz.in/gujarat-hc-directs-cbdt-to-extend-due-date-of-income-tax-return-filing-to-30-11-2014/
“During hearing on the appeal on 22.09.2014 Honourable Gujarat High Court has directed the CBDT to extend the due date for filing of return of income to 30.11.2014 for A.Y. 2014-15 for all purposes, inter-alia, carry forward of losses, allowability of deductions under Sections 80-IA, 80-IB, 80-IC, 80-ID and other sections which requires return to be filed before due date. However, such extension has been granted subject to charge of interest under Section 234A (For delay in filing of Return of Income) for the period commencing from 01-10-2014 and up to the actual date of filling the return of income.”
Basically if any tax is due on the assessee AND he doesn’t file the return on Sep 30, he will have to pay interest on such dues. However for the purpose of carry-forward of losses, deductions under various sections etc. the return will be deemed “filed on time” as long as it is filed on or before Nov 30.
Here’s the link from taxguru: http://taxguru.in/income-tax/update-tar-extension-deferment-cases.html
Apparently similar cases have been disposed off by Madras high court and Hyderabad High Court as well; so assassees in Tamilnadu and Telangana/AP also have some respite.
Is the ITR filling date also extended to 30th Nov now?
THere ws some circular today from CBDT.
Can any1 pls. confirm?
Yes, Due Date for filing of return of Income for Assessment Year 2014-15 Extended from 30th September, 2014 to 30th November, 2014 in Specified Cases
Dear Nithin,
Specified cases meaning…
If i am a salaried person, trading in market and have to declare loss then the date for filling is 30th Nov rite?
Sepcifically in your case – if you are planning to claim business losses (Which automatically means audit is compulsory) then for you the date of filing is Nov 30.
This ruling is based on the ruling of Gujarat High Court (but now applicable to all of India)
Here’s the most recent circular:
http://www.incometaxindia.gov.in/communications/circular/order-under-section-119-for-return-26-09-2014.pdf
basically date of filing of return has been extended for all purposes except section 234A (interest on any taxes due post the last date of furnishing of returns – this means calculation of interest will still start from Oct 1 rather than from Dec 1). Carry forward of losses etc. will be valid and return will be deemed filed “on time” for all other purposes as long as it is filed by Nov 30.
The extension DOES NOT extend to anybody for whom it is NOT MANDATORY to file audit report under section 44AB. I’m not sure who those people are, because for almost anyone who doesn’t have to file any audit report that last date for filing was Jul 31 and not Sep 30, but I guess CBDT is just covering any eventuality here.
Please ignore 1st post
Hi,
I am full time trader,I need your advice on following.
1) If my sort term profit (Intraday + delivery) is 12,00,000/- than how i calculate my tax.
A) 12,00,000*15%=180000/- or
B) 12,00,000*15%=180000 + slab rate (185000) =365000/- or
C) 12,00,000* slab rate =185000 (25000+100000+60000)
I have only income from trading.
2) which IT Form i will use : ITR 1 or 2 or 4 ???
If you are a full time trader, I’d advise you to declare yourself as a business in which case you have to pay taxes according to the slabs. The good thing about declaring it as a business will be that you can show all that you have spent towards trading from internet to computer, as an expense.
If you are declaring as a business, you will need to use ITR 4. The IT slabs are mentioned in blog post above.
Thanks for your advice.
Hello,
Thanks a lot for this informative blog. It was very helpful in understanding the complicated web of taxes in India. I feel I am in much better position now after reading this.
However, I had one query and hope someone can answer this.
Let us say I am an investor and I invest 1 lakh in a particular stock and bought 1000 shares @ price of 100 each. The stock performs well and the price doubles to 200 in six months from the time I invested. Now, iI would sell 50% of my holdings to recover my investment and allow the other 50% remain invested for long term.
For the 500 shares that I sold within 6 months, am I liable to pay taxes or can I say that I just extracted my investment out of the market?
My understanding is that since I made a profit of 50,000 on the 500 stocks sold, I need to pay tax of Rs. 7,500. Am I right?
Yep, you will have to pay a STCG (short term capital gain) of 15% on the profits you earned by selling the shares within 6 months. If you hold any stock for more than a year, in that case there is no tax, as Long term capital gain in India is 0.
Thank You Vinayak for your clarification. I would like to mention here that I never sold option to buy back later. I always bought option to sell later. So, would you advise excluding sum of sell values while calculating turnover?
Dear Nithin,
I traded only in option in FY2013-14. Now I was going through Tax- P&L downloaded from Q-BackOffice system. I have confusion regarding calculation of turnover. Somewhere in this Q&A thread, it is mentioned that absolute sum of scripwise profit/loss should be added to get the turnover. However in the said Tax- P&L downloaded from Q-BackOffice system, turnover has been calculated as follows:
Total turnover (Absolute sum of realized profits + Sum of sell values)
This “Sum of sell values” is in addition to what has been mentioned in this Q&A thread.
Please clarify.
Thanks & Regards,
Sarvottam Kumar
Check page 24 on this for guidance of calculating turnover. Though this is for section 44AB, this is the only thing available by IT department which has anything to do with calculating turnover. Hence we are are using the sum of sell values as well.
If I may interject – the guidelines are from ICAI, not from Dept. of Direct Taxes. ICAI is not exactly a govt. body (it is more like UGC for CAs). Govt. didn’t even specify whether to use gross receipts or turnover for this case.
Second, the way Zerodha is applying guidelines is probably overly cautious – the key here is the second point in
(i) The total of favourable and unfavourable differences shall be
taken as turnover.
(ii) Premium received on sale of options is also to be included in
turnover.
(iii) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover
Zerodha has changed the 2nd point to “Premium received on sale of options is also to be ADDED in turnover”
If you buy an options contract for Rs. 100 and sell it for Rs. 110 a week later, the first point above makes the (favourable) difference of Rs. 10; Zerodha will then add Rs.110 as per their interpretation of the guidelines.
However if you go by the guidelines the “premium received from the sale of options” was already “included” when one arrives at the difference of Rs. 10. It is not possible to calculate favourable or unfavourable differences without “including” the sales price, for by very definition a “difference” arises only if BOTH purchase and sales have happened.
The problem is this – it is possible to “Sell” an option without ever buying it back – if it expires out-of-money you don’t buy it back to settle, it simply expires and hence there is no “difference”. This situation can’t arise if you are trading shares, commodities or futures; it can arise ONLY for options.
In such cases if you follow only point no. 1 in the guidelines some confusion might arise (what difference? I never sold/settled it) though you could say that you settled by “buying” it back for exactly Rs. 0. In the ICAI guidelines, point 2 clarifies this minor confusion – if you are hesitating to declare that you “bought back the options for Rs. 0” then you basically add the selling price. i.e. where the “difference” is not computable in a literal sense, include the selling premium somehow.
The point of the 2nd guideline (and the third) was probably to resolve such confusion but it has ended up creating more.
Zerodha of course (on advice of some CAs I believe) decided to resolve it as a “worst case scenario” and adds sales premium back to turnover; this is prudent on their behalf. As a taxpayer you can decide to use either their method or do your own P/L sheet (or spend a couple of thousand rupees and buy software that can read their contract notes directly and generate the books – search the internet there are many vendors)
One other thing I would add to this – it is a better idea to keep two separate accounts if you are both investing and trading. I don’t have the link but I remember reading somewhere that there was some guideline from the tax department in this regard – two activities must be from separate account otherwise they can treat all transactions as trading (i.e. business) income and there will be no LTCG or STCG, all gains will be taxed at full rate.
HI Nithin, Can you suggest some CAs to do the audit and file IT Returns? As you know Sep 30th is the last date. Also, what would be the typical charge for such a service by the CA? Asking as this is my first time and I have traded daily.
Please do reply.
You can check out taxiq.in
For a derivatives trader, what’s the value one should enter in ITR4 (Part A – P & L account) under “Revenue from operations – Sales” and “Purchases”?
To determine whether the case is liable to audit or not, we calculate turnover in a manner suggested in ICAI guidelines.
If the total contract value is entered (that’s above 1 crore), it’s prompting that this case is liable to audit. Should I enter the turnover figure in “Sales”? If yes, what’s the value I suppose to enter under “purchases”?
Hello Nithin,
Any idea in this regard. I have consulted with CA even he himself is not clear, so the reason I am looking for answers online. Couldn’t find one so far…
Was I clear in asking the question? If not, I will rephrase it?
Hi Nithin,
Your blog is very informative and definitely a real good work.
I have the following doubts:
1. A relative of mine wants me to trade his demat account. So, it will be like short term trading in F&O. He is already a salaried person & I am a full time trader. What is the most logical way to trade his money . I would prefer to not keep my trades open for all to see.I have few options in my mind:
– ask him to transfer the amount to be traded in my bank account & then i can trade the amount from my demat account paying him a fixed percent return annually. In that case will he get tax benefit on the amount transferred to me? Lets say the amount is 2 lakhs, will that be deducted from his annual salary income?
and will that principal amount of 2 lakhs be considered as my income? (the profits/loss made will obviously be in my name)
– ask him to open an account on his any relative’s name who is not working and then trade that account so that the maximum tax obligation will be only 15%.
2. Is there any other way you can suggest in which i can take this ahead.
Your views will be really helpful.
Thanks a lot.
It is best not to borrow money from someone to trade on his behalf, can put you in a spot if things go wrong tomorrow. It is best to open a trading/demat account in his name itself or best his wife’s name. He will have to use ITR 4, but then whatever you take as your sharing can be shown as an expense.
Profits from F&O is considered as a business income, so taxes can go upto 30% based on the income slab the person is in(in equity trading it is 0% and 15%, not in F&O).
Thanks for the reply.
One more doubt, what is the tax implications in a scenario where a husband transfers 5 lakhs in wife’s account and that money is transferred to demat account in wife’s name and short term trading is done in F&O.
– the profit from derivatives trading will the income of wife solely and so shall be the tax liablility?
– How the 5 lakhs transferred will be shown by the salaried husband during filing of tax return?
Thanks for correcting Shravan,
You are wrong Nithin
It will attract the clubbing provision and all income earned out of the amount will be clubbed to the husband income.
So a better way is to give the amount as a loan to the wife by cheque and charge about 10% interest PA on the same.
After that any more income she earns, will not be clubbed to your income
Dear Shravan
I know clubbing applies for “income from assets” under sections 60 to 64; but would it apply to, for example, speculative income as well?
While I’m quite certain any dividends, interest or capital gains will be clubbed, I’m not sure about day-trading profits and FnO profits (arguably that income is earned by the individual by his/her own skill rather than that of the spouse)
Any guidance on this point?
Hi Vinayak,
To clarify the point already mentioned by Shravan,
all income, be it speculative(intraday shares profit), business( FNO profit),
other income( interest earned eg interest on FD) shall be clubbed to the husband’s income , if the original capital is transferred to wife’s account.
However there’s a way to circumvent this , and make the wife liable for any tax on gain arising out of investing/trading the original capital.
The husband can loan the amount to wife ( Prepare a notarized document for the terms of loan ) and bypass this clause.
Dear Neo
thanks for your response; would the clubbing be still applicable if the gift was given to a married daughter (or sister) and the money then used for investment?
Vinayak
Yes, this clause applies to all relatives. Had the recipient been a non-relative / a friend, additional taxation is incurred by the receiving party..which is tax on the gift amount itself( if the amount is more than 50k).
For relatives the actual gift is tax free , but any gain arising out of it will be clubbed.
Thank you for your kind reply
Thanks & regarads
Ku.saravanan.
Do you have a note on the nature of business that describes the pure F&O buying and selling activity on stocks. I have a note from IT dept asking for the nature of the activity. I know so much but do not know where to start and where to end. A concise description that suffices for the IT dept needs is good enough.
Thanks in advance,
Satya
Satya, you have to define your trading activity. Basically a small bio of yourself and what kind of trading/other activity you take part in.
Dear sir,
First of all thank you for your nice article basically i am a business man doing textile business and also doing equity & currency in NSE and making loss 1lk & 30k profit in equity in intraday very short term delivery & currency derivative make 30k profit and 1lk loss in NSE and what will be the turnover amount taken for IT purpose
for example:
equity trading loss 1,00,000 + equity trading profit 30,000 = 1,30,000
so total turnover is 1,30,000 is taken up for IT purpose
Currency derivative profit 30,000 + loss 1,00,000 = 1,30,000
so total turn over is 1,30,000
therefor total turnover is 1,30,000 + 1,30,000 = 2,60,000 this is amount is taken up for IT purpose
Please inform me.
Thanks & Regards
Kusaravanan.
Turnover is scripwise and not segment wise. You need to pull your P&L statements from the brokerage you trade with. Take absolute sum of all profits and losses scripwise, and then add it up. That will be your turnover. There are quite a few discussions on the same above.
Hi Nithin,
i am a full time trader and trade in equity derivatives market and cash market. I want clarification on following points:
1. Can i show the home rent given by me as my business expense? i live in rented apartment. If yes, is it that the lease agreement shall be in my name ONLY or my husband’s name may also appear in that?
2. if my yearly profit exceeds 10 lakh d0 I need to register it as a company, i heard it somewhere. Please let me know.
Thanks alot.
1. Don’t know if you can justify the complete rent as a trading expense, but I guess a portion of it you could show as trading expense. Yes the rental agreement and the bank entry for the money paid should do.
2. Nopes, nothing like that.
you forgot to mention “consult a CA” this time – if self-assessed under 44AD none of these expenses can be claimed. If she wants to show rent as a business expense she must maintain books AND get audited. which means if this is what she intends, she must talk to a CA in any case.
🙂 Thanks Vinayak for helping out.
Nitin,
This is a great work. I have a suggestion. Not everyone would have time to read all the comments. Is it possible based on the experience you can sum up all scenarios and put a new blog that will say in clear terms the following.
1) Income tax act effective dates.
2) IF condition A , B , C, etc ..THEN ….
IF/ELSE IF condition D, E, , etc … THEN
The conditions should be so clear that anybody questions can be referred back to the same description and they should be able find an answer instead explaining each persons query in different words.
User will find it lot better and your time would also spent in a better way.
Thank you so much.
Yep, was planning to do so.. 🙂
Related questions, as a rule you mentioned, Also note that if your total gross total income (trading + Salary or other business) is lesser than Rs 2lks, you don’t need an audit even if your profit is less than 8% of your turnover or if turnover for the year is > ₹1 crore.
However in response to some questions you say, if you have made losses you should get your books audited.
So if profits are less than 8% (including loss making scenario), if the gross total income is less than 2 LKS, should we get audited or not in each of the two scenarios of 1) T.O crossing 1Cr 2) T.O < 1Cr?
Thanks,
If you want to set-off the losses in future then you have to show them in the year the losses occurred (and keep showing them in subsequent years as brought forward and carry forward) AND file returns on time.
To show losses in any given year you must get your accounts audited (obviously, you are making less than 8%)
If you don’t care about set-off (e.g. losses are small) and cost/hassle of the audit is more than savings in taxes then you can declare yourself eligible for 44AD and go ahead pay taxes on 8%
By the way, section 44AB only gives exepmtion against audits – it doesn’t give exemption against maintenance of books and other documents from which your income can be reasonably ascertained – better to maintain the books anyway (with or without getting them audited and irrespective of whether you submit an audit report)
Thanks Vinayak for the answer. What we do mean maintain books? Is it soft copy of the documents like PnL, Tradebook etc? or All detailed contract notes? If so softcopy or paper copy? These are huge documents to maintain for years for a heavy trader. Thanks.
All contract notes, P/L calculations (do it yourself or download zerodha’s) etc.
Tax Law only says “such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.” – this is section 44AA(2)(iii) of the Income Tax Act. It doesn’t specify exactly which books need to be maintained, however contract notes and statements of different accounts are usually enough for calculating total income. PnL statement will help do it faster.
If you do any cash transactions (in FnO etc. why would you?) then things are much more complicated (several provisions apply) and you may want to talk to a CA or some other accountant even to maintain the books (even if you decide not to get a tax audit)
44AD gives an exemption from getting the accounts audited by a CA for “eligible business”; but section 44AA makes it mandatory for any such business to maintain the books (without audit)
Also 44AD doesn’t seem to give you an exemption from paying higher taxes if your income is more than 8% – it seems to set a lower limit to taxes in case you don’t want an audit – not a higher limit.
Also if the documents are digitally signed by the relevant authorities (using approved digital signature) then you can keep those copies with you in digital form – those are legally equivalent to paper copies.
You need to keep the documents for at least seven years (six years after the financial year in which the return was filed) for all domestic accounts/transactions and for seventeen years for all foreign accounts/transactions (if any) – that is for how long they can re-open your accounts and ask for an audit in case they have reasons to believe you evaded taxes.
Thanks for your response. Details do help me. Thank you so much
1. TO crossing 1crore, mandatory get a tax audit.
2. If TO<1cr and all your income put together is less than 2lks, no need. (When I have mentioned earlier that for losses you need to also have an audit, I was assuming that total income was over Rs 2lks).
Cheers.
Thanks! My prvious comment was badly formed, initially I thought it was my typing, but realized certain words are getting omitted after submitting the comment.
Looks like the rules have changed meanwhile, in probably 2013-14 time? Earlier you mentioned if the total income is less than 2lks one need not get books audited irrespective of whether the T.O crosses 1cr or not. In the earlier comment you said if the T.O cross 1cr you need to get audited. I also saw a comment where it says now you need to get audited even if the T.O is less than 1Cr (due to section 44AD or something, merging of other business with trading activity?).
I am bit confused, my guess rules seems to have changed from the time your wrote your first post to date. Is that right? 🙂
Rules have not changed, if I have mentioned that my bad.
If TO more than 1 crore, compulsory audit irrespective of if your total income is less than 2lks or not.
If TO less than 1 crore, audit required if total income less than 8% of the turnover (total income = Trading (profit+losses) + all your other income). But if TO is less than 1 crore and if income is less than 2lks no need of audit.
Cheers
Hi Nitin,
This is a great and wonderful information. Kudos.
I have a question, For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts. What do we exactly mean by per scrip here? Suppose, is NIFTY considered as one scrip in a year (including all serious and both FNO)? or Futures/ options are treated as separate scrips including series plus strike prices in case options? Meaning is NIFTY-MARCH considered as a separate scrip from NIFTY-JANUARY? Is NIFTY-SP-6000 considered as a different scrip than NIFTY-SP-6200?
Thanks
Satya
better to do it contract by contract. keep in mind that margin money doesn’t enter the TO calculation.
Nifty Jan fut is a different scrip considered to Nifty feb fut, and similarly with options as well different strikes are different scrips.
hi nithin,
wonderful to get such a nice platform to discuss all issues and your prompt replies. Hope this platform would keep improving and helping all of us with easy P&L reports, consolidated contract notes, nice interface and fast terminals.
can we get purchase date and sale date in P&L and Tax P&L reports under Report section in back office, that would help a lot. otherwise it become a lot cumbersome to check that by pressing each equity share symbol and checking these dates for each entry in Trade Book.
if i transfer my holdings in zerodha (IL&FS), can I be able to enter purchase details, like purchase price and date of purchase through Add/edit discrepant quantities section. For example, if I am holding 100 Reliance shares, 25 shares @900, 25 shares @910, and 50 shares @950. Total 100 shares at an average price of 927.5
because if zerodha is able to maintain the separate details (3 entries) instead of single average price entry, then only, I think, you will be able to give us correct P&L statement, else user has to do it himself, manually.
Amit, through the discrepant quantity you can enter only 1 date for now, but what you are asking is something that we are working on.
Giving a purchase date and sell date on P&L itself is a little tricky in case of multiple trades, we already have the scrip on the P&l clickable to open the trade book for that period.
Hi Nitin,
I need to know if interest paid to minor for her capital with me can this be adjusted against the profit on short term gains?
Secondly my INTRADAY PURCHASE was for 23L and assume sale was for 23.2L FOR THE WHOLE YEAR, giving a profit of approx 1% i.e. 20,000, now my ca calculates the turnover as 23.2L and as my profit is less than 1,85,600 [8%*23,20,000], the software says AUDIT NECESSARY AS PROFIT IS <8% of sales, in the short term there was a gain of 90K. I have no other business income other than fd interest and int from bonds all being traded on NSE, is MY CA right in saying that audit needed else show all the short term gains and intraday gains as investment,
Finally there are some expenses like internet, printing of contract notes etc can these be reduced from profits if any and added to loss if any? Are these legitimate expenses and what about the investment in computer and the depreciation can I claim all this also?
A bit long but see if you can give good references in your reply.
Thanks,
Sudhin
How much is your CA charging for these services and how much more is he asking for audit? You will have to decide based on that.
Hi Nithin,
Thank you for the information on turnover and other intricacies. Would be great if you could assist me with info on filling in the ITR 4. Where does one show the loss?
Anirudh, we have had a bunch of discussion on this above…
Hi
When calculating turnover, do we calculate every trade’s profit/loss or we count on contract note. e.g. if i buy 100 nifty at 7500 and sell at 7550, my profit is 5000. Now i again buy 100 nifty at 7550 and sell at 7525, my loss would be 2500. so 5000 + (2500) = 7500 is my turnover. However contract note would show 2500 profit. So which value we take for taxation contract note P/L or all trades P/L?
Thanks
Kripal, we have been taking it based on contract wise(not contract note), so if you have traded Nifty July futures, the total settlement profit or loss across all the Nifty july trades done.
Dear Nithin,
Thanks a lot for the info so far.
I have to file an ITR4 as I have a net loss in F&O and it will require a tax audit. My income is more than 20000. Can you suggest any website that will do this online as I have all the necessary documents.
Sireesh, ITR4 can’t really be done online as easily as ITR 1 or ITR 2, you can consult http://www.taxiq.in who have been helping us answer here.
If your total income (including everything; e.g. salary) is 20,000 then why do you need an audit (or file return)?
Dear Nithin,
Thank you very much for the reply where you have specified that
“Samir, as long as you turn 60 on or before 31th March you can consider yourself a senior citizen. So yes you are eligible for the higher tax rebate.”
Whether it will be possible to convey the rule position under income tax act regarding the age of senior citizen for submitting in the office.
Check this link, Chapter 9 page 60
Dear Nithin
i am working in a psu bank. i wanted to know whether i am allowed to open a demat account and trade in share market and what is the procedure for filing returns of the profit and loss i incurr. At present i am earning a non taxable income.
Joy, the process is similar like everyone else, like what we have discussed above. If you are allowed to trade or not, you will have to find out from your bank.
please let me know what is the procedure for filing returns of the profit and loss i incurr. At present i am earning a non taxable income.
Joy, suggest you to read the post above and queries, everything you need to know is already there.
Dear Nithin
I invested through Portfolio Management services (PMS) during last year & made 38000 Rs short term capital loss (equity ) & Rs 1250 short term capital gain (Debt).
Also on my direct investments, I made long term capital gains of 2 Lacs through redemption of equity mutual funds held more than 1 year & short term capital gains of 14000 on equity mutual funds & Rs 14000 on debt funds held less than one year.
Pl advise whether PMS capital gain/loss comes under short term capital gain/loss or business income.
Also can I club both my direct investment short term gain/ loss with PMS short term gain/loss to arrive at total ?
I was a Central Govt. employee and retired on 31/03/2014. My date of birth is 16/03/1954. Will I be considered as “Senior Citizen” for the AY 14-15 and eligible for tax rebate for 2,50,000.
Samir, as long as you turn 60 on or before 31th March you can consider yourself a senior citizen. So yes you are eligible for the higher tax rebate.
For traders based in and around Kolkata, I can provide contact details of CA well versed in tax audit of trading related issues. But before that I seek permission from Mr Nithin.
If I have losses in Derivatives, can that be off-set with employee stock options listed on NYSE (perquisites)?
No, your stock options is part of your salary and salary income can’t be set off against your business losses (trading in derivatives).
i m chartered accountant i have submitted wrong balance sheet to the service tax department give me suggestion how to rectify
Vilas, we are keeping the discussion on this post limited to queries on taxation related to people trading the capital markets. Cheers,
Vinayak, Nithin, Vijay
What are all exact documents required for Audit..?
I filed for this year with out audit as my turn over is < 1 Cr.
for the next financial year i have already crossed 90 lak turn-over.
If i know the exact documents, then i can decide whether to go ahead trading in this account or shift to other account, And, does audit require to show old tax filing reports? (i have for 2013-14 and 14-15 )?
and also, does they dig 2 years back financial spendings and for 2012-13 tax filing is not done. Does it impact in the next audit?
Srinivas, audit is nothing complex like most people make it out to be. In simple words, an audit is something where a CA gives an okay to your returns and signs on it (you are not audited by IT department, it is your CA). All you need to do is keep a tab of all the expense you incur towards trading, and keep corresponding bills as proofs, that’s about it. Your P&L and bank statements are enough.
Thanks Nithin,
If we take out some funds from this account to my wife account to clear the loan, does it coause any problem during audit.. its already tax paid clean amount..
If you give money to your wife as a gift, it is tax free, nothing to worry about.
Is revised return and rectification status the same.
Last year my tax was filled by my tax consultant in ITR2 instead of 4 and loss(F&O) shown as Capital loss instead of business loss. If I want to correct these should I do revised return or rectification. My return last year has been processed.
They are actually different, if the IT department sends you a notice saying something is wrong you rectify, if you make changes without them asking for it,it is called revision.
You should contact a CA; you’ll have to petition them somehow to get it rectified. The CA can tell you whether it should be done in the first place and if so, then how to do it.
Dear Sir,
The turnover is Sum of Fav and Unfav values. Suppose fav is Rs.15 lakhs and unfav is Rs.17 lakhs. Then Turnover is Rs. 32 lakhs to calculate turnover for Tax audit.
This point is clear.
But, how to represent the same in ITR.
The Loss here is Rs. 2 lakhs.
How to show this loss in ITR?
Can you please guide, in which columns , the above items should be shown and loss should be arrived?
Thanks in Advance.
Waiting for reply, since due date is close.
Lakshmi, can you look at few the comments above, there is a discussion on all of this.
Hi! Nithin,
This was my understanding that I need to maintain books of accounts and liable to do tax audit as I am showing loss from trading derivatives (only business). But when I met a CA’s junior, I was told that I don’t need tax audit. Now I am totally confused and deadline is so close 🙁
This is my understanding now (but not sure about it). You may likely to get this clarified with the CA and help us. I guess I am gonna confuse plenty of people here as the explanation I read are different.
If turnover of a person who carrying business is over 1 crore, he is liable to do tax audit (u/s 44AB). If not he will be covered u/s 44AD. Where he has to show his income as 8% of his turnover (Here, the calculation of “income” seems like “sum of profits and gains”, not “sum of profits and losses”. Again I am not sure about this). If he shows 8% or more, he don’t have to maintain books of accounts.
If he is showing less than 8%, he has to maintain books of accounts and if the gross total income exceeds basic exemption limit (i.e. 2L for this AY for an individual) he is required to make tax audit.
And one more thing, if he is applying u/s 44AD, he can’t claim expenses 🙁 (there are some exceptions)
Yep, this is already discussed quite a few times here.
Dear Zerodha,
This is the perfect answer. Kindly do not confound the confusion and revise Tax P& L statements in back office accordingly. The view is well established and supported by practice of law.
Regards,
VK sood
In Zerodha backofficethe turnover is calculated on positive and negative differences on a contract on every settlement expiry wise. It should be calculated on each trade wise and not each settlement wise in my view. In case of options, ICAI guidence note states that if a opposing set off transaction is entered then we have to take only difference of buy and sell price of option. So calculation sale side of options for all options contract will be wrong. Sales side ( as well as purchase side in case of options bought ) will be counted as turnover only when the contract is not settled off ( meaning allowed to expire worthless )
Smart, As I just posted, we are putting this on a public forum and hence have to post the most conservative approach. Coming back to the 3rd point: “In respect of any reverse trades entered, the difference thereon,should also form part of the turnover.”, there are two very important words “Should also”. So if we go by what the words mean, it is not a either/or between points b and c, but it is an and, so ideally turnover will have to be a sum of b and c.
But all said, I guess people reading have to consult a CA and see what best to do.
Hi Nithin,
I’m house wife and my husband is salaried employee. Both of us heavily traded in F&O (Futures, Options & Commodities) and both of us have losses. I understand from ZCONNECT articles and your responses that both myself and my husband should use ITR4 to file returns. Because my profit/loss (in fact its loss) is less 8% of my turnover i believe i have to get my accounts audited. My question is what exactly meant by “Audit” in this context. I’m approaching a CA to refer my records (contract notes, P&L stmts, etc.) and file returns for me. Is this sufficient or is there anything more to be done. I understand general meaning of audit but would like to understand w.r.t. filing ITR4 returns please. Request your advice in this regard. Many Thanks.
Yeah, audit seems like a fancy word, but when you get an audit done, the CA in a sense vouches that your balance sheet is correct. P&L statements, Bank statements and if you have kept a note of all expenses incurred towards trading should be good enough.
Also note that since you are a housewife and if your total income is less than 2lks(since you are in a loss and if you don’t have any other income), you don’t need an audit.
if her losses are substantial then it may be better to get the audit done and carry forward the losses;
Hi Nithin and Vinayak,
Thank you very much for your response. My income is only 1.2 lacs and my loss in F&O trading is 3.2 lacs. Trouble is most of my trading was done in Options and as you have mentioned in your earlier responses, i have calculated my turnover using sell value of my Options transactions and my TO is crossing 2 cr (though my net loss is 3.2 lacs). But if i consider only difference between option buying and selling (i.e. sum of profits & losses), my TO is well below 1 cr. Please note that all my Options trading txns were intraday and i have never anything to expire.
So, by considering all the above points, can you please let me know,
1. Should i consider sell value of options txns to calculate turn over (or) just sum of profits and losses?
2. As my income is 1.2 lacs and loss from trading F&O is 3.2 lacs, Do i need tax audit to carry forward the loss?
3. Looking at 2013 edition of “GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF THE INCOME-TAX ACT, 1961”, below 3 points are to be used while calculating turnover for derivatives.
(a) The total of favourable and unfavourable differences shall be
taken as turnover.
(b) Premium received on sale of options is also to be included in
turnover.
(c) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover.
Confusion is due to points (b) and (c), as per point (b) i have to take into account of sale value of all options txns. But, according to point (c) as i have reversed my trades before contract expiry (in fact intraday), i have to consider only sum of all profits and losses from options txns.
I also have 1 delivery txn in Equity cash market (with loss of 182 rupees), should i show this txn under Capital loss or Business loss?
I would be gratefuly if you could answer my above queries today at the earliest as i have to file my returns today or tomorrow. Many Thanks.
RS, this is a call you have to take after talking to your CA, but since we are posting on a public forum, we have to put up the most conservative approach to calculating turnover. Also since your net income (income – trading losses) is less than 2lks, you don’t have to worry about getting an audit done even if your turnover is 2 crores.
Hi Nithin,
Many Thanks. One last question using below example.
(a) I have purchased 10 lots of NIFTY Call OPTIONS @ 100 rupees premium, so my total buy value is 50000/- (10 X 50 X 100) and I have squared off at 110 and so my sell value is 55000/-. Gross profit is 5000/-.
(b) I have sold 10 lots of NIFTY Call OPTIONS @ 100 rupees premium, so my total buy value is 50000/- (10 X 50 X 100) and I have squared off at 80 and so my sell value is 40000/-. Gross loss is -10000/-.
If i am calculating Options turnover based on “The total of favourable and unfavourable differences shall be taken as turnover”, then will my turnover be -5000 (10000 – 5000) or 15000 (5000 + 10000, i.e. irrespective of loss or profit).
Can you help me by clarifying above confusion please.
We are following a certain method, which is: 5000 + 10000 + 55000+ 40000, this is a conservative approach to calculating turnover, but do consult a CA for this
Better to get the accounts audited (even with 44AD); if you don’t do that you can’t carry forward the losses (and if the rest of the income is salary, you can’t even setoff this year either). The only reason to not audit would be if you are planning to stop trading now (which means no setoffs possible in future). with 3Lacs of loss potential tax saving in future may be very significant. CA may cost less than that and clean up your accounts that’ll help in case there is a scrutiny (very unlikely in the first place with such a low income/loss if there is a clear audit report – they may ask you for books that’s all)
If you do get the accounts audited, then it doesn’t matter what turnover you show; P/L accounts etc. will be clean and they will go by that. Also if you are getting the accounts audited, you can file till Sep 30
If you decide not to hire a CA at all – use your best judgement to calculate the turnover. The section 44AD doesn’t say turnover, it says “…eight per cent of the total turnover or gross receipts of the assessee …” Gross receipts will obviously include sales consideration always (but will then not include profits/losses). Also there is no law that specifies how to calculate the turnover; the ICAI guidelines to CAs are also not very clear in this regard as discussed before (nor do they have to be – if a CA is auditing then it doesn’t matter under what head he puts which; one book or the other will show the entire amount not just a single-figure) So the whole thing is really problematic.
The good thing is that ALL of the expenses etc. happen electronically via banks and there is a clear verifiable trail always – which means nobody has to maintain any books (documents from which “income can be reasonably ascertained” are always available in the form of contract notes), so even if later an AO decides that you actually had higher turnover, you are still in compliance of section 44AA (maintainance of books and documents)
The only problem then is that if the AO disagrees with you on turnover, then he may (may, he is not required to) impose a penalty of “…one-half per cent of the total sales, turnover or gross receipts…” or 1.5lacs, whichever is less (in your case max. is Rs. 1lacs).
Hi Nithin, Vinayak,
Thank you very much for all the info and knowledge you have shared. This is an outstanding support you both gave (which i have never received in the past). Thanks again.
I am a salaried employee + do heavy trading in F&O.
(1) If my salary is 6lacs and loss from trading 5 lacs , I will still require to pay tax as per my salary and slabs or should i deduct 6-5 , so there is no tax. My understanding is that i can no deduct loss from salary ( But just checking for confirmation)
(2) If my salary is 6 lacs and profit from trading is 5 lacs. So i will have to pay tax on 11 lacs as per slabs ? or is there a different tax for profits from trading in F&O.
under (1) you can’t set off any loss (except loss from house property) against salary; so no. However if you get your books audited and file on time you can carry forward the loss to the next year to be set off then
(2) you’ll pay taxes as per 11lacs; F&O doesn’t have special rates of taxation. STT already paid will be deducted as expenses from income.
1. You cannot adjust salary to trading losses, you can adjust it to any other business profits if you have.
2. In your case, you will have to add 6lks + 5lks, reduce all your expenses that you incurred towards trading, and then pay taxes according to the slab you fall in.
In case of a Audit ? Can we file returns by 30 sep to carry forward our losses ?
Yes
Nitin
Till last year derivatives income was classified as business income-this allowed many fiis to pay zero tax since they had no physical presence in india.This budget Jaitley has clarified that derivatives would be treated as capital gains making these fiis to pay 15% tax on their derivative income.Now my question is why should indian retail derivatives trader pay 33% tax on derivative income when a big FII is allowed to pay only 15% ? Pl read below article .
http://www.business-standard.com/article/markets/budget-leaves-cloud-over-derivative-transactions-from-indias-largest-fpi-gateway-114071400857_1.html
Nithin Can you reply on my above query which is Is derivative income eligible to be treated under sec 111A at 15% as stcg since its defined as security under contract regulation act and since STT is incurred on sell leg and since in this budget it has been clarified that derivative income of fiis is capital gains ?
It is very clear that derivative income has to be treated as a business income and can’t be considered under capital gains. Even intraday equity trading can’t be considered under capital gain.
HI Nithin,
I actively trade in F&O segment every month. However I don’t trade at all in the equity segment and had bought shares of Yes bank 1.5 years back. My question is, if I sell it now or anytime in the future, will I have to treat it as business income and pay taxes as per the tax slabs or will I be exempt from paying tax on the shares since I have held it for more than 1 year?? Need clarity on this so kindly help.
Harshit, you can show the stocks you have bought as investment (long term capital gain) and hence would not need to pay any taxes.
Thanks Vinayak and Vijay for clarification..
You are welcome – however this is my first suggestion – calm down and file an ITR-4s to the best of your abilities but within today and tomorrow.
Filing a wrong return is better than NOT filing on time. Once you have filed it on time you have a right to file a revised return later; they can’t process your return till they get ITR-5 which means you can:
1. file a revised return in another month’s time
2. wait another week or two after filing the revised return to make sure CPC has the new one on all their servers
3. send the ITR-5 for both the original and revised returns
If you do the above, they are legally bound to ignore the first return (filed on-time) while still giving you all the benefits of on-time filing
Yes Sure.
Time is there until 31st right..? i guess banks are holiday tomorrow.
I just wants to make sure, are the following fields are enough to file ITR4S ?
Personnel info,
Personnel Info — A21 Return filed under section – On or before Due date 139(1),
NOB BP: 1 – 0204, E1, E2,
Tax Details – 1
Thanks in Advance.. You guys are helping me a lot.
Thank you very much
you do have time until 31st; if any taxes are due you can pay them online via netbanking (even on a hoilday)
Either directly file online or download and use the JAVA utility for filing up – it will not let you get away if anything is pending.
Most importantly – even if something is filed wrong it doesn’t matter; Sit on the ITR-5 and file the correct reutrn (as revised) later. They can’t process the return with mistakes till they get ITR-5 and can’t process it even after they get ITR-5 if they already have a revised return on their system (provided original was filed on-time under 139(1) )
Thanks Vinayak..
I filed with your input
Yes i have paid complete TDS on the salary front.
Dear Nithin,
My CA guy is saying the we must need to pay Interest components (Interest U/s 234B,
Interest U/s 234C).. as per his explanation shown below..
As per section 44AA of the Income tax Act, every assessee carrying on a business, ‘if his income from business exceeds one lakh twenty thousand rupees or his total sales, in business exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act’.
The relevant excerpt from Section 44AD has been reproduced hereunder for your ready reference:
‘Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent. of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession’
From a conjoint reading of the above sections, our understanding is that you are required to maintain books in order to enable the Assessing Office to determine your income. By a simple examination of your statements, one can clearly deduce that you have earned an income, way above 8% of the turnover. Further, with the AIR (Annual information return) in place, it has become very convenient for the Income tax department to capture income related information.
What do you say on this?
Is he also saying that you need to get these books audited? Audit requirement is NOT a part of 44AA but that of 44AB – and while 44AA prescribes that books be maintained in certain cases, 44AB basically means that you don’t have to get those audited
See a discussion here:
http://www.caclubindia.com/articles/some-lights-on-sec-44aa-44ab-44ad–17846.asp
Vinayak..
Thanks for clarification.
I do not understand these points clearly as it is new terminology for me.
Can you give me your contact number plz.. i wants to speak few which i am not able to convey..
my mobile: 9900551770
http://taxguru.in/income-tax/faqs-practical-issues-section-44aa-44ab-44ad-44ae.html
this also (question 9) – while audit is definitely not necessary, even books of account are not necessary as long as you have enough documents from which the income can be ascertained accurately (44AD may be prescribe those, but the penal section is nullified if you fail to adhere to 44AA)
There are many other court cases to the same effect – if 44AD applies to an assessee the courts have routinely held that the assessee need not maintain books.
Vinayak..
He is saying audit is not required but, as turn over is less than 1crore, but Interest U/s 234B
Interest U/s 234C must required to pay. this amount is coming for me around 50k.
Let us get it clear. Audit is not required (section 44AD ) when following conditions are met (all of them )
1 The Turnover in a fin Year is less than Rs 100 lacs
2 The assassee is a) an individual or ( b) an HUF or (c) a proprietary firm
3 The income declared is 8% or more of Turnover
These conditions met, the act also provides that in such case there is no requirement of Advance Tax.
So, if the above conditions are met and return filed under ITR 4S , by 31st of July, there can not be and penalty under section 234 etc.
Regards,
V K Sood
ITR 4S is also applicable for Fixed salary income along with derivatives income?
Yes Sir ! Not just salary but income from many other sources can be filed under ITR 4S. My comments were made, very appropriately, if I might say,in regard to subject under discussion, namely applicability of section 234 in case of 44 Ad cases.
The comment is only nitpicking, therefore.
Regards,
V K Sood
yes it is; just make sure your non-taxable income (dividends etc.) are not more than Rs. 10k
also here’s the thing – if you don’t file ITR-4s by tomorrow (and any tax remains to be paid) then you’ll become liable to pay interest under section 234A; better file a “defective return” by tomorrow (just hold on to the ITR-5; you have 120days margin on that) and file the “revised return” with correct numbers soon to avoid penalty of late filing
you don’t need to maintain “books” beyond what zerodha has already provided you; as I had written earlier you don’t even need to bother with a CA, but if you so choose then at least file ITR-4s immediately. From the looks of it the CA will ensure you have to pay interest under 234A
One last thing – any income outside of “presumptive income” is liable to Advance taxes except salary income (assuming 100% of taxes on account of salary are already paid via TDS route) – check that one too, you may have 234B and C because of that.
Dear Nithin,
I approached a CA for the tax filling.
In his tax computation, he added the following interest components.
Interest U/s 234B
Interest U/s 234C
Does these require to pay in the tax filing?
Plz reply soon.
are you filing under section 44AD? 235B and C are for advance taxes – you don’t need to pay for the income assessed under 44AD; you’ll have to pay for any other income though.
I do not know whether he is filing under section 44AD..But,
Are you sure the derivatives income must be under 44AD only?
Derivative income is “profits and gains from business”; since your wife did it from a computer terminal with a registered broker (and would have received time-stamped contract notes) it is non-speculative;
For business income you can file either with audit or without – the latter is 44AD; if the CA is NOT filing under 44AD then he will be filing an audit report with the tax department (Form 3CD)
Basically if he is declaring 8% presumptive profit or higher on your behalf then he doesn’t need to file the audit report and you can get benefit of 44AD; if you are showing less than 8% profit (or loss) then he will have to file. In your case it seems there is (at least) no loss, otherwise the question of interest under 234 does’t arise.
Also if I remember the discussion from the last few days correctly – your wife doesn’t have any other income (perhaps salaries), you should be filing ITR-4s in case 44AD is applicable to you. Make sure that’s what he does.
Dear Seenu
one question – how much did the CA tell you would be the fees and costs (both audit and filing)?
Vinayak
DEar Nithin Sir,
I am your client .
Lot of confusion among traders aswell not able explain to CA about F&O business concept for turnover, fill up form etc
Is there is any way to make save or make proper way of filling income tax to your client ?
There is no proper guidliness from IT dept about turnover, MY humble request as a leading broker ZERODHA can ask better clarrification regading Turnover, Tax audit to INCOME TAX DEPT OF INDIA.IS it possible ?THis is the thinking in my mind.
Thanks for your guidance
I had declared speculative losses and carried forward for past 4 years. This year I donot want to file any losses but would like to carry forward the previous years losses.Which ITR should I be using?
You have to continue using ITR4 for carry forwarding the losses.
My net is loss in Day trading and F&O and I want to avoid tax audit. Any implications of not showing loss in tax returns? I want to avoid declaring loss because even though I am at loss I now have to get audited which may cost me 20-30k and then i dont have any book of accounts for which IT will levy some hefty fine like 1.5 lakhs. It is a double whammy by the system and certainly discourages doing trading in Intraday and F&O segments.
Prime,
Book of accounts, especially for someone like you is nothing complex. Make a note of all your expenses incurred towards trading (most likely they will all be swiped from your debit cards, and the bank statement will itself act as a proof), the P&L statement from Zerodha, and that’s it. Go to a CA and he will double check and that is getting books audited in simple words.
One of the ways to avoid an audit as you would have probably read in discussions above is to declare your presumptive income as 8% of your turnover and get away from getting the books audited, using the ITR 4S form. The problem with this is that you cannot carry forward your losses, but you will avoid the audit charges by a CA. 8% of your turnover (4lks) is around 32k, this gets added to your 6 lk salary and have to pay taxes accordingly.
Also the 17cr loss, understand that turnover is not contract turnover, check this out.
Hi Nithin,
Thanks for the much needed advice again. I have liked zerodha because of this promptness and quick customer service. Also, wanted to make a request. Is it possible that a report tool for easily knowing the turnover across segments be made available in backoffice. Currently, there is a taxation tool. But that shows data only for previous assesment year. I know this is too much for asking. But this tool would surely help people keep a tab on the turnover. Also, about the turnover you are right that for F&O nd intraday it is calculated differently. But, problem is different people are interpreting differently. Whay is shocking is many of the IT officers and CA seem to think that total sales value is the turnover :D. But, it is actually what you have mentioned.Again thanks for the info.
Prime, the taxation report that you see on Q presently is for 2013/14, we will open up the 14/15 also in the next few days.
Dear Nithin,
A further question: If I need to be audited, (by virtue of showing speculative income as business income) does my filing date shift to September 30?
Thanx and reagards
Akand
Hi Nithin,
Thanks for the wonderful Blog.
I have following queries please help to answer,
I have incured 1lk loss in F&O and i want to carry forward the same for the next 8 years. so as i understand
my Books of account needs to be audited by the CA.
What is the last date for the same? is it September 30th 2014 ?
Do i need to mention the loss within 31st July 2014 or else it will not be carried forwarded?
Is it something like loss can be shown with in 31st July and then the Books of account can be audited by CA anytime between 31st July to 30 September 2014.?
Thanks
-Rohan
You have time till 30th September Rohan to do everything, no need to do anything specifically by 31st july.
Hi Nithin,
Could you please let me know the consulting firm in Bangalore who can do audit of my Book of accounts?
Any idea how much they charge?
Regards,
Rohan
If you are in Bangalore, you can consult taxiq.in, you will need to speak to them for charges.
Dear Nithin,
My trading/investing for 2013-14 is as follows:
LT CG: ie total purchase 7,80,000 total sale 15,91,000 profit 8,11,000 settlmt total 926,000
ST CG: ie total purchase 68,97,000 total sale 70,90,000 profit 1,93,000 settlmt total 738,000
Spec: ie total purchase 1,52,86,000 total sale 1,53,43,000 profit 57,000 settlmt total 88,000
The above profits are net of profits and losses. Settlmt total is the total of absolute net value of trades.
Please clarify how and where to show these amounts in ITR4?
Also do I need to get this audited?
I have no other income and paid around 20K in taxes in July 2014. Does anything more need to be paid?
Thanx and regards
Akand
my total buy/sale in intraday is around 10 crore and loss of 3.3 lakhs. i am not entitled to get audited right?
Vaz, turnover is not total traded value, check this out.
If your profit is less than 8% of your turnover or if your turnover is more than 1crore, you will need to the books audited.
but i have not traded in F&O so the condition of 8 % less profit doesn’t apply on me and just have to show speculative loss right
Vaz, even intraday trading is considered as a speculative business, so you will need to use ITR 4 or ITR 4S. If you file the losses using ITR 4, you can carry forward these losses and set off against any future speculative profits.
Dear Nithin,
Thanks for your reply to my post. It is very heartening to note that Zerodha. already, is, in process of seeking Advance Ruling in the matter of legality of declaring profit @8% of Turn over even if actual profit exceeds this. Kudos to Zerodha for this initiative.
You also correctly stated (in reply to query from vaz@vaz_paz) “that the turnover is not traded value ” Surprisingly, this approach has been given a go by while computing turnover in “Tax P&L” at b02 Zerodha platform.
I request you to kindly clarify on this.
V K Sood
While calculating delivery based trades, turnover is the sell value of stocks and for options it is a grey area. But as discussed here, we think it is best to also consider the sell value of options along with absolute profit and losses for calculating turnover.
Futures realized profit -24293.75
Options realized profit -160880.00
Total realized profit -185173.75
Futures unrealized profit 0.00
Options unrealized profit -4100.00
Total unrealized profit -4100.00
Futures turnover 139216.25
Options turnover 6741863.75
Total turnover 6881080.00
Total charges
Brokerage 38660.00
Turnover charges 16978.36
STT 10314.60
Service tax 6877.34
Stamp duty 10649.69
SEBI charges 188.77
Total charges 83668.76
Dear Sir,
I am your client.THe above is my Tax p/l statement from backoffice.
My doubt is I have to show my loss is 185173.75 or I have to add total charges 83668.76 also.It means 185173.75+83666.76 =268915 is my loss.
In the total charges stt is included.We have subtact stt from the total charges and do the calculation
or simply add totalcharges to my realized profit to find the loss.
Thanks for guiding us.
Ram,
Total realized + Total unrealized + Total charges, so around 2.72lks in your case I guess. Total unrealized loss will be on your open position as on 31st March 2013. The reason you need to include the unrealized is so that you can start 2014/15 with starting point as closing price of these open positions as on 31st march. Becomes much easier and is also more compliant.
F&O trading, is like a business, so you can include STT in total charges.
I think a CA would be able to answer this better; It may not be a good idea to include unrealized profits/losses in total.
even for ITR-4s (presumptive income) cases, the assessee has to tell how much stocks-in-trade (by value) he holds and how much cash balance (this includes bank account balance etc.) exists; sundry creditors and sundry debtors (not really applicable for zerodha clients I guess)
all open positions are stocks-in-trade and must be shown as such in the return. Since the profits (or losses there-off) are unrealized, and there probably was no obligation to liquidate them at a pre-assigned date and/or price (meaning the assessee could liquidate on April 1 or 2 or 3 at any price available) the mark-to-market profits/losses can’t be deemed to “accrue” on or before Mar 31st. So neither accrual based nor cash accounting system justify this.
also if he intends to show a loss, he needs to get a CA to file audit report for him anyway
There are two issues that are bugging traders in derivatives from IT point of view. These being:-
1) How is the Turnover to be computed. I must add that this issue was more or less clear till Zerodha added to the confusion by showing the Purchase/ sale value in their “Tax P n L’ report. (instead of only the resultant loss/profit)
2) The second is section 44AD of IT Act. This provides that in case the turnover is less than Rs 100 Lacs , then the individual CAN declare taxable profit as 8% or more of the turnover.In such situation there shall be no need for an audit and also there is no need to maintain the books of acccounts.
Now, the question that has not been answered is ” Can one declare taxable profits as 8% or more of turnover even when profit such declared is LESS than the actual profit made”
Borders have been offering divergent opinions , some taking the moral ground of declaring profits at actual no matter the legal position. I believe the matter has to examined and answered STRICTLY from legal point of view and the matter of morality left to individuals to be decided at their end.
Quite often the advice rendered is to consult the CAs. Well said , but it has many loop holes
1) The knowledge base of CAs is no better than an ordinary literate person. Unfortunately the profession has lowered itself, by and large, to the role of fixers than professionals.
2) CAs as a group have no unanimity on the matter. What to do if CA no 1 says one thing and the CA no 2 holds totally opposite view.
So what can be done.
Well the Budget FY 2014-15 opened a window of hope. One can now seek the Advance Ruling on the matter from the IT department. I shall request Zerodha to take initiative and help the trader community at large. I am sure, there shall be good no of trader who shall be willing to bear the cost if the need arises.
Regards,
V K Sood
Yes Mr Sood, we are already in the process of seeking the advance ruling in this matter. I have spoken to a lot of people at IT department, and they themselves seem to be clueless on this, with people giving different views. Hopefully this new window, will bring in some clarity to all of this.
The reason I end almost every comment with a consult a CA is because, this is me giving views based on what I know and based on access to people who have the domain expertise. But as someone reading all of this, the person still has to go through a CA and you have to go by what your CA’s view on this is.
Ideally, I think everyone who trades F&O should use ITR 4 and get the books audited, just to be safe.
Dear Nithin Sir,
For calculating turnover in Futures contract, I have to calculate favorable and unfavorable on each trade wise. it means everytrade i have to notedown the profit and loss and sum up everything, or contractwise available in tax P/l statement. I am in confusion in this. If I calculate trade wise it is very difficult to calculate the complete year .Please guide in this.
I am net loss in this year Future ,option trading nearly 160000,we have to add other charges ( stt, brokerages, stam duty 86000 ) , to show the loss.Ie 160000+86000=246000 is correct ?
If I donot want to carryforward the loss to next year then also I need tax audit ?
Rama,
Scripwise Profit and loss should be good enough, like the way we are showing on our new reporting tool Q (if u r a client with us).
Yes you can show 246000 (this could be more if you add all the other expenses like internet etc) as losses and carry forward this to next 8 years, you can set this loss off with any business profits (not just trading) you make in the future.
Yes you need to use ITR 4 and yes you will need an audit if you want to carry forward. If you do not want to carry forward, check a bunch of queries on top, you can use ITR 4S.
Hi Nitin,
You and the Zerodha are doing a great job by providing such value added services. It goes a long way in helping us understand these intricate tax issues. Here is my query:
Since the F&O income will be treated as business income, one can also make deductions for expenses related to business, in this case, the internet charges, communication expenses, phone, electricity, rent, brokerage and other sundry trading expenses. Does it require one to do a proper book-keeping and auditing? What is the maximum expenses one can claim in case of no proper book-keeping?
Thanks
Thanks Sharat,
There is no such maximum expense, you can show whatever costs you have born. Your books being audited has to do with your turnover rather than the expense you have claimed. But it is advisable that you book keep properly, which is actually quite simple, make a note of all these expenses, save the bill and use an excel to make a note of the same. We will be introducing book keeping on Q soon.
Hi Nithin, I am really impressed with the way you explain these tax details. BTW, i am with a different broker and got in touch with your sales team (I was so much impressed by your dedication) to switch to your firm. Need another help. Can you recommend some CA in Bangalore. Most of the CAs I talk to have no idea how to file for a trader active in F&O. Appreciate quick response as we just have 5 more days to file return.
Thanks,
Nag
Thanks for the kind words, you can check out http://www.taxiq.in
Zerodha Team thank you for such a wonderful blog. Let me tell you, apart from providing a wonderful low cost platform for the Indian Investor, you are also providing a platform to make them intelligent and informed!. Thank you.
I had a small query:
Background: My company (A Danish entity) issued a Deferred Stock Compensation Plan in 2010 that vested last year. After the necessary lock-in period, the company transferred shares to my account (Maintained with a Danish bank) I the last financial year, after deducting necessary taxes in India (i.e. Tax on the price differential between the allocated prices (Which was Zero) and the market price on the day of allotment). This is shown as Tax on Perquisite in my Form 16.
I also actively trade in the F&O market – Currency and Equity derivates. In the last Financial year I have incurred losses on these trading activities last year.
Question: Can I set off my Trading losses (Business losses) against gains made against the ESOP / Stock allotment?. Also, I have a Car loan – Can I set off the Depreciation and Interest as Business Expense and Adjust towards the Tax paid towards my ESOP’s? i.e. [Profit in lieu of Stock Allotment – Business Expenditure: Towards car (Dep + Interest) – Trading Losses]
Sowmya,
The ESOP should ideally not be mixed with your trading business. I’d suggest you to show that bit as either capital gain/losses either short or long term based on when you decide to sell. It is best to keep the tax that you have paid for the differential on the form 16 also separate from your trading business (F&O trading).
Coming to your trading business (F&O trading), your depreciation on car loan can add on to your trading losses (tomorrow, you might need to prove, how you owning a car helped for F&O trading) and any other expenses for trading, and you can carry forward this loss for 8 years and set it off against any business profits in the future. Don’t think you should set off the profit from ESOP’s (this was technically generated because of your salary income).
But do consult a CA.
Cheers,
Thanks Nitin!.
Thanks for such informative blog. I have a query please answer
1) For financial year 2013-14, I have done only 3 options trade. no other trade in equities or futures. The premium that i paid for those 3 trades is 4000 Rs. and all those 3 trades ended in loss ( options expired worthless). My question is do I have to audit it from CA ?
Thanks
Technically yes, but if you can see a bunch of queries above, you can use ITR 4S and declare 8% of your turnover as profits and pay taxes on that. This way you will avoid an audit. But do consult a CA.
Cheers,
Thanks for such an informative blog. Had a few Qs, which I’d appreciate if you could please let me know.
1) I am not employed with a company and my source of income is from:
a) Delivery-based share trading (via Zerodha) and
b) Interest from FDs.
I have done around 19 delivery-based trades in the last financial year (Apr 13 to Mar 14).
With these two sources of incomes, and trading-frequency, do I qualify as an investor or a trader?
2) If I qualify as an investor, I understand that I have to use ITR-2 and show my profit/loss from share trading under “Capital Gains” (where taxation will be 15%). Is this correct?
3) If I qualify as a trader, I understand that I have to use ITR-4 (where taxation will be based on the current tax-slabs). Is this correct?
4) I understand that for delivery based trading, the turnover is the sum of the *selling* price of all the shares. Is this correct?
5) If I am an investor, do I qualify for an audit if I fall under the criteria: “turnover > 1 crore” OR (profits < 8% of turnover)?
Thanks in advance!
Anurag
1. You are an investor.
2. Yes ITR 2 and 15% as short term capital gain.
3. Yes if declared yourself as a trader
4. Yes
5. Since you are investor and using ITR2, you don’t have worry about audit.
Many thanks for a quick response. I had just logged in the back-office, and in the reports it shows me an intra-day trade! I really don’t recall when I did this, but I must have done it since the report shows it.
With this single intra-day trade (~ Rs. 7000 loss), would I now have to use ITR 4? And if so, would I qualify for an audit (because my *delivery-based* trades fall under the criteria of <8% of turnover)?
Or, I can use ITR-4, and show:
a) This single intra-day trade under "presumptive business income" and show an 8% profit on it (~ Rs. 600).
b) The delivery-based trades under "capital gains".
And with this avoid this audit?
Thanks again!
Anurag
Yes you will have to declare that single intraday trade on either ITR 4 or ITR 4S. Yes, you should probably use the ITR 4S and show a presumptive income of 8% of 7000 = around Rs 600 for the intraday trade and show delivery under capital gains. Yes this will avoid the audit. But do consult a CA.
Thanks again. Last Q:
As I understand the STT component is not taxable and can be claimed as a deduction Where in ITR-2 (or ITR-4) does one declare the STT tax deduction?
STT is like an expense for you like other charge, but this can be claimed as an expense only if you are trading as a business (ITR 4) and not when you are investing (ITR2), you already get the benefit of reduced taxes.
Hi..
Thank you for the very informative blog. I am a salaried individual and i do commodity trading (intraday) and occasionally in equity(bought some shares and now holding for more than a year) . I got loss in commodity trading, Which ITR form i have to use for AY 14-15?
ITR 4 or ITR 4S
Thank you for your feedback. Which one exactly sir, ITR 4 or 4S ?. Can i do it on own or CA required for this sir?
Rathna, I’d suggest you to read some of the earlier queries where we have discussed on the difference between ITR 4 and 4S.
Hi,
though zerodha is used and targeted for traders… i use it for long term investing. Its very nice initiative to help people with tax queries and also make them aware about the same.
For long term investor how do we calculate the turnover. I am a salaried person so main income is salary income..
None of my trades are intraday and short term can be defined as 1 months or 3 months and 80% of my portfolio is in long term that is more than one year.
But during the churning the total turnover ( buy + sell ) exceeds 1 cr. So am i required to get audited ?
Thanks
Also do we have to add the long term buys/sells in this turnover calculation. Or do we just add only the short term i.e less than a year transaction for this calculation.
As I was saying, you don’t need to worry about turnover. But if you were declaring yourself as a trader, the sell side value is summed up to get the turnover.
Pankaj, since you are doing only investing (buying and selling after a while), you would have only capital gains and don’t need to declare yourself as a business (and hence no need of an audit). You can just use the ITR 2 and declare your investments under the capital gain head.
Hi,
I have losses in option trading in nifty and trading in commodity.
My total turnover is more than one crore. So, can i show only some particular big losses for which total turnover will be less than one crore to exempt audit, or audit is required for losses for any turnover amount.?
And i should use ITR4 or ITR4s form ?? I am salaried employee. Please reply.
Since your turnover is more than 1 crore you need an audit in any case and you would also need to use ITR4. On ITR 4 you can show your salary income and your business (trading income).
DEAR Nithin Sir,
Important DOubt on turnover calculation for options in Tax p/l statement. Whether it shows really total premium received on sale of options or simply total sell value of all options in that year?
IN zerodha new backoffice have Tax p/l statement.I have downloaded my p/l statement. I have done Futres and options.For future the turnover is calculated correctly ie sum of favourable and unfavourable.
But for options , the turnover showing in the Tax p/l statement is simply the total sale value of all options + favourable in options+ unfavourable in options.I have never done shorting/ collecting premium on options.I always buy options and sell after.
MY option turnover shows as 6741863.75.It is the total sale value of all options
.
But option turnover means Total premium received on selling the options+ difference in respectof reverse trade entered in to+ favourable and unfavourable.This what I understood sofar.
SO please clarrify my doubt in this issue.IF I am wrong please tell.Thanks.
Rama,
Presently the option turnover on P&L shows Total sell value + absolute sum of Profit or losses contract wise. We have consulted a few CA’s and this seems to be a good enough way of calculating turnover. Like they say, there is no issue showing more turnover, but showing less might be an issue.
Yes the statement says premium received on selling options (but it doesn’t say option shorting or option writing), so even if you buy and sell you are technically selling an option and receiving premium. Favorable and unfavorable is basically the absolute profits or losses that you make contract wise. Difference in respect of reverse trade, is a redundant statement, basically the favorable and unfavorable will also include the difference in respect of reverse trade.
But do consult a CA on this
THanks Nitin Sir.
Now I understood. But my problem now is very difficult to explain these to my place auditor. No one clear idea about this.Already I am in loss now these type of auditing make me bigproblem.I am in more dippression now.
Most auditors are not aware when it comes to the F&O bit, I guess you will have to educate them on this.
Hi,
Has anybody got hold of the excel utility for ITR4? Its still not updated on the Govt site. Any solutions?
I guess we will have to do with the Java utility this year.
Hi Nithin,
I am a salaried individual and often trade in F&O (derivatives). From what i have understood on this blog and previous queries – i need to file ITR 4 (as a trader) but apparently when i go for e-filing i get the ITR-1 and ITR 4s only in drop down menu. Do i have to fill in ITR 4s instead of ITR 4 ?
Also my turnover is < 1cr and i made losses for FY 2013-14 ; does this means i have to get audit done ? I want to carry forward my losses (+ expenses incurred) so that i can compensate them against my profits for 2014/15 and so, i think i need to file them this year itself on time.
Please advise, thanks for a nice blog!
you will find the Java utility in “downloads” on the incometaxfiling website. you can’t fill the form online, you have to fill it offline and then you can either generate XML and upload it OR you can get the Java utility to upload it for you.
You will have to get a 44AB audit done; the CA will explain the whole filing process to you (he will need to upload audit report and you will have to accept it before you can upload the return – they might take your password an do it themselves on your behalf)
Yes Mayank, you will need to file using ITR 4 and before Sept 30th to be able to carry forward the losses.
Cheers,
And also.. Do you have any other alternative option to find out the turnover other that Futures and Options Profit Loss report Since you have mentioned 7 months back, zerodha was planning to have some tool for this.
Seenu, after consulting with a bunch of CA’s, we decided that this way of calculating turnover is in sync with what IT department atleast hints at. If you want to do a tradewise calculation, you will need to do it yourself using the tradebook.
Dear Nitin,
I filled ITR-4S for my wife account last year. She is a house wife and does only in Derivative (F&O). Its processed with out any hiccups.
This year too, she is in the profit side (turnover 8%.), So I Can go ahead with ITR-4S right?
I am a salaried person and in the tax slab of 30%. I traded only in Derivatives (F&O) as well and got good profits (turnover 8%.). I have Form-16 for my salary and tax is paid for this income monthly.
Now which form should i fill in this case..? Does ITR-4S works for fixed salary and traded income?
If you think ITR-4 requires an audit – it does not; there is a (small. a little hard to find) space for declaring presumptive profits without filling up the huge number of details; so if that is the only reason to file ITR-4s think again; you can download the java version of ITR-4 and file it yourself.
On whether you can file ITR-4s or not http://incometaxindia.gov.in/download_all.asp will give you instructions. ITR-4s (and ITR-1) is really restricted to very few heads of income; even if your exempt income exceeds Rs. 10,000 you can’t file that one.
Vinayak,
Yes you are right, we cannot exempt more than 5000.
But ITR4 is very complicated, i dont know exactly what are all fields need to be filled
if you are eligible for ITR-4s, by all means fill it; otherwise try ITR-4
coming to ITR-4 it looks complicated, but most of it is irrelevant to you and you can leave it blank (e.g. both for Part-A-BS and PartA-PL just go to the end and fill the 4 lines of “in case of no audit”; ignore the sections that are optional if there is no audit under 44AB; deprectiation etc. doesn’t matter to you …)
It will be not much harder to file than ITR-2
Vinayak,
Can you tell me exactly what are the fields require to fill in ITR4?
and also when we try to exempt the tax with charges of charts, computer depreciation, any proofs require to have with us?
1. Yes for your wife.
2. Yes ITR 4S works for salary and trading.
Thanks Nithin for such a detailed post. I had a query:-
1. Are DP Charges allowed to be claimed as an Expense.
2. Can Income Trading be furnished in ITR 1/ ITR 2 as written above in the article?
1. Yes.
2. No, if you are trading you will need to use ITR 4 or ITR 4S. If you have only capital gains(only equity delivery trading) you can use ITR 2.
Dear All
I am a professional earning around 3.5LPA.
I have a F&O trading loss of 1.1Lac on turnover of 3.5Lac.
Can I club both professional and Business income in F&O so that my net profit is 2.4Lac on a total turnover of 7LPA. This clearly is above the 8% min requirement.
if yes:
1) In this case, would I still need to get a tax audit.
2) If I can club, then how to fill the form:
a) Total receipts – 7LPA
b) Where would the loss of 1.1 Lac be shown in the expenses. I see no place where such loss can be shown
c) However, I do see a place on the OTHER INCOME side which accepts negative values. If that is so, can I show total income as 3.5Lac from profession and take -1.1Lac in OTHER INCOME without having to go through a tax audit. This tax audit thing is a big problem because most CAs do not want to do it as they are limited by the CA institute as to the number of tax audits they can do – all of them want to do corporate audits.
Regards
Dear Manish (and others) check this page to see which form you need to fill http://incometaxindia.gov.in/download_all.asp
where there is any confusion the instructions PDF will make it clear.
since you have income from profession, you can’t file ITR-4s (that is why you don’t see any section there); you will have to file ITR-4. The question then is what kind of a profession you are working in, the income tax law specifies exactly who is a professional (doctors, lawyers, interior decorators and a few others. not working for a salary), rest are businessmen.
On whether you need an audit report submitted or not, best to ask a CA or raise a query (detailed one) on CAclub website.
your case is tricky for me, though I am sure it is probably a settled matter already – basically whether “profession” is treated as “business” or not – all indications are that it is not (which means while you can setoff the losses, to do so you need to first get an audit of the “business” part done; if you want to avoid audit you must declare a 8% presumptive profit, there is no question of any setoff in that case of course)
Yours is an interesting query and I would like to know how they reply.
Dear Manish
I checked just now for you http://www.taxpertindia.com/section-44ad-under-income-tax-act-presumptive-taxation-ay-2013-14/
Income from a profession (defined as under section 44AE of income tax act) can’t use the benefit of section 44AD (that allows you to use the benefit of “presumptive business”) – you’ll have to declare the two separately.
If you then chose to pay presumptive taxes on business income, then you can avoid the audit; otherwise unfortunately you need to get audited for the business loss (but not professional income; though I guess auditor will hardly charge extra to audit both)
The problem is I do not see a clear way in ITR-4 to record both separately while showing a loss in F&O. The only way I was able to do so was enter a negative value in OTHER INCOME section of PL sheet of ITR-4
that is because you can’t claim loss on business (even if net of business + profession is over 8% of overall gross receipts) under 44AD – you need to get that one audited if you want to set off the loss against income from profession
Yep agree with Vinayak, you cannot combine both.
hello Nitin,
How to find whether my account is directly under zerodha or under any sub franchisee ?
Kumar, there is no concept like a sub-franchisee, you might have a referral though. You can email your query to [email protected]
Dear Nitin,
I have made a small loss in F&O, but I do not intend to carry forward this loss. So can I declare net profit as “0” in ITR4 or instead of ITR4, can I submit ITR1/ITR2?
Even if you don’t intend to carry forward, you have to declare this loss Manoj. You will have to use either ITR 4 or 4S
To use 4S he must declare presumptive profit of 8% of turnover. Otherwise he is inviting scrutiny and a fine for failure to get his accounts audited.
The only question is which one is more expensive – audit or declaring 8% profit (and forgetting about set-off of losses)
Thanks Nithin, Vinayak, In my case it is clear- presumptive profit of 8% is v.v.small compared to audit for carry fwd’ing of loss
consider the potential saving in taxes in future as well e.g. if you made a loss of Rs. 100,000 you may save Rs. 30000 next year (depending on your tax rate of course)
However if your turnover is so small, so should you loss be, so you can go ahead with the presumptive profit. Do keep your records (not audited but keep them) just in case they ask for it later (returns can be randomly scrutinized)
An interesting point on this one (I read this as somebody’s opinion on CAclub website or somehwere else; anyone reading please correct if this is wrong) – if you are allowed to declare “presumptive income from business” without audit then effectively you are allowed to claim that your profit was only 8% of the turnover for the purpose of taxes – even if it was more.
For example on a turnover of 20Lacs if someone made 5lacs of profit, he can claim on his tax return that it was only 1.6lacs and pay taxes accordingly.
This is legal. The taxpayer has an option to use this under section 44. This used to be the option for civil contractors, Pranab Mukherji extended it to all taxpayers (goods carriage businessmen have an even better deal even now, their profits per vehicle are fixed – irrespective of how much they actually make. the amount is far less than even the interest on the vehicle loan)
Sir, I have gone through your article. It is nicely explained. Kindly read my arguments about stock market traders can also file ITR-2 if otherwise justified.
I am still in doubt and would like to file income tax return by using ITR-2 (as my major source of income is Salary and I have worked full time in job only).
However I have also made investment in Mutual Funds, Stocks and traded (intraday plus Delivery) in stocks and Derivatives (F&O) by myself i.e., not employed any person for trading (Here I am unable to (not even Income Tax authority would be able to) justify me in both (i) as full time worker in Job and (ii) doing businesses at same time?). Further, I would prefer to justify my derivative / intraday (very few in number) trades to protect my investment made in Mutual Funds (combination of 100s of stocks).
Again, As per GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF THE INCOME-TAX ACT, 1961 (Revised 2013 Edition) published by The Institute of Chartered Accountants of India (http://www.caalley.com/gn/30357dtc19988.pdf) …. Page No. 271…. Trading (Business Head which you are refering to mention in Filling ITR-4, includes following subheads: Chainstores, Retailers, Wholsellers does not include stock market trading particularly (otherwise should have been there… like other sub-categories are indicated in detail).
Further if capital gain is not the place to show speculative trade, then we can easily put it in Income from other sources (additional income/loss – as even income from lottery/ race horses which also speculative in nature can be made).
The main point is that I am not doing business directly as I am not licensed to do business not even applied for. There are lot of permissions and obligations are required e.g., payment of Service tax etc. etc. to be collected/deposited from buyer/seller of the product i am selling/buying in business which I have not done (besides paying end user Service Tax to broker/Govt. for the services i.e. trade/investment & STT -additional payment for transaction made).
Kindly go through my arguments and rectify me wherever needed. It will be a great help to me.
I’m sure Nitin will ask you to talk to a CA, that is the right thing to do.
I can tell you this though – if you traded even one lot of a derivative contract in the year you must file as a trader (ITR-4 or 4s); there is no scope for ambiguity there, it is directly enshrined in the IT Act
Like Vinayak said, I’d suggest you to go meet a CA. But if you trade on derivatives, it is considered as a business and you have to declare it on your IT returns.
Dear Nithin Sir and Vinayak Sir,
At the final stage of Filling IT return I dont think Any CA will be having much time to Audit all my transactions thats too within 5 days unless I agree tp pay more than Rs. 50,000/- – 75,000/- which actually is equal to / more than the amount I usually pay as Income tax.
Therefore I have decided to disclose all transactions made in equity & derivatives as Short term capital loss (/gain). This will be better than getting notice from IT dept. with having loss and un-audited ITR-4 submission.
As in totality it is in loss, IT dept. would not expect me to pay taxes for the transaction. At the most they will be asking me to resubmit it by using ITR-4; In that case I will get time. As I will not be hiding anything therefore 99.9% chance that I wont get notice only for submitting in ITR-2 (because atleast I have moved myself to ITR-2 from ITR-1 (only salary as income source). Kindly share your view regarding this.
If you need audit, then last date of filing returns is Sep 31. you have time.
Dear Nitin Sir,
It’s really a helpful topic and clarified many of my doubts. And as requested by many members in the comments section see if you can talk to your CA to arrange TAX services for filing ITR for our Zerodha clients.
and it would solve many of our problems to file our ITR. Hope you give us a good news. 🙂
Thanks,
Guru
Hi Nithin,
I do invest for long term in equites and regularly trade in F&O.
1)So, can i declare myself as a trader(for F&O and short term trxns) and investor(for long term trxns) both?
2)Is there a tax exempt for the profits earned if i reinvest them into equities?(i do so regulalry)
3)Where can we get contact of auditors who are aware of these stock markets trxns auditing in Mumbai?
1. If you are not a very active trader, you can declare trader (F&O) and investor (short term and long term).
2. No
3. hmmmm.. you could probably google for them and before finalizing question him on his understanding of taxation when it comes to trading.
Hi Nithin
Why do not Zerodha start TAX services like ITR filing particularly who does Trading in Equities, Futures and Options. It would be great helpful for Many people.
Actually many expects you would start TAX service near future.
Thanks
Venki
Dear Nitin,
My 5 year long struggle came to an end through this blog and all the replies. Fantastic answers which even CAs hesitant to ‘reveal’….:) I had bitter experience meeting few auditors who did not respond well but panicked me with unnecessary questions and finally shown only arrogance while answering. Later I started filing on my own. Now, this post clarifies few of my doubts on combination of trading and investments beyond doubt. I whole-heartedly appreciate your efforts. Have few doubts on filing returns:
a. While filing returns, I understand that less than a crore turnover and less than 8% profitability require audit. For a person with more than one income including salary, should I share my salaried income as well for audit purposes or is it suffice to share my trading details alone?
b. My suggestion is, Given that your team and board’s rich experience and expertise, why don’t you start online services to help individuals like us who do small trading and had to file ITR-4 with audited report? People like us can utilize the services through mails itself (by sharing our reports) and get the audited reports for filing, hassle-free every year? Of course, a nominal fee can be charged and same can be deducted from our trading accounts? 🙂
Also, would like to know if any “Short Term Capital Loss” arising due to “Sale of Property”, be setoff against F&O Business Income?
Raji,
Short term capital losses can be adjusted against only any other capital gain.
a. You will need to share your salary income as well, so your ITR 4 will be a combination of all your incomes.
b. We have planned something out, but will probably take a while before we are live on it.
Thanks for the kind words, 🙂
HI Nithin
I am salaried person. I contacted CA and asked them to file ITR 4; since I have transaction in F&O and equities and have loss around 13 Lakhs. CA filed ITR 4 and mentioned business loss (0204) Trading others along with Form 16 salary details. I asked whether books of audit is required. since I file the business loss. They told me not required.
I am confused; then how Income tax authorities would accept my losses. Since they already filed for FY 2013-14. If I get any notice after my ITR reviewed, Shall I explain at that time and whether they allow me to do set off the losses in Future years profit (I would get in F&O). Please clarify me. Many thanks for your help.
Venki
Venki, Ideally an audit would be required in your case. Yes you will be able to carry forward your losses and set it off against any future business profits.
I have just filed ITR 4 through a CA; However, they filed the ITR 4 through my login (It seems like self filed); and has given me the statement sheet and receipt for the service fee paid. They have not mentioned anywhere in ITR that audit has been done for my account.
Is there any chance I would get a notice after ITR 4 reviewed or will be an issue while I do sett off my losses in future. Please suggest how I would ensure that my ITR 4 got reviewed and accepted. Please suggest. Thank you
please share me CA info ..
HI Nitin,
Thank you for the informative post. I have a doubt regarding option turnover calculation…Is it favorable +unfavorable differences+sold options which are not covered ? or favorable + unfavorable differences+ all the sell side option value? seems “Q” is calculating options turnover the later way? I think it is correct to calculate the former way?
My doubt is what is the proper way as far as Income tax is concerned?
Thanks in advance
Grey area Praveen, but you rather show more turnover than less. It is your call, but do consult a CA on this.
Hi Nithin Sir,
I have turnover of around 8 lacs in NSE F&O and net loss of 3 Lacs and I also have salary income which is more than the exemption limit . My confusion is whether I should file return under section 44AB or 44 AA .
If I file under 44AA do I need to get my accounts audited.Please suggest as I’m getting mixed opinions from different CA’s.
Yes you will need it to be audited as your profits are less than 8% of the turnover. The other option is to declare 8% of the turnover as profits and use ITR 4S to avoid the audit.
Thank you Vinayak and Nithin. It’s little more clear now. I will sure consult with CA about this.
Hi,
I will be filing returns for the first time since opening my trading account with zerodha in July, 2013.
I only traded in equity till now (mostly delivery based), but also did some intraday trading as well.
I am planning to fill ITR4 for AY14-15. Will that be correct?
Also, I need inputs on the below points from you:
How to calculate the turnover for my delivery and intraday trades?
For intraday i believe the sum of actual profit or loss made is my turn over but for delivery, it is mentioned in your blog as below:
For Delivery equity — sell side value of the stock
So does it meant that if i buy 10 stocks of RS 10 each and sell all for Rs 11 in a delivery based trade, my turnover is 11*10 = RS 110?
Also, as per my account analysis report, if the below details are available, please let me know, what will be the net profit or loss made by me:
Net Recivable : 500000
Net Payble : 395000
Brokerage : 500
Turnover charges : 50
ST : 500
Stamp Charges : 100
Service Tax : 100
SEBI Charges : 1
Please note that there are certain stocks which i bought during the previous financial year but didn’t see by 31st of March and hence my net receivable is almost Rs 1 lac more than net payable.
Yes ITR 4 is correct.
For delivery trades, consider the sell value of stocks as turnover. Yes Rs 110 is your turnover.
For Intraday trades, it is settlement profits +losses.
Check out the new Tax P&L report on Q, all the calculations are already done.
dear nithin
1- A very good morning to you
2-what what documents do i have to submit while filling itr-4s online??
3-to avoid tax audit i will show 8 percent as profit of my turnover i made in futures and intraday(though actually i acquired i loss) how the same is to be fillled while filing itr-4s??
regards
Hemant, best to consult a CA for details on filing.
Calculation of turnover – Options.
I see two different explanation, just would like to know which one is correct.
1.
a. sum of settlement profit and loss +
b. sell premium +
c. In respect of any reverse trades entered, the difference thereon, should also from part of the turnover (it’s not clear, can you please explain this point with eg:?)
2.
It seems like just the sum of settlement profit and loss in this explanation
(In the case of options, only the premium and margins paid is reflected in the books of account at the inception of and during the currency of the option. The strike prices of the margins do not get reflected in the books of account, except for the limited purpose of identifying different sets of options. On the squaring up or expiry of the options, the value of the option on sale or maturity is received or paid, and the profit/loss on the options accounted for. There is a view that such value of the options on squaring up/maturity would constitute the turnover in case of options, though the better view seems to be that it would be the gross differences (taking the losses also as a positive figure) as in the case of futures, that would constitute the turnover.)
TK, calculation of turnover is a grey area and there is no clear guidelines on this, with people having different views. I think the best to follow now is to add up settlement profits and losses, plus add up the total sell value of premium.
Thank you, Nithin.
Turnover calculation – Futures
I understand that the turnover calculation here is sum of settlement profit and loss. But,
1. Should I follow FIFO method, like we do for delivery based trading? Even when doing intra day trades in futures? (I guess it doesn’t matter whether it’s over night holding or intra day when trading futures)
Eg:
NIFTY bought 1 lot @ 7000 and another lot @7500 and sold both the lot @ 7400.
Turnover:
FIFO method – 25000/-
(Lot 1 = (7400 – 7000)*50 = 20000 (Profit); Lot 2 = (7500 – 7400)*50 = -5000 (Loss))
Normal (average price) Method – 15000/-
(Buy = (7000+7500)/2 = 7250; Sell = 7400; (7400-7250)*100 = 15000)
Turnover calculation for futures is same as intra day cash, I was told. If this is correct, my gross profit/loss for the year is equal to my yearly turnover, am I right here?
If you ever made a loss, your turnover will always be more than net profits. If you ever made a profit your turnover be more than net loss.
The turnover is calculated on a contract-by-contract basis and then added together. your first calculation is correct (and not just because of FIFO method – which is the legally mandated method anyway)
the second method clubs two separate transactions together; for P&L it doesn’t matter BUT for turnover it will always understate the numbers and is the WRONG way to arrive at the results.
Yes you can use the normal method, note that there are no clear guidelines on calculating turnover. You can follow this method and do consult a CA o this.
Hello Nitin,
How to get Balance Sheet and P/L statement from backoffice ?
under NSE Futures & Options tab, it is showing till date eventhough i give date range from 01/04/2013 – 31/03/2014
Login to our new reporting tool Q, we have a tax ready statement there.
Sir,
Just for general knowledge I would like to know what are the documents apart from Balance Sheet and P/L statement that an Chartered Accountant is required to file? I trade only futures. Thanks
Karan
That and your bank statements.
Hello Nitin,
I have one question, in the financial year 2009-2010 i made 50,000 profit in f&o trading. unfortunately as i have lost job for that financial year and i did not file returns, employer was deducted tds of 1.2 lacs. since then (2010-2011,2011-2012,2012-2013) i am not filing returns as my income is nil. is there any problem for me if i neglet those financial years and file returns from current financial year on …
Dear Kumar
I know somebody in your situation, they got an income tax notice for non-filers last year (if you search the internet you will find several such people).
If you have a taxable income (i.e. gross income over Rs. 2Lcas) then you have to file return. In some of the years you have mentioned you have to file return if you have a credit card etc (AIR requirements)
You can’ file returns more than 2-years old so for this year and last year you can file but not before (somehow the tax dept. website is showing for one year older – file immediately in my opinion)
Non-filing is punishable with heavy penalties and, if you end up in court, imprisonment.
Hello Vinayak,
thanks for your prompt reply. i have income only for the financial year 2009-2010, for which i have form16, in jan,2010 i have lost job. As i have lost job, in depression i did not file returns. from there no taxable income for years 2010-2011, 2011-2012, 2012-2013. in 2013-2014 i have made profit in f&o trade around 6 lacs. here i suppose to file returns only for 2009-2010 for which it is not possible as it is barred. for the year 2013-2014 i am going to file returns this year
you don’t have to file for the other years but make sure you file now
For 2009-10 my suggestion is talk to a CA; compute your taxes for that year anyway and in case there is any liability then pay that with interest – just in case the IT department does initiate any procedings against you, almost all the penalties are calculated on the basis of tax-loss to the department
For 2009-2010 year, we can not file returns now right? unless we have notice from incometax department. i have not received any notice from tax department. my pan address is old one, may be it went to old address if they have initiated notice. how do i know now whether they have served notice to me?
if you go to incometaxfiling.gov.in then you can check if there is any demand notice in your name – if they inititated procedings and generated a demand notice it may show up her if you had registered at some point.
FY10 is now time barred, but talk to a CA – he might be able to help you via his contacts. In that year returns were still primarily filed in paper, your CA may be able to file using his contacts in the tax department. He may suggest some other remedies as well.
Most importantly compute taxes and penal interest (if any) for that year till date and pay up till today. You can pay online whether you can file returns or not.
This way even if proceedings are initiated sometime in future, your liability wil be limited to the non-filing penalty of Rs, 5000 and chances you will be prosecuted will be diminished. Non filing is punishable by 3 months in prison if the matter ends up in court.
Hi Nithin,
Thanks for putting up this very helpful blog.
I am a salaried employee and have been doing Intra Day and short term trading (holding of less than 1 yr)
I have made profits of nearly Rs 5000 for Intraday and nearly Rs 35000 for short term gains for the past year.
My total turnover is nearly Rs 16 lacs for intraday trading and Rs 22 lacs for short term trading.
I do not do F&O trading except for 1 transaction in the past year where I made losses of Rs 1600.
I am confused with the following questions:
1. Can I pay tax for the gains via ITR1 or will I need to fill another form?
2. Do I have to declare myself as trader? I am mostly an investor, but indulge in day trading about once a month. I have only 13 intraday transactions for the past year.
3. Can the loss I made in F&O be offset against the profits in Intraday/Short term gain?
Thanks & Regards
Bhavin
1. No you cannot use ITR1 and since you have done intraday trading (considered as a business), you will need to use ITR 4 or ITR 4S
2. Yes, you will need to declare yourself as a trader or business.
3. Until now, intraday trading was considered as speculative and hence intraday profits could be netted off against intraday or any other speculative losses either the same year or you could carry forward. But in this budget, FM has given the provision that if you are trading as a business you can net it off, but this will be valid only from next year.
[…] to send across to the CA. If you have tax related queries, please visit our popular post “Taxation Simplified” or visit “Trading […]
I am a salaried individual, last financial year i traded in intraday cash equity and future option and acquired a loss both in speculative segment and future-option segment, my turnover is less than 1 crore and total loss is around 1.5 lac, if i want to carry forward these losses , is it mandatory to get my accounts audited by a CA and then file? Kindly help.
Yes Somtirtha, you will have to use the ITR4 get your accounts audited by a CA to carry forward your losses.
HI,
First of all Thank you Nithin Sir for starting such a lovely blog.
It’s really very helpful.
I would be very thankful to you if you could clarify the following :
I am a trainee in a professional firm and earning Rs. 36000 a year. I have just traded trading and actively do trade in equity shares only ,both in Delivery and in Intra day segment.
suppose if i have made a loss of Rs. 20000 in intra day and Rs. 10000 profit as Short term capital gain.
1) Am i classified as an investor or Trader??
2) As my total income is under exemption limit . Am i eligible to carry Forward the losses??
3) Do i need to file a return for claiming Losses. If yes then which Return i should file??
4) What will be the maximum amount of loss that i can claim to be carry-forward. ??
1. If you are doing very active trading, it is best to declare yourself as trader.
2. Yes if you have losses, you can carry it forward.
3. Yes you should file a return to claim losses, ITR4
4. You can carry forward all your losses and expenses, no limit on it.
Whoaa.. This is fast.
Thanks a ton for replying back.
Just wondering that if I do carry forward my losses and in next assessment year if I’ll have profit in intraday let’s say 20000. Then would I need to set off my losses against it.
Or can I voluntarily carry forward the losses to the next assessment year.??
(as whether or not I’ll set off the losses, my total income will remain under the exemption limit)
I hope the question is clear to you.
Plz answer
And Thanks a lot once again.
You can voluntarily carry forward the losses until your income goes above the exemption limit. But what you need to note is that if you are using ITR4, you will need a tax audit to be done in case your profit is less than 8% of the turnover. You can check this post.
This is in continuation of query by fahi. I’m a salaried employee and doing to intraday and delivery equity trading. And got loss in intraday, which is more than the gain in delivery trading. Which return should I file. The losses in intraday can be adjusted against the delivery pofits.
You’ll have to file ITR-4; also you’ll need to get your accounts audited (related to your “business” of intraday and, unless you did delivery based from a separate account, the delivery based as well) if you are declaring loss
Intraday losses are speculative – I’m not sure they can be setoff against delivery based (which is either an investment of a non-speculative business) Others can point that out
Nor do I think should you try to set them off – the tax on yur delivery based trades (if you declare them “investments) will be 15% to 0%; while the speculative business losses can be setoff against speculative gains next time (30% tax)
Hi Zerodha,
I am Salaried person and have transaction in Equities and F&O; I am going file ITR 4 (FY 2013-14) So far I have not shown the trading details in ITR. But this year decided to file in ITR 4 along with my Form 16.
I have loss in F&O as well as in Equities (Short term and Long term). Question is whether Shall I show all the losses in Equities and F&O as Business loss or Should I show F&O loss as “Business loss” and Equities as “Capital loss”. Please suggest.
FYI: Losses in F&O 5.5 Lakhs; Short term losses 2 Lakhs; Long term Losses 8 Lakhs
Thanks
Venki, you seem like an active trader so my suggestion is to show all your trading activity (equity and F&O) as a business. So you will ahve 5.5+2+8+(any other cost incurred for your trading) that can be carried forward for 8 years and can be used to set against any business profit that you make in the future.
Thank you, Nithin
I would like to show as “Business loss” to get benefit of carry over the long term losses. However, I would like to ensure this should not be an issue in future.
Please see the below mentioned link which guides me to show as capital loss.
Thank you very much for your response and interest shown.
http://www.caclubindia.com/experts/declaring-losses-1780829.asp#.U7llzPmSxy0
Venki, It is best to consult a CA for this, since not everything is written, there could be many views on the same thing. But yeah, if you are declaring yourself as a trader(trading as a business), you can declare long term losses also as business loss. But the point here is that if you are declaring this year as a trader, you cannot suddenly claim exemption on your long term gains next year, you have to stay consistent.
If income salary is 8-9 lakhs and net losses in stock market (cash and options) and commodity market futures is about 1 lakh, can this loss be used to reduce the tax liability by about 20,000? What is the form prescribed by the IT Department in this case? I am referring to annual net losses during the previous AY after adjusting negligible profits from delivery trades and one or two nominal gains from shares held for more than a year. Or will it make more sense to forego this benefit so that the IT return can be simpler and there will not be any queries from the Department? Though there is nothing to hide, it looks prima facie beneficial if I take into consideration the time that will be lost in explaining to the AO and providing documents? Thanks in advance for the explanatory replies that you have been giving so far.
Lakshmi, firstly you cannot adjust the losses from trading(business) with your salary income. You can adjust this only to any other business profits of yours in the next 8 years (rental income, income from other sources, or profits if you make in the future), so even if you have nothing to adjust this to today, you can carry forward and adjust it in the next 8 years. Profit or losses, you will still have to declare, because if you don’t there are chances that you might get a notice in the future and have to pay taxes based on your turnover.
Thank you very much for the informative reply sir. However, I could not understand why losses should be reported since there is no tax liability. There is no hurry. Please reply as and when you find time. Grateful thanks to you. May God bless you.
🙂 Lakshmi, that is probably the biggest notion most people have, “if there is no income no need to file taxes”, irrespective of you make profits or losses, you have to file your income tax returns. If you don’t, there is a risk of getting a notice from the IT department and an eventual penalty.
Cheers,
Isnt it true that people with less than 5 lakh salary income do not need to file returns? It does not seem applicable to people with business income though
hi
sir when we open zerodha P & L
1. if total payable +total recievable= turnover
2. suppose turnover will become 20lk profit 2lk which is more than 8%.(no audit required)
whats amt of tax i hav to pay.if as individual 2lk income is tax free or any other slab rates apply.
thx
Whatever you earn from trading has to be added to any other income of yours and then tax paid according to normal tax slabs.
Very nice explanation. Thanks Nithin
Dear Nithin
I am a long-only investor and and almost exclusively do delivery based trades (which almost all of them I then keep for at least a year – except when it makes sense to sell early because of risk of losses)
Recently I was trying to buy 300 stocks of company X and by some miscalculation (I though they are 50k worth, they were 5Lacs worth) I made an order for 3000 – I sold about 2500 immediately (at a very small loss) but this then created an intraday trade.
My questions are:
1. Is it possible for me to declare myself an “investor” for tax purposes even despite the unfortunate trade above? I never go anywhere near F&O and this is the only non-delivery trade I have.
2. If the above is not possible then is it possible to treat only the speculative trade as business income (I shall declare presumptive income; the loss was a few hundred rupees) – can that then attract full 30% slab (thanks to my salary that is the marginal income tax rate on “business income” for me) even on my long-term investments? OR can an individual be an “investor” for some of his deals while “trader” for the others?
Vinayak,
1. Yes you can show yourself as an investor and keep that 1 speculative trade separately. But since you have done this speculative trade(intraday/speculative is part of business income), you will need to use either ITR-4 or ITR-4S. e
2. Yes, I think it makes sense to declare the business income as presumptive and declare 8% of your turnover as profits. Since this was an intraday trade, your loss of say Rs 500 was your turnover and if you are declaring 8% of this, then only Rs 40 is added as income and tax on this is 30% which is around Rs 12 and shouldn’t matter.
Your long term investment can still be shown under the capital gain head in ITR4S and you would need to pay only 15% of profits on Short term and Nil on your long term trades.
Do consult a CA once,
Cheers,
Dear Nithin
I talked to the finance manager in my company (I don’t think he is a CA, but he also dabbles in stocks; since he takes care of payrolls also I usually get his help in filing my ITR).
His advice was to not mention the transaction at all in the returns – he says this might invite scrutiny of accounts and since the transaction was done from the same account with which I do investments (apparently there is some guideline/rule from the tax department that trading and investing should be done from two different accounts) the AO will have wide discretion – and they have been known to misuse that discretion.
I’m very unwiling to NOT do the lawful thing here, so here’s one question for you:
I know that if someone buys or sells even one contract in F&O then he is treated as a trader for tax purpose – is that the same rule of day-trading?
Yep, similar to F&O even day trading in equity is considered as a business and same rule applies.
Dear Nithin ,
A Big Thank You for creating this detailed blog. It’s a blessing for small traders like us 🙂
I would be grateful if you could clarify something for me:
I only trade Equity futures and my total turnover is 64 Lacs and net profit is 6.1 lacs which is more than 8 % of the turnover.
Now can i file ITR 4 under No Accounts case ? if not can I file ITR 4S ? Or is it mandatory to fill up Balance sheet and P/L account also.
Thanks & Regards.
Congrats on the profit Wilfred 🙂
Yes, you can file under no accounts case and no need of balance sheet or P&L.
Cheers,
Hi Nithin,
Thank you for your efforts. My case is similar. I have F&O profit of more than 8% of my turnover. I have profit of 18000 on turnover of 1.6 lakhs. I paid 20% tax on it. Mine is no accounts case.
But I forgot to mention my gross receipts (F&O turnover) in my returns. I only filled up profit column. Is this ok or will I get a notice ?
Any help will be appreciated.
Mark, ideally you should revise the return and add this also, chance of you getting a notice is very very very slim. 🙂
Hi Nithin,
I have one query regarding calculating turnover in case of options .
Determination Of Turnover
For derivatives transactions, the following are included in ‘turnover’ for purposes of tax audit under Section 44AB of the Income Tax Act, 1961:
■ Total of favourable and unfavourable differences;
■ Premium received on sale of
options; and
■ Difference in respect of reverse trades entered into
Case 1 : I sold 1 lot of X stock @100. So premium received in this case is 100 and at expiry value becomes 0 so my turnover here is 100.
Case 2 : I sold 1 lot of X stock @100 and received premium of 100. Later i entered reverse trade and covered it @50 . So Difference is 50 which is my turnover .
Please let me know if my understanding here is correct .
Please keep up doing great job of helping with Queries ..
//Thanks
Rajesh
Rajesh, this turnover bit is a very grey area as there is no clear regulation on calculating it. Here is what we follow
case 1: Premium received on sale : 100 Favorable difference (profit): 100 , so turnover is Rs 200
case 2: Premium receive on sale : 100 Profits: 50, so turnover is 150
ok sir i read the blog throughly and found that turnover is total profit plus total losses made in a year. So i m coming under no tax as total profit plus total loss is not more than even 1 lacs. But as u say i do not need to pay tax put file my return so i want to ask is it mandatory to file return even if we dont earn more than 2 lacs?
And what will happen if i didnt file my return when income generated is less than 2 lacs a year? Will i be charged for not filing?
sir i have one doubt. Do no income person need to pay tax. See i am a engineering student with no income but i do day trading. My account with zerodha had been opened since october 2013. Till october upto now i have not made huge profit as much as i remember my total profits must not have crossed even 1 lakhs as my trading capital is very small. But as i do day trading using MIS so my total buy price and sell price are quite high. I thing i bring to your notice some time i trade Nifty futures 2-3 times a day so i am sure till october my total turnover must have gone up more than 2 crore. But i dont have any income nor i have generated profits more than 1lac. So do i need to pay tax only for turnover exceeding 2 crore and one more thing how to know what is my total turnover till now?
Praveen, do read the blog once again. You have to pax taxes based on your income and not turnover, turnover is just to determine if your books need to be audited. IT slab in India, no taxes upto 2lks of income. So if your profits for the year is less than 2lks, no income tax to be paid. But no income tax doesn’t mean that you need not file your returns, you have to file your returns on time.
Nithin, is the tax ready P/L feature available now?
Sadhwin, by tomorrow it should be ready.
Hi,
This is Punith, i still have a doubt, normally i trade in commodity as intraday buying and selling in same day with base metals and i made a profit of 19Lac from 2013-2014, Now as im really confused with the taxation, pls help me and let me know how many percent should i pay as tax is it 15% or 30%
Punith, your income is considered as a business income, so this needs to be added to any other income you have and then taxes paid according to the IT slabs. Assuming you don’t have any other income, upto 2 lks no taxes, 2-5lks 10% , 5-10lks 20% and >10lks 30%. So for 19lks your taxes would be: 0+30k+1lk+3lk = Rs 4.3lks. But note that since it is a business income, you can take benefit of all your costs to reduce your tax liability. Read through some of the posts above.
Cheers,
is P/L statement alone enough? my auditor tells me that accounting also must be done with proper date of purchase and sale. he say that this is new rule, earlier P/L alone was enough to compute tax, but now proper accounting needs to be done. how true is this?
You need to get your books audited in case your turnover is over 1 crore or if your profit is less than 8% of your turnover (in case your turnover is lesser than 1 crore). The second bit is a new regulation under section 44AB and hence your CA must be asking you to maintain proper books.
Hi
Just to know as a beginr,
To take the advtge of carrying frwd my F&O & Cash intraday lose incurred in FY 2013-14, I should b filling my return on or b4 31st July/2014 (unaudited) OR 30th Sept/2014(audited).
Plz correct me if m wrong. I really need to know it.
Thnx!
correct.
nithin, i notice that date of purchase/sale is not in the P/L that i generated from BO. aren’t dates important?
Sumit, on our new backoffice “Q” (bo2.zerodha.com) that we are launching on next wednesday we will have a capital gain report. For F&O the date of buy/sell doesn’t really matter for taxation, you are filing returns based on net profit/loss for the year.
For equity it is required to determine if it was a short term gain or long term. So the new taxation P&L will come with a capital gain report. Give it time till wednesday/thursday.
one more question sir. suppose i purchase sbin at 2580. but if we add tax and brokerage, my purchase price becomes 2583. so in accounting i have to show purchase price as 2580 or 2583? thank u
Yes 2583
sir i have question regarding accounting. i am creating new ledger in tally only now. so in tally, i must create Zerodha as ledger under sundry creditor or sundry debtor or something else?
second, my auditor say we must show scrip as a product, so if i trade DLF, how to show DLF as product in tally? thanks for help
Hi, I have a question about how to offset gains for this year against previous year’s capital losses in ITR2. Will appreciate any help. Here is the situation (hypothetical numbers).
1. I had short-term capital losses in 2009-10 for Rs 2 Lakh.
2. I had Short Term Capital Gain for Rs. 50K in 2011-12. In assessment year 2012-13 I filled sheet CFL in ITR2 as follows:
a) Assessment Year (2009-10): STCL = 200000
b) Adjustment for losses in schedule BFLA: 50000
c) Total losses carried forward to the future: 150000
3. Now in 2012-13 I have short term capital gains of 75K.
How will I file CFL for 2014-15 returns? Is it like below?
Or should STCL for 2009-10 be Rs 2L only and the fact that I have adjusted 50K already be shown elsewhere? If elsewhere, then where?
a) Assessment Year (2009-10):
STCL = 150000
b) Adjustment for losses in schedule BFLA: 75000
c) Total losses carried forward to the future: 75000
Thanks
Mithun
Mithun,
You have every year brought forward losses(BFL) and carry forward losses(CFL). So in 2011-12, you had BFL of 2lks and CFL of 1.5lks (as u adjusted 50k of profit).
In 2012-13, you have gain of 75k more, so your BFL is 1.5lks and CFL is 75k.
This BFL sheet has to be filled properly, and i’d suggest you to consult a CA on this.
Hi Nithin,
I have loss in Short term and profit in intraday and F&O . i have few queries as below :
(1) I have turnover of around 6.5 lakh in intraday and F&O and profit is more than 8%.
(2) I have turnover of around 89 lakh in short term and net loss of about 2.5 lakh.
Now to avoid tax audit , can i declare 8% profit after deducting expenses in business (considering intraday and F&O as business) and pay tax for that and carry losses in short term for next 8 years in capital gains sheet of ITR4.
Will this create any issues or i can do it this way to avoid tax audit .
Thanks
Rajesh
Yep seems like a good idea and shouldn’t create any issues, but do consult a CA.
Hi Nithin,
I have income from salary, Bank FD interest and Trading losses. Trading component is includes Equity, Mutual funds and F&O. I have last 3 years losses , need to carry forward for next 8 years.
1. Which ITR(return) form need to file? I tried 4S, but there is no entry for carry forward losses component.
Thanks & Regards,
Venki
Venki, firstly if you have not filed your returns on time, you cannot carry forward your losses. So now you can choose only for the last year, but it would be advisable to filed delayed returns for the first 2 years if you haven’t already done so.
ITR 4S is for showing presumptive income, that is if you are declaring profits at 8% of your turnover to avoid tax audits.
ITR 4 has to be used if you want to carry forward your losses.
Thanks.
I tried to download ITR-4 Excel utility, not available in income tax site. What’s the last dates for returns in AY2014-15? Where can i get ITR-4 Excel utility or need to apply physically?
Venki, you will have to wait till it shows up on https://incometaxindiaefiling.gov.in/ , last dates without audit is July 31st and with Audit is 30th Sept.
I had posted a query here yesterday evening and could not find it now. So I am repeating it.
I wanted to know how to calculate turnover for intraday equity trades. Is it the same as that of futures i.e sum of profit and losses? For delivery based, I understand it is purchase value + sales value. But for intraday, I am assuming it is sum of all the profit and losses. Else even for a small trader who uses margins, the turnover would run into many crores.
Thanks!
Amit, yes like futures for intraday also it is sum of all profits + Losses.
For delivery based trades only the sales value can be considered as turnover (buy value need not).
Nithin,
You have defined turnover as settlement profits and losses in the trading account. Is this contract wise or trade wise? Suppose I have done multiple trades in the same contract. Do I need to add up the individual losses and gains or will it be the overall loss or gain from the contract?
Example , suppose I did 4 trades in Nifty December 2013 contract with results +20, -5, +10, -15. Will the turnover be 20+5+10+15 =50 or will it be 20-5+10-15=20.
The backoffice report on Zerodha seems to follow the second method.
Amit, most brokerages follow the second method which is contract wise including us. But technically speaking it is tradewise, and our new backoffice will give you a tradewise turnover statement and a complete tax ready P&L, we should have it up by the next weekend.
Thanks for your response
Most important is what the tax regulations say. Obviously the turnover will be much higher using the first method so it is important that there is complete clarity on this.
I am hoping that your new BO will be out in time to assist us in preparing tax returns
Nithin, In the new BO P&L reports, is the turnover calculated trade wise or contract wise?
Amit, http://www.caalley.com/gn/30357dtc19988.pdf has a little bit of guideline on turnover it says, total of favorable and unfavorable differences plus premium received on sale of options plus difference in respect of reverse trades entered into. So our turnover calculation will be based on this and not trade wise.
So for options, it will be sell value of options , plus sum of profits and losses contract wise. For futures it will be sum of profits and losses contract wise.
Hi,
In last financial year, I sold stocks which I held for more than a year. I had a profit of 20000 Rs. My questions are that,
1) Since it is long term capital gain on stocks, tax should be 0. Then should I declare this long term capital gain while filing income tax return?
2) If yes then which ITR form I should use to declare this long term capital gain?
3) Where in ITR form, I can declare long term capital gain? I don’t see any place either in ITR-I or ITR-II to declare long term capital gain from stocks.
Any help is welcomed!
1. Yes you need to declare
2 & 3. You need to use ITR II, there is a schedule EI (Exempt Income), declare the gain under that so that no tax is calculated on this.
Hi Nithin,
Thanks for help and quick reply. It really helped. Thanks a lot. 🙂
Dear Nithin Kamath,
I have one query related to the Tax Audit requirement by CA under income tax section 44 AD. I have done share trading under short term , intraday (Speculation ) and Future & options as well. I have earned profit in intraday (Speculation) and Future & options while i have made losses in short term trading. Net of all is loss. Approximate figure are given below (without considering STT ,Brokerage etc) .
Total turnover is less than 1 crore so i didn’t fall under Section 44 AB and not liable to get Tax Audit done by a Chartered Accountant mandatorily.
Short term (loss ) = -246024
Intraday (Speculation) (profit) = +30262
F & O (Profit ) = +105295
Net loss = – 110,467
Now as per Section 44 AD , The assesse is bound to get the books of accounts audited, if the following two conditions are satisfied:-
1. His profits and gains from the eligible business are lower than the profits and gains i.e. his net profit is lower than 8% of turnover.
And 2. Whose total income exceeds the maximum amount which is not chargeable to income-tax.
I am a salaried person and falls under 30% TDS bracket.
In my case, i am in a net loss so is it necessary for me to go for Tax Audit requirement by CA? .
I am a bit confused, you earliest reply on this will be highly appreciated.
If i need to go for audit, i will again end up paying 15-20K as Audit fees to CA which will again add to my losses.
Yes Jitendra, I’d advise you to go meet a CA and get your books audited, many people have received notices this year for not doing so.
You can also declare 8% of your turnover as presumptive profit and pay taxes accordingly, but this will make sense if your turnover is in a few lakhs. When I say Turnover, I mean settlement profit + Losses and not contract turnover. So assume if your turnover is 1lk, you can declare that 8k is your trading profit and pay 30% of this(the tax bracket you are in) as taxes and avoid audit. But this will stop making sense if your turnover is over Rs 10lks. So do speak to a CA and decide..
Hi Nithin,
I have income from salary. I started trading and investment in both Equity and F & O. Last financial year (2013-14) I received 6K loss in F & O, similarly some amount loss in equity (3K). I already filed my ITR but not sent yet. My question I filed my normal ITR 1 as previously I was doing. Should I file again to show my loss of 6K and 3K. Also, my other question do I need my bank book get audited. If I don’t want to claim the loss then what I should do. From this year I am little alert for my loss.
Last but not the least , can you suggest the CA from where I can discuss my case.
Thanks
Rajesh M
Rajesh,
You can try taxiq.in,
If you are doing F&O trading, you need to use ITR4. So yes, I guess it will be best to refile after discussing with a CA.
If you don’t want to be audited, one of the ways could be to show your profits as 8% of turnover (settlement turnover, which is sum of settlement profits and losses and not contract turnover). So if your turnover is 5lks, show 8% of 5lks which is 40k as profits and add it to your salary income and pay taxes accordingly. This way you can avoid an audit, and you will need to use ITR 4S. Do speak to a CA once.
dear sir
1-a very good morning
2-quote”n Compliance of the provisions of this act shall attract Penalty under section 271B of the Income Tax Act. If any person required to get his audit done under section 44AB fails to do so before the specified date shall be liable for penalty of ½% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000″
3-my query is penalty is .5 percent of turnover for not getting tax audit done.how do one define turnover in tax audit case?is it the turnover the summation of turnover from derivative+intraday?or shorterm capital gain and income from salary is also added to the turnover while calculating the penatly for not getting tax audit done?
regards
Income from salary is not considered as part of turnover. If you are showing F&O turnover and your capital gains separately then only F&O turnover is considered as turnover. But if you are showing all F&O trading and equity as business income, then you have to consider both equity and f&o as part of business turnover.
Plz confirm if my understanding of the following topic is correct.
1-If I trade in F&O my income would be non speculative business income.
2-If I daytrade in cash such income would be speculative income taxed@ 30%.
3-My Turnover is the total of all profits and losses in F&O.
4-if my turnover exceeds 10 lakhs, then I need to maintain books of accounts and if it crosses 100 lakhs then I need to get the books audited
. I hope I m right on the first four counts.
Now doubts. 5- can I have more than one business income? as in, can I trade in F&O as well as carry on a (for ex) a textile business.(proprietary concern) Will both be considered as business incomes?
6- can I maintain separate books of accounts for both?… and what is the criteria limit for auditing then?
1. Yes
2. Day trading is considered speculative business, so the profits needs to get added to all your other income and pay tax according to the bracket you fall in.
3. Yes, settlement profits and losses.
4. Yes, it is best if you can maintain book of accounts if you have any kind of turnover on F&O.
5. Yes you can have more than one business income. You need to combine income from all your businesses and then pay tax accordingly.
6. You as an individual will have only one income, which is a sum of all your income.
I have started a new trading account under my HUF,
1- if i trade in futures ( which will be my business income), can i alongside invest for the long term in equities? will such LTCG be added to my business income of futures?
2- can a firm be created under HUF proprietorship to trade in futures, and can the same firm also be involved in giving portfolio advisory services?
someone suggested me that we cannot have a service providing firm under HUF,( but i cannot do it in my individual account as i have substantial income in it.)……….. is this correct?
1. You can invest and trade F&O at same time, but make sure to not mix this up while filing your returns. Clearly demarcate the long term investments and related STT’s, brokerage, etc from F&O trading.
2. Yes you can create a firm under HUF to trade in futures. Yes, the same firm can also be involved in giving portfolio advisory services, but like you said it is a firm. If you are the only individual in the firm doing everything it will seem like all of this activity is done more with the intention of reducing tax liability which should be ideally avoided.
The PL account which can be downloaed in Zerodha gives a net figures ( total buy & total sell). In addition it also gives the brokerage and other charges separately. Say for example if my loss is 30000 INR for the year, putting togeather with the expenses of 10000 INR, I can show 40000 INR as loss..for the year for Income tax purposes..is that right?
Or can I plainly reduce the expenses from the calculation as they are the expenses along with EB, Telephone internet etc..
2nd question
1. Can I show my trading as a separate business in the IT submission, thus claim expenses for computer,internet, EB etc?
Add all the brokerage,STT and other such expenses to all your other expenses that you incur while trading.
Yes, if you are an active trader, you need to file using ITR4 (trading as a business) and you an show all such expenses like computer, internet, rent if you have an office etc.
I’d suggest you read the blog and also many questions above, a lot of them have already been discussed.
Dear nitin
1-A very good morning i have one last query would be obliged if u could solve it to d best of ur knowledge
2-my broker allow me to take delivery in t+5 days.i have read a post yours in oder blog where you have mentioned that positions kept overnight are not intraday positions and are treated as delivery trade.
3-my question is i make position in t+5 days and keep position for 4 days and den square off my position with gain without taking delivery of the same
4-would my profit come under short term capital gain?i enquired my broker he said dis profit should come under capital gain but i dont trust him so need reply from you to the best of ur knowledge
thnx in advance
Hemant, If there is no delivery of the underlying it is considered as speculative business (like intraday trading). So as long as you are taking delivery of the stock and selling (T+5 or otherwise) it will come under capital gain, if not as speculative business.
Cheers,
Thanks for a nice blog. Very useful.
I have 18L LTCG and 5L STCG and loss of 70K in commodity/forex (f&o turnover of 2.5L). I did F&O for a short time (just tried/experimented), otherwise i am an investor holding stock for long term and no intraday trading.
If i club all above as business income, i end up paying huge tax on my LTCG+STCG. If i write off my 70K loss in F&O and not show in tax return, is it ok as i would end up treating LTCG+STCG as capital gains and not business income?
You can write off, but not showing this F&O trading while filing your returns is not alright. I’d suggest:
1.Use an ITR4, Show F&O trading under business income head and Equity income under capital gains. Since there is a loss in F&O, you will have to get your books audited (profit less than 8% of your turnover).
2. If you want to avoid getting your books audited by a CA, use ITR4S, show 8% of your turnover as presumptive profits (even though you are making a loss) add this to your income and pay taxes accordingly. Note that by turnover I don’t mean contract turnover, have explained in a few places above. It is sum of all settlement profits and losses, since you have done very few trades, my guess will be that this turnover will be very less and 8% of this turnover would be quite small.
Do consult a CA
Dear Nitin,
At first thanking you for your this initiative.
I have following querry
1) I Am an NRI having NRE demat account , and an investor, holding the shares for more than an year.
Am I still liable to file the returns?
2) IF I have to file the looses or profit in a financial year….as per my understanding, u can file for profit or losses only if you re selling your holding…. should I have to file for the losses and gains, even if I haven’t sold my holding?
3) You blogs needs to thorw some light on the Taxation for the NRE Demat – misc trading option – for short term and capital gain.
dear nitin
1- this was indeed very helpful one more query
2-i am salaried investor
3-i do delivery based buying in which shortterm capital gain will be apllicable
4-i do few intraday in which though i acquire but i will show more den 8 percent of gain to avoid tax audit
5-i dont very few derivatives there too i shall shod 8 percent profit of d turnover to avoid tax avoid
6=which itr form should i be using?
7-thnx in advance\
regards
ITR4 or ITR4S
either of itr4 or itr4s can be used?please specify which one out of two as i dont want tax audit to be done to my account?your blog has made my day
regards
My bad Hemant 🙂
If you are showing presumptive income (8% of your turnover), then you need to use ITR 4S.
If you are not showing presumptive, use the ITR 4 form.
Cheers,
Unless you have booked the profit/loss, there is nothing to declare as such and hence no need to file returns. Yes will try putting something up dedicated for NRI/NRE
dear sir
1-i have turnover of 50 thousand playing intraday in AY 14-15
2-also i have turnover of 50 thousand playing futures.i acquired loss of 5000
3-am i liable for tax audit in any case mentioned above??
4-my second query is how do i find if i am trader or investor? is it income tax official discretion?is dere any thumb rule regarding the same?
5-good job keep it up!!
Since you have traded F&O and your turnover is less than 1crore, you are liable for audit, but with very little turnover you have done it probably makes sense to declare 8% of your turnover as profits (around Rs 4000) and pay taxes on this Rs 4000 after adding it to your other income. This way you will save on the audit fees that a CA might charge. But do consult a CA before taking any decision.
The F&O part of trading is always considered as business, so hence you are a trader. The equity part, there is no thumb rule as such, it is your prerogative, with your kind of turnover I’d suggest to consider yourself as investor when it comes to equity.
dear nitin
1-thnx for the earlier information
2-i have done 23 intradays trade in entire AY2013-14.My total turnover is 10lakh whereas i acquired loss of 1.5 lakh. which is way below 8 percent profit.my query is am i liable to tax audit in dis particular case too?? does this 8 percent rule applies for intraday trading too??
3-i do multiple delivery trades in a given assestment year and i make sure i do take delivery.i have read somewhere when a delivery is taken short term capital gain comes into play?how true is that?
4-so my summary is i have done mutliple delivery trade ,13 intraday trades and 5 futures trade in AY13-14 i would be considered trader or investor?
5-i am senior citizen with fixed salary and though i do multiple delivery trade but i hardly do intraday or futures.would dere be any harm if i choose my self as investor and file my return
thnx in advance dis blog is just awesome
regards
Hemant
1. Intraday trading is considered as speculative business, and since it is a business you will technically have to get the books audited if your profit is less than 8% of the turnover. Another work around of avoiding tax audit is to declare your income as 8% of 10lks (which is around Rs80,000) and then add it to your other income and pay taxes accordingly. But do consult a CA on this.
2. Yes if you do delivery trading with a holding period of less than 1 year, short term capital gain applies which is 15% of the profits.
3. I’d suggest you to consider your equity trading as an investor, your F&O trading anyways has to be shown as a business(trader).
4. As explained above
Cheers,
[…] Filling Tax is important and bit difficult task. Zerodha has written very good article which will clear all your inquiries about taxation and its calculation…..Read More […]
Thank you so much Nithin for replying to my earlier question. I have just one more question please. If I want to show that I have hired a family member for assisting me in my trading business, what sort of documentation do I need to maintain?
If you are paying salary to a family member to assist you, make sure that such payments are done through the bank account, that should be enough.
Dear Nithin,
Suppose in financial 2014-15 year I start F&O trading with a capital of 10L and I make a profit of another 10L. Now in March 2015 I purchase futures for the month of May 2015 that require 6L of margin. Now will that be considered a reinvestment of profits and bring down my tax liability for the 2014-15 financial year?
Birender, when you trade futures, margin gets blocked in your account and not debited, so technically nothing gets reinvested. In this case, the best way is to look at the profitability of your open futures positions as on closing price of 31st March 2014.
Hopefully clarifies..
Hi Nitin,
a. If a Govt employee does share trading by opening demat account in any relative’s name like mother, son and he is the nominee of the account then the does not have any tax liability for trading. Also he does not need to submit any disclosures to his company. Am I correct?
b. Also in this case if the relative’s income from share trading does not exceed 2 lacs annually then he/she does not have to pay any tax.
Yep, nominee doesn’t have any tax liability. But there are certain companies where you are supposed to declare trades even if executed in your immediate family, so you will have to double check on that.
Yes, if under 2lks no need of paying any tax, but you will have to file the returns though.
Hi Nitin,
Can you please tell me whether a Central Govt employee can do share trading and mutual fund investment or is it prohibited?? If Yes is there any limit for the trading and investments??
No there is no such restrictions that I know about, but yeah there might be some disclosures that you would probably have to make in case you are trading stocks for the company you work for or in case you have access to any sensitive information through your work.
Nithin Sir,
can you please clarify whether the losses out of intraday trading and derivative trading can be set off from the interest earned on fixed deposits in the same year
If you are talking about Intraday trading in Equity, it is called speculative loss and can’t be set off against any other income of yours, but all your derivative losses is considered as a business and can be set off against any other income (other than salary) of yours including the return from FD.
Hi Nitin/Team
Thanks for your service.
I have some questions,
I am a private company salaried person.
I traded about 10 company equity shares last year. I plan to sell those next year. In which one share I sold within one year for LOSS. I definitely don’t sell any share for profit with in a year.
The company which I am working, they deduct tax from my salary and I get Form 16 by june every year from company finance team.
Q- I am thinking to declare me as a investor. So during filling ITR form1 what are the documents required (I have Profit Loss statement from Demat account provider) and is it required to inform my company finance team about this filling.
Also Please provide the website for online filling
Your useful reply highly appreciated.
Thanks
RSRRSR
RS,
You cannot use ITR 1 because it is only for salary income and doesn’t have the option of income/loss under capital gain, which is required for an investor to declare.
You will have to use ITR 2, the P&L from your broker is good enough and yeah there is no need to inform your company about this. You can have a word with TaxIQ, they are helping us maintain this post on taxation.
Cheers,
Cheers,
Hi team,
I have been a investor for last 7-8 years, but in fy 2014 I started to do swing trade & intra day trading. and also sold most of my long term holding stocks. now as you have mentioned that while filing tax I either need to file as a trader or investor. but in my case I have long term holdings as well as intra day and short term trading.
for few stocks I am a investor (holding more than a year) and for few a trader. what shall I do now..
You can show your long term separately, but make sure it done correctly by clearly demarcating long term and shorter term trades by consulting a CA.
pkk
I made intraday loss and also loss in option trading this year. Can I set off these losses from other income such as interest received on fixed deposit.
Sorry let me correct above comment
Stcg profit 11,48000
Interest from bank 38,000
Fno profit 1,77000
Deduction 80c 1,0000
Exemption 2,00000
Please n please calculate tax bro
Please calculate tax bro..
Stcg profit 11,48000
Interest on fixed deposit 38,000
44ad Fno profit 1,77000
Hello Nitin,
i started trading in zerodha from this year JAN, as market is going up i made gain of 5 lacs in nifty options by 3rd week of March. I took april options for entire money in march last week, which i sold out them on second week of april. I mean on 31st of March i had open positions for all my money. If calculate profit based on 31st March closing price i am in profit of another 3 lacs, means 5+3 = 8 lacs.
Note: i traded only nifty options and on 31st March closing i had only 10,000 as cash remaining amount as options premium.
My Question is: do i need to declare this profit for next financial year (FY15) (or) i need to declare only 5 lacs (or) i need to declare 8 lacs for this FY filing ?
Especially in cases of F&O, there might be positions which are profitable on 31st March, but can become loss making in the next FY. Since you have made a profit, it wouldn’t really matter to you, but it is best to follow a practice that will be consistent in the future as well. My advise would be to not calculate profits for the open positions as on 31st March, but as on the day you exited and since it is in April the next FY, declare the total profits for the open positions next FY (FY15). But do have a word with your CA once.
Dear Nithin,
Such an informative blog….Taxation is such a big headache with all these rules….Head is breaking apart…..I have traded in equity including intraday and delivery, some profit, mostly loss, also traded in Futures and Options, mostly loss….Add to that, I have traded in Currency too with loss….Only thing I have stayed away is from commodity, thank God…..Now, If I enter all these buying and selling details with dates, price, brokerage, etc in one Excel sheet, will it be able to calculate all the turnover, profit, loss, short term, long term, speculative, business income etc………..Also, maybe it can generate a book of accounts in case a tax scrutiny comes up……………I am sure that cannot be given free of cost, but can you consider this for some cost…..
I will suggest you go meet a CA, who would do this for you. We are planning to build a tool that can do exactly what you are asking for, but it will take a little while though. But don’t be penny wise pound foolish, on spending money for a CA.
Thank you Nithin for the reply . what you say is indeed true….But it is also true that many CAs themselves are lacking information and expertise when dealing with F&O transactions….Kindly clarify a doubt…..Do CAs charge their fee based on turnover, profit, etc or is it same for all…..For an idiot like me with around 2 to 3 lakhs loss, what would be their charge, would it be around Rs. 5000…..Thanks for your time…..
Since there is an audit, it might be in the range of 10 to 15k, CA’s on an individual level should not charge you based on turnover/profit, some CA’s do it on an institutional level
Thanks Nithin. Thanks very much for your time and reply. Very informative and excellent thread. Please keep up the work, thanks.
Dear Sir,
Thanks for your wonderful guidance on TAX issues,
I am salary earning & use to trade in Delivery / Intraday / F&O, I have made too much loss from all trade segments, In cash trade I made 10.4 L loss and 3.2 L profit ( in total Cash Segment I made net turnover 13.6 L ) in F&O segment I made 11 L loss and 1 L profit ( in total F&O segment I made net turnover 13L ),
It means I made both segment I made total turnover 26.6 L )
Overall I made Loss of 10.4 +11.0 = 21.4 L for this year,
Pl. guide me, Is it I needs my account to be audited by certified CA ?
Is it I needs to use ITR4 for submitting my IT returns ?
Is it I needs to have on line signed ( electronic signature on the ITR4 ) documents for ITR ?
Is it possible can I get a sample ITR4 for Reference, ( income from Salary and too much loss from share trade account only, No profit on share trade )
If Audit to be done, then Is it need of submitting the Audit documents with ITR4 ?
is it any other simple method for this Income TAX submission.
I wish to switch over to Zerodha Trade account, I wish to open new account, can any one help ?
Pl. send your guidance to my email Id : [email protected]
Best Regards,
Anandan.R
1. Yes you will need the returns to be audited by a CA
2. Yes ITR4
3. Yes
4. Don’t really have a sample ITR4, but best to go meet a CA for this.
5. Yes
6. There is no other simple method, but it is best to do this properly so that you can carry forward 21.4 lks, so anytime in the future you make any business profits, you can net off this loss, that way atleast you can get benefit of upto 30% of your losses.
Kalpesh will send you all details required to open an account with us,
Cheers,
Dear Nithin,
Thanks for your fast response, CA’s asking service charge about 15k,
I make about 23L loss, over and above for IT return submission, I have to pay another 15k..
It is unfair on the part of current Govt..
small investors and trades who make loss after full year of trade they carry only pain..
I need your support for sample filled ITR4 ( I take as a sample just to cross check for mistakes )
&
I can’t find ITR4 for AY 2014-15 format where I can download, PDF & I need in Excel also,
Pl. kindly help
How to fill ITR4 with powerpoint persentation with voice can be useful if any one have.. pl. give..
Zerodha doing good job.. I feel we should raise this issue of difficulties to Govt..
Best Regards,
Anandan.R
Let me see what can be done about it, give me some time.. and yes we have already sent a petition saying section 44AD should not be applicable to case of trading the markets.
Dear Nithin,
Thanks for your fast response, Salary people make too much loss on F&O and Intraday end up in trouble for even not able to file proper IT returns due to complex issues,
ITR 4 have 26 pages, & I don’t see much clary for Share trade CASH / Delivery / Intraday / F&O,
If some one file PIL (public interest litigation ) in supreme court then only there will be some easy way possible.
If not current teeth less govt.. not going to change any law.
Most of the people don’t wish to trade in shares..
Even we make loss there should be easy way to file tax returns.
my life miserable due Heavy losses and also due to IT Return complex issues.
I stop trading from March..
I am sure every one who make too much loss may be feeling the same..
Please kindly up-load and guide us for sample ITR4 for AY 2014_15,
Income tax dept. govt. webpage itself still correct formats not up-loaded
http://incometaxindia.gov.in/download_all.asp
Best Regards,
Anandan.R
Dear Mr.Nithin,
We appriciate if we can get some excel sheet format for P&L calculation &
also sample of ITR4 that is duly filled for Salary income, Delivery Based Trade, Intraday Trade, & F&O Trade, all the 3 segment Made Loss..
for understanding where to fill in what !
Pl. kindly send me by mail or link file uploading any webpage..
Awaiting for your positive response.
Best Regards,
Anandan.R
Will try to have it done in the next few days.
Dear Nithin,
Thanks for your support, 25L loss, filing IT returns on ITR4 with TAX audit is troubling me a lot, because CA asking about 25K for TAX audit..
I feel it is too much and unwarranted, Govt.. have to support simplified way of income / loss reporting.
Best Regards,
Anandan.R
Hi Nitin
gr8 blog. thanks for the same.
I wanted to know how to calculate turnover in case of Option contracts. For Futures Contract you have explained it very clearly. If you could illustrate in a similar way for options contract that would be of gr8 help.
Total stcg gain 1000000 tax would be 1200000 what are the other charges which will add on tax like education cess etc..
Ganesh, STCG is 15%, so tax on 10lk of gain will be 1.5lks, Education and Higher Education cess is together 3% of this 1.5lks, so Rs 4500.
Dear Nithin Kamath
Thanks for your enormous service – I have just 2 doubts
1.In current year I have profits from business of derivatives whereas I am carrying forward prior period loss under short term capital gains on equity (non speculative ie not same day trades )-Now my ques is can I reduce this prior period STCL from my business income and pay tax only on the balance ?
2. My second doubt is on paying 8% presumptive tax on derivatives turnover under sec 44ad instead of paying much more as per slabs going to 30% -Forget the moral question – But legally if I do this ie I pay 8% on my turnover which is over a crore (yes needing tax audit too ) what can be the legal issue since as per above posts ITO can’t do anything is it not ? If I opt for this then I should file under ITR 4S is it not and not ITR 4 ?
Thanks once again and eagerly awaiting inputs.
Elliot
Well, if your Turnover from business (read derivative trade in this case) exceeds Rs 100 Lacs in any Financial year, the provisions of declaring profit at 8% (or more) of the turnover is not available. In such eventuality one has to compulsorily get the accounts audited and declare profit/loss after accounting for expenses and depreciation etc incurred in running business.
My doubt is ” Can I declare 8% of Turn over as profit even when the actual income after taking into consideration is more than 8% of Turnover”
I will request response strictly from legal point of view.
Yes it is possible for now but Grey area, and probably a loophole that exists in the system. But advice is to not, as it is not in spirit doing the right thing, and it can always come back retrospectively.
I have been trying to find a definitive answer for past few days for precisely this question (entirely out of theoretical interest – I don’t really have any business income; made very small day-trades by mistake in which I had a very small loss – I’m going to show 8% profit next year)
If you file 8% presumptive you may find yourself in soup later. Law is NOT clear on this.
section 44ad supersedes sections 28 to 43 but nothing else. Which means sections 2 and 5 (defining what is income very broadly) and 69, 69a and 69b remain intact.
Some CAs suggest you show the true income, others will tell you that you have a right to show 8%
One High court case (Ahmedabad) settled that where an assessee has maintained books of account he will have to claim full income; however other cases from later dates (including one from Chandigarh) negate that.
What is certain is that if an assessee is eligible for 44AD, and refuses to disclose books of account to AO then he can’t insist for those – he can still find those in a raid (search and seizure) and if so found they will be used. Also AO can ask for everything else, contract notes, bank accounts … and computing real profits (to a very good approximation if not totally accurately) once he has those is fairly straight forward. The moment he does that – you have unaccounted income which means section 69 is applicable (along with other sections)
One CA suggested that the assessee show 8% profits but then not show the rest in capital account books – I’m not sure how easy that is for someone whose only income is F&O and/or day trading where all transactions happen via banks.
Almost the only way of getting away with 8% in (as much as possible) a watertight manner seems to be if you have a business that deals with cash (that too in large enough quantities) – then the AO will have no way of ascertaining income/expenses related to that leg of transactions in the absence of books of account.
It seems the “benefit to assessee” in 44AD is only freedom from getting an audit done – and not much of a benefit there too.
How can we create two portfolios like stcg(investment) and future stock(Bussiness)in one itr form and which form should be used?
Hello,
One of my friend has forwarded me the below.
Please confirm it is helpful.
Enjoy,
CArnot
___________________________________________________________
Indian Income Tax Act 1961, Section 44AB reads as under:
“Audit of accounts of certain persons carrying on business or
profession” — 44AB — Every person, —
(a) carrying on business shall, if his total sales, turnover or gross
receipts, as the case may be, in business exceed or exceeds
one crore rupees* in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession
exceed twenty-five lakh rupees* in any previous year; or
(c) carrying on the business shall, if the profits and gains from the
business are deemed to be the profits and gains of such
person under section 44AE or section 44BB or section 44BBB,
as the case may be, and he has claimed his income to be
lower than the profits or gains so deemed to be the profits and
gains of his business, as the case may be, in any previous
year; or
(d) carrying on the business shall, if the profits and gains from the
business are deemed to be the profits and gains of such
person under section 44AD and he has claimed such income to
be lower than the profits and gains so deemed to be the profits
and gains of his business and his income exceeds the
maximum amount which is not chargeable to income-tax in any
previous year get his accounts of such previous year audited by an
accountant before the specified date and furnish by that date the report of such
audit in the prescribed form duly signed and verified by such
accountant and setting forth such particulars as may be prescribed.
Note – For all practical purposes read “Accountant” as registered chartered accountant
The following have been listed out as professions
(i) Accountancy
(ii) Architectural
(iii) Authorised Representative
(iv) Company Secretary
(v) Engineering
(vi) Film Artists/Actors, Cameraman, Director, Singer, Story-writer, editor,
singer, lyricist, dress designer etc.
(vii) Interior Decoration
(viii) Legal
(ix) Medical
(x) Technical Consultancy
(xi) Information Technology
The following activities have been held to be business :
(i) Advertising agent
(ii) Clearing, forwarding and shipping agents
(iii) Couriers
(iv) Insurance agent
(v) Nursing home
(vi) Stock and share broking and dealing in shares and securities
(vii) Travel agent.
Explanation —
Share brokers, on purchasing securities on behalf of their customers,
do not get them transferred in their names but deliver them to the customers
who get them transferred in their names. The same is true in case of sales
also. The share broker holds the delivery merely on behalf of his customer.
The property in goods does not get transferred to the share brokers. Only
brokerage which is being accounted for in the books of account of share
brokers should be taken into account for considering the limits for the
purpose of section 44AB. However, in case of transactions entered into by
share broker on his personal account, the sale value should also be taken
into account for considering the limit for the purpose of section 44AB. The
case of a sub-broker is not different from that of a share broker.
The turnover or gross receipts in respect of transactions in shares,
securities and derivatives may be determined in the following manner.
(a) Speculative transaction:
A speculative transaction means a transaction in which a contract for the purchase
or sale of any commodity, including stocks and shares, is periodically or ultimately
settled otherwise than by the actual delivery or transfer of the
commodity or scrips. Thus, in a speculative transaction, the contract
for sale or purchase which is entered into is not completed by giving or
receiving delivery so as to result in the sale as per value of contract
note. The contract is settled otherwise and squared up by paying out
the difference which may be positive or negative. As such, in such
transaction the difference amount is ‘turnover’. In the case of an
assessee undertaking speculative transactions there can be both
positive and negative differences arising by settlement of various such
contracts during the year. Each transaction resulting into whether a
positive or negative difference is an independent transaction. Further,
amount paid on account of negative difference paid is not related to
the amount received on account of positive difference. In such
transactions though the contract notes are issued for full value of the
purchased or sold asset the entries in the books of account are made
only for the differences. Accordingly, the aggregate of both positive
and negative differences is to be considered as the turnover of such
transactions for determining the liability to audit vide section 44AB.
(b) Derivatives, futures and options:
Such transactions are completed
without the delivery of shares or securities. These are also squared up
by payment of differences. The contract notes are issued for the full
value of the asset purchased or sold but entries in the books of
account are made only for the differences. The transactions may be
squared up any time on or before the striking date. The buyer of the
option pays the premia. The turnover in such types of transactions is
to be determined as follows:
(i) The total of favourable and unfavourable differences shall be
taken as turnover.
(ii) Premium received on sale of options is also to be included in
turnover.
(iii) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover.
(c) Delivery based transactions:
Where the transaction for the purchase or sale of any commodity including stocks
and shares is delivery based whether intended or by default, the total value of
the sales is to be considered as turnover.
Further, an issue may arise whether such transactions of purchase
or sale of stocks and shares undertaken by the assessee are in the course of
business or as investment. The answer to this issue will depend on the facts
and circumstances of each case taking into consideration the nature of the
transaction, frequency and volume of transactions etc.
In case such transactions are for the purposes of investment and
income/loss arising therefrom is to be computed under the head ‘Capital
Gains’, then the value of such transaction is not to be included in sales or
turnover for deciding the applicability of audit under section 44AB. However,
in case such transactions are in the course of business, then the total of
such sales are to be included in the sale, turnover or gross receipts as the
case may be, of the assessee for determining the applicability of audit under
section 44AB.
Distinction between shares held as stock-in-trade and shares held as
investment – tests for such a distinction
1. The Income-tax Act, 1961 makes a distinction between a “capital
asset” and a “trading asset”.
2. Capital asset is defined in Section 2(14) of the Act. Long-term capital
assets and gains are dealt with under Section 2(29A) and Section 2(29B).
Short-term capital assets and gains are dealt with under Section 2(42A) and
Section 2(42B).
3. Trading asset is dealt with under Section 28 of the Act.
4. The Central Board of Direct Taxes (CBDT) brought to the notice of the assessing
officers that there is a distinction between shares held as investment (capital
asset) and shares held as stock-in-trade (trading asset). In the light of a
number of judicial decisions pronounced after the issue of the above
instructions, it is proposed to update the above instructions for the
information of assessees as well as for guidance of the assessing officers.
5. In one of the case the Supreme Court observed that:
“Whether a particular holding of shares is by way of investment or
forms part of the stock-in-trade is a matter which is within the
knowledge of the assessee who holds the shares and it should, in
normal circumstances, be in a position to produce evidence from its
records as to whether it has maintained any distinction between those
shares which are its stock-in-trade and those which are held by way of
investment.”
6. In another case the Supreme Court observed :
“The High Court, in our opinion, made a mistake in observing whether
transactions of sale and purchase of shares were trading transactions
or whether these were in the nature of investment was a question of
law. This was a mixed question of law and fact.”
7. The principles laid down by the Supreme Court in the above two cases
afford adequate guidance to the assessing officers.
8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to
the decisions of the Supreme Court in several cases, has culled out the
following principles:
“(i) Where 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 transaction;
(ii) the substantial nature of transactions, the manner of maintaining
books of accounts, the magnitude of purchases and sales and the
ratio between purchases and sales and the holding would furnish a
good guide to determine the nature of transactions;
(iii) ordinarily the purchase and sale of shares with the motive of earning a
profit, would result in the transaction being in the nature of
trade/adventure in the nature of trade; but where the object of the
investment in shares of a company is to derive income by way of
dividend etc. then the profits accruing by change in such investment
(by sale of shares) will yield capital gain and not revenue receipt”.
9. Further CBDT emphasises that it is possible for a tax payer to have two
portfolios, i.e., an investment portfolio comprising of securities which are
to be treated as capital assets and a trading portfolio comprising of stock-in-trade
which are to be treated as trading assets. Where an assessee has two portfolios,
the assessee may have income under both heads i.e.,capital gains as well as business income.
10. Assessing officers are advised from CBDT that the above principles should guide
them in determining whether, in a given case, the shares are held by the
assessee as investment (and therefore giving rise to capital gains) or as
stock-in-trade (and therefore giving rise to business profits). The assessing
officers are further advised that no single principle would be decisive and the
total effect of all the principles should be considered to determine whether, in
a given case, the shares are held by the assessee as investment or stock-intrade.
_______________________________________________________________________
Hi Nithin,
I have got a short term capital loss of 1 lakh as of 27th March. If i sell shares on 31st march with a profit of 1 lakh, will this gain be offset against the loss?.
The doubt is whether we consider the date of selling or date of amount getting credited to your account to calculate the tax for the financial year.
You can sell it on the 31st, and it can be considered for this year, your contract note will say 31st and that is what matters.
Thanks a lot Nithin for the quick clarification. It will really help me.
Sir,
I trade (age 30) in commodity derivatives (both MCX and NCDEX). I have not filed IT Returns. Please clarify the following :
1) During FY2011-12, I made a net Trading Profit of Rs.1233000/- & the turnover is Rs.83.00 lakhs &
2) During FY2012-13, I made a net Trading Profit of Rs.1700000/- & the turnover is Rs.68.00 lakhs.
For your information, I had added the settlement profits & losses to arrive at Turnover figure during the financial year.
Please inform me which of the following methods I should adopt to pay Income Tax ie,
(1) deduct the expenses like Office Rent, salaries, etc, etc from Net Trading Profit & pay Income Tax as per the slabs applicable (or)
(2) declare 8% profit on turnover figure and pay Income Tax strait away ? Please also explain in detail with pros & cons for adopting any specific method.
(3) One of my friend says the choice will be with Tax Payer & he/she can adopt any one of the methods. Whether this is true that Tax Payer can have choice like adopting any of the above methods or any guidelines are there for this ?
Abhishek
Abhishek,
The first option would be the right one, the second method where you declare profit of 8% would not be true since you are profits are definitely more than 8% of your turnover and this might come back to you in the future. I have advised a few people to show 8% of turnover as profit, but these are all people whose gross profit was less than 8% of the turnover and this was a way to avoid an audit by the CA. If you pay more taxes than what you have to there is never a problem, it is usually when you pay lesser than what is supposed to be paid.
Hope this clarifies, but do consult a CA.
Cheers,
Hi Nithin,
Can I declare more than 8% profit on turnover, considering the remaining profit as expenses ? I mean declaring say 10% profit of Rs.830000/-, considering the remaining Rs.403000/- as expenses for FY2011-12 and declaring 16% profit of Rs.1088000/-, considering the remaining Rs.612000/- as expenses for FY2012-13 ?
If I file Returns calculating as above, will there be any chances that IT Department questening me in future ? Please tell me the pros & cons over the matter.
Ravindra,
My advise would be for you to get an audit done, you are an active trader, and it doesn’t make sense to be “Penny wise Pound foolish”. As I have mentioned elsewhere, if you owe the IT department less, but pay more, there is no issue, but if you owe them more but pay less, it can always come back to you later.
Please calculate tax for me Sirji
Stcg delivery based profit 12 lakhs
Fno profit 1lakh
Expenses 3 lakh + exemption 2 lakhs
Please calculate tax for me and which itr form would I use..
Gross Total Income
12,00,000
Loss set off
2,00,000
Total Income
10,00,000
Income Tax
1,30,000
Education Cess
3,900
Gross Tax Liability
1,33,900
You can use ITR4 for this
My turnover(settlement profit +settlement loss) for fno is 3000000 ..
My question is do I need audit because there is loss in fno and profit in stcg
Ganesh,
Technically you will need an audit because your turnover is less than 30lks and your profit is less than 8% of the turnover (Section 44AD). If you have a small loss, and don’t need the benefit of carry forwarding it, one of those things that you can do to avoid an audit is to show your gross profit as 8% of the turnover. So show around 2.4lks as presumptive profits, and pay taxes accordingly. But do consult a CA for this.
Cheers,
That means I have to pay taxes on 2.4 lakhs not St CG 12 lakhs please clear
Ganesh,
Your STCG will come under the capital gains head on ITR4, so you will have to pay taxes of 15% of this 12 lks in addition to 2.4lks. Since you had earlier not mentioned the value of STCG. Another thing what you can do if you are a very active trader is show all your trading activity as a business (both equity and F&O), but if you do so, you will have to stick to the same principle in the future as well. In such a case, you can show your STCG & LTCG as business profits, and reduce your F&O losses, and pay taxes accordingly. Do consult a CA for this.
Cheers,
I have gross salary of amount 5,800000. 2 lakh is rebate and 1 lakh savings.After deductions the taxable amount comes to 2,80000.what is the % of tax? I mean is it that on
(A) 2,00000 it’s 10% and on remaining 80000 is it 20%=36k?
(B)or is it 10% on the whole? i.e 5,80000-200000(exemption)=3,80000-100000(Policy+other)=2,80000X10%=28k
Im working in govt deptt. they says 36k is taxable amount but in previous query u said 28k
This is making me confuse plz clear it.
Tax on Rs 480000(580000-100000) is Rs 26000 ( 28000- 2000 Rebate for Income till 5 Lacs) + CEss 960 Total Rs 26960.
Its 10% Till 5 Lacs …. 5-10 Lacs 20% and Beyond 10- 30% for Other than Senior and Super senior citizens
I’m short term investor for equities say 2-4months
Simultaneously I’m doing trade in f&o
I have never filed returns and want to do it this year
My query is can I show my stcg as separate in itr-4
And f&o trades in itr4 also..
I can’t call my self as trader because in this uncertain market I prefer to keep position in equity market and got benefited from that only and if anytime I found the opportunity in f&o i do the trades for short term sometimes carry forwarding them but they are very few say less than 10 in a year..
Please reply as favourable in my case
Yes Sanjeev,
Yes you can show STCG under capital gains head and F&O under business in the ITR 4.
Cheers,
I request u to please calculate tax for me that will be your kindness
Stcg gain 12,00000 and f&o gain 8 lakhs
Expenses under f&o 5 lakhs including 2lakhs of exemption
Will declare myself as trader and show equity stcg under capital gains
Please please calculate tax for me
You are doing a tremendous job by producing a helping hand to people who doesn’t know xyz about taxes
Hats off sir..
Karan,
The Income Tax on STCG is Rs. 1.8 Lacs and Balance Income ie on 5 Lacs ( 8 Lacs – 3 Lac Exp) is Rs 30k total Tax Liability Rs 2.1 Lacs + Edu CEss 6.3k . Tax Liability is Rs 216300.
Dear Nithin,
I met one CA. He says that in my case, the turnover is Rs.14,95,775.07 ie, the Net Profit I earned in both segments, for the entire year. Whether this correct or not ? I am bit confused about ‘difference of total buy value & sell value) and ‘sum of settlement profit & settlement losses’. Please clarify.
hmmm.. What if your net profit was 0, then would your turnover have been 0? Personally, I don’t think showing only your profit as turnover is correct. Turnover should ideally be the sum of total buy value and sell value (not the difference) in case of equity or/and sum of settlement profits and losses in case of F&O
I have 5 trades in delivery base equity which yield me profit of 3 lakhs but turnover is 1cr(Purchase value + sale value)
and in future stock reliance I have done 20trades which yields me 4 lakh profits
Going in confusion if i declare myself as trader do I have to consider 1cr turnover for equity trades or I have to calculate
1. 3lakhs +4lakhs=7lakh as TO
or
2.1crore + 4lakhs as turnover
Please clear this confusion
Madhav,
My advice would be that since you have done only 5 trades in the year in equity, show that under STCG (Short term capital gain) and LTCG (Long term capital gain), turnover won’t really matter in this case. Your futures trading, show it under business income, if you have done 20 trades, your turnover will definitely be under 50lks and since you have a profit of 4lks, which is more than 8% of your turnover, you would not even need an audit.
For the 20 trades to calculate turnover, see the total settlement profit, and settlement losses for every contract you have traded (Reliance oct is separate, Reliance Nov is separate) the sum of this is the turnover.
Cheers,
I have stock cash market transactions also which are against my investment portfolio. In addition to F&O
Will the value of those trades also be added to the derivative turnover figures to arrive at the total turnover, or I can pay STCG or LTCG on them separately as is the case without clubbing them
Shravan, It is upto you on how you want to show this, but yeah you can show STCG and LTCG separately and include all F&O as business. But make sure you stay consistent with the practice whenever you file your returns. Many people keep changing this position based on what benefits them, best not to do that.
Hi Nithin,
This is a very helpful blog! I got most of the answers to my doubts and am left with only two doubts:
1> For calculating the turnover, do we need to treat each trade seperately or do we need to club together all the trades of one contract?
e.g. Suppose I did 2 trades on NIFTY-Jun series contract. One profit of 1000/- another loss of 1000/-. Since its on same contract, is the turnover zero or is it 2000/- ?
2> Suppose my final figures for the year are:
Profits: 1,00,000, Losses: 40,000, Turnover: 1,40,000
STT: 4,000 Stamp charges: 1,000 turnover charges: 1,000 servicetax: 1,000 commisions: 2,000
Total_expenses: 9,000
Net_Profit = 51,000
Then in ITR4, where do I put these numbers in the P&L section?
Option 1:
3.f. Profit on sale of investment being chargeable to STT: 60,000
8. Duties, taxes, Cess, in respect of services purchased
e. Service tax: 1,000
g. Any other tax: 6,000
23. Commisions: 2,000
Above method computes correct tax but turnover of 1.4 lakh doesn’t appear anywhere because profits and losses are netted and put in 3.f.
Option 2:
1. Sales/Gross reciepts of business: 1,00,000
36. Other expenses: 40,000
8. Duties, taxes, Cess, in respect of services purchased
e. Service tax: 1,000
g. Any other tax: 6,000
23. Commisions: 2,000
This method too calculates same tax. Only purpuse of using the “Sales” and “Other expenses” fields is to be able to show the turnover somewhere. But looks such mapping from profits and losses seems meaningless.
Please advise if any of the above two classifications seems okay or if there is a better way?
Thanks,
Makarand.
All settlement profits and losses, in this example, Rs 2000.
All Credits(profits) under Sales and all debits(or losses) under Purchases, in the ITR4. Taxes can be shown separately. This should help, try and let us know.
Cheers,
Thanks a lot Nithin for your reply!
Now everything falls in place.
————————————–
* Below I’m detailing the fields to populate in ITR 4 as that might benefit some reader.
* I need to use ITR 4 (and cannot use ITR 4S) because I have STCG from debt funds.
* ITR 4 excel is of AY 2013-14. Same needs to be tried out later when one for 14-15 is available.
————————————–
Part A: P&L: 1. Sales: 1,00,000
Part A: P&L: 6. Purchases: 40,000
Part A: P&L: 8.e. Service tax: 1000
Part A: P&L: 8.g. Any other taxes: 6000
Part A: P&L: 23. Commissions: 2000
Schedule BP: A.1. PBT: 51,000 (Auto-populated)
Schedule BP: A.4. Sub-amount of BP.1 under 44AD: 51,000
Schedule BP: A.33.1. section 44AD: 51,000
Schedule BP: D. Profits & Gains: 51,000 (Auto-computed)
————————————–
Thanks Makarand
Hi sir,
I have done equity delivery based trades .i want to file returns and will show my income as stcg
My profit is 8 lakhs below are details
Trade 1 bought at 30 lakhs and sold at 33lakhs=3 lakhs profit and turnover 66 lakhs
Trade 2 bought at 33 lakhs sold at 35 lakhs=3 lakhs= 68 lakhs turnover
Trade 3 bought at 10 lakhs sold at 12 lakhs=2 lakhs =22 lakhs turnover
If I calculate this way 3+3+2=8 lakhs turnover
Or 1.53 crore turnover
Which calculation is right under stcg ..
Do I come under audit in this above example?
Eric, settlement profits and losses are calculated as turnover only in case of derivatives trading. When you do short term equity trading, when you buy stocks for 30lks it actually gets debited from ledger and gets credited when you sell (in F&O only margin gets blocked), and hence your turnover in the above case is 1.53 crores, and yes you come under audit since your turnover is more than 1 crore.
Cheers,
In Eric case if he considers himself as trader than what will be the turnover 1.53cr or 8lakhs?
Does he need still audit if he declare himself as trader?
Aijaz/Eric, if you consider yourself as a trader the turnover will be 1.53 crores (all credits + debits) on your ledger. Yes if he declares himself as a trader, he will need an audit, but if you are showing this under capital gains head, no need.
Can I consider myself as trader while filing returns in the above case ?
What will be then my turnover
A. 1,53crores
B. 8lakhs
What u suggest?
Eric, If you have done only equity delivery based trades, you don’t need to show this as a business turnover, just show it under Capital Gains in which case you don’t have to worry about turnover. In case of STCG and LTCG, there is no need of turnover or worry about audits, even if your turnover is more than 1 crore. So if you are doing only delivery equity trades, that is the best way to file.
If i am a day trader, Can i claim depreciation on car i use?
Sharath, As long as you can prove that you are using car in some way for your business if asked anytime in the future, it shouldn’t be an issue.
Sir, I trade heavily in Commodity (MCX & NCDEX) Segments. Please give an example “How is Turnover calculated” & Tax implication on the same.
Ravindra,
In terms of taxation, trading in commodity is exactly like trading in futures. Multiple posts above have explanation on the same. Press ctrl+F and search for turnover.
Cheers,
Hi Nithin,
Thanks for your early reply.
Trading in Commodities done between 01-04-12 to 31-03-13 :
MCX Segment :
1) Total Buy Value : 2471792243.00
2) Total Sell Value : 2473101093.00
3) Net Value : 1308850.00 (Dif. of 1&2 above & this is also Gross Profit)
4) Net Profit : 1255325.95 (after deducting other statutory expenses)
NCDEX Segment :
1) Total Buy Value : 2221241217.00
2) Total Sell Value : 2221522759.00
3) Net Value : 281542.00 (Dif. of 1&2 above & this is also Gross Profit)
4) Net Profit : 240449.12 (after deducting other statutory expenses)
Total Net Profit = 12,55,325.95 + 2,40,449.12 = 14,95,775.07
Plz. clarify the following :
1) What is the Turnover for the said period ?
2) Plz. explain me the T.O. part & that 8% profit part & audit by CA part. in this case.
3) After deducting expenditure under various heads, I want to declare around Rs.8.00 lakhs Net Profit. I am 24 yrs old & I do not have other Income. What will be my tax liability for 2012-13, including penalty for delayed filing, Interest on delayed payment & any other charges (I have not yet filed IT Returns) ?
Plz. do reply.
Ravindra
Ravindra,
We have had discussion on this multiple times above, turnover is calculated by adding all settlement profits and losses for all contracts that you have traded during the year. You look like an active trader, so it is best to get yourself audited (the only reason for calculating turnover is for knowing if you have to be audited or not).
2. In case your turnover is less than 1 crore, note that by turnover I don’t mean contract turnover but settlement turnover .Sum of all profits and losses for every contract, explained in the blog above as well. So if your turnover is less than 1 crore and profit less than 8% of turnover you need the books to be audited.
3. Ravindra, it will be best to go meet a CA to plan this properly and file your returns as soon as possible. It will be very tough to answer this query, without having no background on your accounts, and I am not really qualified for doing that as well.
Cheers,
Ex has income of 20 lakhs under bussiness income expense 6 lakh what will be my tax liability
Farhan, discussed multiple times above already, you pay taxes on 14lks as per the slab you fall in, exact tax liability will be based on if you have made investments into some tax saving instruments or not.
Cheers,
I have start trading in futures last year..
I have position in reliance stock futstk 4 lots , and have Sbin 2lots stock future
Does stock future gains comes in stcg or business income
Dinesh,
Business income, all details on the blog and a lot of questions on the same above
Tilak
Trading is my only job nothing else
Assume I have profit of 12 lakhs in delivery based shares (delivery time 2-3 months)
And profit of 5 lakhs from stock future
1.Going through this whole blog if I show myself as trader can their be query by ITO for a short term capital gains which are 11 lakhs..?
2.Since I have profits can I still opt for 44ad if not then which ITR should be opted and do I need any documents to attach while filing returns?
3.Why are you suggesting to file return as trader not investor what are the benefits?
This was nice to see that you help people in this busy world
Thanks in advance bro..
1. Yes you need to show yourself as a trader(business), hence use the ITR 4 form, but you can show your short term capital gains and your future profits (business profits) as separately. What i’d advise is if your short term trading is very active, then show the short term gain under business profits as well. But if your short term equity trading, is just a few, show it in a separate head.
2. ITR4, 44AD is for if you require an audit or not, if the turnover is less than 1 crore and profit more than 8% of turnover you don’t need an audit. If your turnover is over 1 crore, you need an audit. If your profit is less than 8% of turnover, and your turnover is less than 1 crore, you need an audit, and my advise is only in the last case if your profit is less than 8%, you can show a higher profit of 8% to avoid audit fees.
3. F&O trading is considered as a business income, so if you are trading F&O you have to file as a trader using ITR4 as per regulation. There are also benefits in the sense that, you can claim on all expenses you have incurred while trading, and also you can carry forward the losses for 8 years if any.
Hope this clarifies,
Cheers,
Thanks
1. But you didn’t replied whether short term capital gain can be query tomorrow by ITO if I show it in business income?
2. Since the profit is 12 lakhs in stcg and trades are only 2 do I still show in business income?
3.Please calculate liability in both scenarios I.e stcg 12 lakhs + 5 future stock(business income)?
4.Or 17 lakhs (business income)= tax liability?
Thanks for outstanding support…
1. Query can come on anything Tilak, but what I have explained is the usual practice followed by most traders
2. If there are only 2 trades, you can show STCG under the capital gain head and Futures profits under business income.
3. STCG: 15% of 12lks, 5lks of future is added to any other income and after deducting expenses tax is paid according to the slab you fall in.
4. In case you show it together, 17lks is added to your other income, reduce your expenses and tax paid according to the slab you fall in. Slabs mentioned in the first part of the blog.
Cheers,
Do we need to pay advance taxes in case of short term capital gains and futures profit..I didn’t paid because the position is fluctuating and its very difficult to assume that what will the year end profit
I have profits and didn’t pay what will be the repercussions
In case of Short term capital gains advance tax if you have booked profits then you have to pay advance tax, and if the gain is notional(your still holding the stock), there is no need of advance tax.
In case of Futures, since it is considered as a business, you will have to pay advance tax. Yeah it is kinda tricky, but even if you pay advance tax and assuming you end the year in a loss, you can get the refund of the advance tax paid already.
Cheers,
thanks sir
no tax liability for me.
sir when no tax liability if dont file itr then any problem for me.
Jiny, you have to file ITR even if there is no liability.
Im gazetted govt. employ and having gross salary of 5,80,126
2lakh is exempted + 1,00000(PLI+PF) +6000 insurance=3,06000
Please calculate exact tax figure
Income Tax Rs 25413 and Education Cess 762 Total Rs 26175
hi sir
i do trade in share market in f&O and cash segment.i have rs.50000.per year tuition income ..
i give loss of rs. 4lac in f&o segment and i made long term capital gain of rs 4.10lac.
what my tax liability.
Jiny,
Your long term capital gain is exempted, so Zero tax on Rs 4.1lks.
Your F&O loss + Rs 50000 your other income + all your expenses = Net loss of more than Rs 3.5lks. File your return before due dates, and you can carry forward this loss for the next 8 years, you can set it off against any future business income.
I have 12 lakhs profit in short term delivery of equities and in F&O I have 4 laks..
If i don’t opt for 44ad then how I have to show my turnover in FNO..
Can I file different IT return form for short term capital gains which I have total 3 trades in a year and another for F&O ..Because if i file itr4 then maybe IT deptt. will scrutinise short term capital gains
Suggest how to settle this scenario and I don’t want to take any chance of scrutiny
Bhavesh, you cannot file 2 IT returns, you will have to file using one ITR4 and show your short term gain and FNO (business income) separately. Note that the short term equity trading turnover is not part of your business turnover.
Benefits of 44AD
Sir have taken this material from CA blog..
If my income from fno is above 8% say for e.g, 15% higher % of turnover and I only show 8%
This CA blog purely shows in point have 7.ITO has not any power to assess anything excess of it.Will it still be scrutinised?IF i will take opt 44ad and file 8% of turnover then I cant claim expenses ..If I claim higher profits than Im loosing substantial benefits of 44ad..
Please clear this scenario
1. Assessee has not required to maintain books of accounts of the eligible business .
2. The income from the eligible Business is estimated @8% of the gross receipt or total turn over.
3. Assessee can voluntarily declare higher income than 8% of the total turn over or gross receipt.
4. All deduction under section 30 to 38 including depreciation and unabsorbed depreciation are deemed to have been allowed
5. Moreover, it will be assumed that dis-allowance, if any, under section 40, 40A, 43B have been considered while calculating the deemed income.
6. Assessee shall also be exempted from the payment of Advance Tax.
7. If returned income of the assessee is 8% or more of the total receipt/ turn over, the assessing officer dose not have any power to assess any thing excess of it.
8.Assessee opting for the above scheme shall also be exempted from the maintaining books of account and assessee is not under any obligation to explain individual Entry of cash deposit in the bank unless such entry has no nexus with Gross receipt. (CIT V SURINDER PAL (P&h))
Dear Rajat I think Nitin is wrong here and he can correct me also
But the point that you have raised and the facts given by you are highly appreciable. Please go through the following: Can the Assessing Officer add the Difference between actual income and disclosed income in the assessment proceedings? {Let us assume that the Turnover of the assessee is Rs. 50 Lakhs and all the receipts are by cheque and the same is deposited in the only Bank account maintained by the assessee. There are no outstanding receipts at year end. All the payments for expenses on revenue account are through cheques debited to the same account and there are no outstanding expenses at year end. The total expenses are Rs. 25 Lakhs. Thus the balance of Rs. 25 Lakhs as per his bank account is the income as per the records of assessee. He filed Return u/s 44AD declaring of Rs. 4 Lakhs @ 8% of Turnover. Can the AO add the difference of Rs. 21 Lakhs to the income of assessee?} ◊First of all the assessee, being covered by section 44AD, is under no obligation to maintain books of accounts u/s 44AA. Secondly, the turnover being less than Rs. 1 Crore and declared income not being less than 8% of Turnover, Section 44AB is not applicable to the assessee. ◊ Further the assessee is given the option u/s 44AD (1) to declare higher income. The word used is 8% OR higher income. Thus, the option is with the assessee to disclose higher income OR to file Return disclosing the income @ of 8% of Turnover. Here the assessee is free to exercise any option at his will. He may morally show actual income and pay tax on it as an Honest citizen of the country, but such Honesty is not digressed even if he files return @ 8% as he is legally correct. (Here the decision of Honourable Supreme Court in case of Dr. Qureshi can be recalled where the apex court, condemning the High Court, held that “cases have to be decided on merits and legality instead of morality”.) Legally he is given the option by the statute and such an option cannot be equated with obligation cast upon the assessee. There is a definite difference between OPTION and OBLIGATION and an Option granted to the assessee cannot be construed to be his obligation when his actual income is more than 8% of Turnover. ◊ Also, the AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition. ◊ Further, the words used are “higher income claimed to have been earned by the assessee”. Here if the assessee has not made a claim in the Return of Income regarding any higher income, it implies there is no claim for Higher Income made by assessee. AO cannot claim that the assessee has earned higher income, because under the statue, he is not entitled to do so.
Read more at: http://www.caclubindia.com/forum/applicability-of-sec-69-in-case-of-44ad-242697.asp#.UxgjAD-SxsM
I’m full time trader in futures and options and doing few delivery based trades in a year ..
I have gone through blog and want to clear my confusions..
My profit and loss ledger shows profit of 8 lakhs
As I have gone through blog have calculated my turnover I.e settlement profits + settlement losses =55 lakhs
So the 8% would be 4,40000
If I calculate this under sec 44ad then it would be 4,40000-200000(exemption)=2,40000 then the tax would be 24k
Or I have pay the tax of 8 lakhs -2L= 6 lakhs
If I’m saving my taxes under 44ad should I be under security or they don’t open the file who files tax under 44ad have gone through few CA websites in which they say whosoever will file under 44ad their books won’t be open.
Suggest the favourable..
Besides that you are doing an excellent job to make us aware..
Hats off to you sir for this support..
Can the Assessing Officer add the Difference between actual income and disclosed income in the assessment proceedings?
{Let us assume that the Turnover of the assessee is Rs. 50 Lakhs and all the receipts are by cheque and the same is deposited in the only Bank account maintained by the assessee. There are no outstanding receipts at year end.
All the payments for expenses on revenue account are through cheques debited to the same account and there are no outstanding expenses at year end. The total expenses are Rs. 25 Lakhs.
Thus the balance of Rs. 25 Lakhs as per his bank account is the income as per the records of assessee.
He filed Return u/s 44AD declaring of Rs. 4 Lakhs @ 8% of Turnover.
Can the AO add the difference of Rs. 21 Lakhs to the income of assessee?}
◊First of all the assessee, being covered by section 44AD, is under no obligation to maintain books of accounts u/s 44AA.
Secondly, the turnover being less than Rs. 1 Crore and declared income not being less than 8% of Turnover, Section 44AB is not applicable to the assessee.
◊ Further the assessee is given the option u/s 44AD (1) to declare higher income. The word used is 8% OR higher income.
Thus, the option is with the assessee to disclose higher income OR to file Return disclosing the income @ of 8% of Turnover.
Here the assessee is free to exercise any option at his will. He may morally show actual income and pay tax on it as an Honest citizen of the country, but such Honesty is not digressed even if he files return @ 8% as he is legally correct. (Here the decision of Honourable Supreme Court in case of Dr. Qureshi can be recalled where the apex court, condemning the High Court, held that “cases have to be decided on merits and legality instead of morality”.)
Legally he is given the option by the statute and such an option cannot be equated with obligation cast upon the assessee. There is a definite difference between OPTION and OBLIGATION and an Option granted to the assessee cannot be construed to be his obligation when his actual income is more than 8% of Turnover.
◊ Also, the AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition.
◊ Further, the words used are “higher income claimed to have been earned by the assessee”.
Here if the assessee has not made a claim in the Return of Income regarding any higher income, it implies there is no claim for Higher Income made by assessee. AO cannot claim that the assessee has earned higher income, because under the statue, he is not entitled to do so.
Here is the link sir
http://taxguru.in/income-tax/provisions-section-44ad-amended-finance-act-2012.html
Ajay,
Like I just mentioned to Aijaz, the idea of declaring 8% as profit on the turnover is in case the turnover is less and there is a loss, and this is just to avoid audit. As you know, no one has a problem if you pay more taxes, but in a case like yours, where for a 55lk turnover you have a profit of 8lks, you anyway don’t need an audit. What you should ideally do is, add this 8lks to all your other income, reduce all expenses and then pay taxes according to the slabs.
Cheers,
I don’t have expenses receipt but I file tax under sugam..So upto 90% I can assume my expenses since I don’t have to maintain the books else I will loose the substantial benefits of 44ad..Correct me if I’m wrong.
Yes you can assume your expenses, but make sure it is in line with what you have actually spent.
If i Have invested 1lac and after 1 financial year i make 1 lac profit.
But of the profit share i pay 20% that is 20,000 for the tips i take from some people from stock market.
Can i show this for tax benefit along with the internet bill, depriciation of Laptop etc?
Yes you can show what is paid to the tipster as an expense along with all your other expenses.
Or can i show tht my net profit is 80,000 instead of 1lac?
You will have to show gross profits, and show expenses, and then reduce expenses from gross profits. You cannot directly show as 80k instead of 1lk
THanks
Are there any other tax benefits apart from 80c, Hra, house rent, medical fuel bills which are for working proffesional and telephone internet bills, depriciation of PC for a working proffesional into stock market.
Are there any other tax savings schemes?
There are numerous deduction available U/s 80-C ( Investments) to 80U . The List of all deduction can be retrieved from by using this link
The method of calculating turnover in F&O of adding all profits and losses, is based on what circular or section of the IT department. ?
Is the same formula valid for return filed under Section 44AD also ?
Thanks for helping
Shravan,
The problem is that there is no such circular, it is a common practice being followed. Hence it is always best to consult a CA, Section 44AD is presumptive taxation and turnover will still be calculated the same way.
Im trader in f&O and doing and have no other bussiness..
My mtm ledger shows profit of 10lakhs and my CA told me we can settle this profit under 44ad..
that is my settlement profit + loss turnover =48lakhs that means roughly have to pay around 19k tax..
Is this genuine or he is misleading?
(48 lks, 8% of this as profit will be around 4lks, so 12 to 20k in taxes should be ok according to me.).. Aijaz, my bad, I thought you had mentioned a trading loss and hence I said you can show the 8% as profit to avoid audit.
Thanks for the reply I’m highly obliged..
So I have to pay taxes on turnover 8% I.e according to you 20k approximately.. Not on 8lakh which my broker p/l ledger shows 10lakh..?So my CA is correct?or I will be under scrutiny for 8 lakhs profit..
If 44ad says this then please guide there is short time to file returns
Example
X is carrying on small business . The Turnover is Rs. 50 lakh. The profit as per his books or calculation is Rs. 8 Lakhs. However, he opts to return the income under section 44AD @ 8% i.e Rs. 4 Lakh. The proceeds of business are deposited in a bank account.
Can the AO assess the difference amount as undisclosed income?
No, The Answer is No due to following reasons:
– The section has been amended for the benefit of the assessee.
– The word Claim signifies the right of assessee, and it is not an obligation of the assessee.
The distinction between Right and obligation is very necesrary here.
The language of section of section 44AD(1) requires claims to have been made by an assessee for returning higher income.
If there is no claim made by assessee in return for higher income, there is no higher income.
JUDICIAL DECISIONS
• The following judicial decisions support this view:
– Samta construction Co V. Pawan Kumar sharma(2000) 244 ITR 845 (MP)
– CIT V. ARVIND MIILS LTD(1992) 193 ITR 255(SC)
-AC,BANGLORE VELLIAPA TEXTILES LIMITED AND ANOTHER (2003) ITR 560(SC)
Aijaz,
I have corrected my earlier comment, I had thought you had mentioned a trading loss and hence suggested you show 8% of turnover as profit to avoid audits. In your case, since profit is more than 8% of your turnover, you anyways don’t come under audit. It is kind of a loophole in the system, but I’d advise not to take it, add this 10lks of profit to all your other income, reduce the expenses and then pay tax according to the normal slabs. ITO will have no problem if you have paid more taxes, but if you have paid less it can always cause some trouble in the future.
What is the tax for female f&o trader whose settlement turnover is 4636150 according to 44ad..if we calculate on 8%
My CA told me 8k..
I didn’t understand his calculations..
8% of 43 lks is around 3.2lks profit. First 2 lks there is no tax, and 2 to 5lks is 10 %, so on 1.2lks 10% is 12k, so around 8K should be ok.
Dear Nithin,
..Back with few querries on this topic again.
Is there any way to save tax from the profits we make?
My wife is a homemaker, trading is the only source where she has been earning.
At the moment, for 1st 2lakh income only we are not paying tax.. remaining amount is taxable as per taxation.
For employees, we can get tax benefits for
1. upto 1 lakh under 80cc
2. House rent or hosing loan etc..
Is it possible getting these benefits on trading income ???
Income from trading is just like any other income, you can get all the benefits and also you can reduce all expenses that you have incurred towards trading.
You have recommended in several posts that even if the profit is less then 8% of the turnover, to avoid audit hassles, we should show the profit as 8%
My question is if we show the excess profit, how do we adjust the same in the balance sheet ?
Shravan,
Section 44AD is presumptive taxation, so if you declare using this there is no audit required. As I have mentioned earlier, this is just my suggestion, and do consult your CA on this.
Cheers,
Can we draw 10 lakh expense on trading …’
Does we need audit for those expenses
Aijaz,
As long as expense is something that you are incurring towards trading, there is no limit on how much expense. But the issue is if you show 10lk expense and tomorrow for any reason Income tax officer rejects it, it can be an issue then. So it is best to not over inflate any expense, and best to keep a proof of any such expense and document the reason behind it, this is good enough, your CA will also need only this while filing your returns.
Cheers,
Did these expenses are checked by state income tax deptt. or national level?
Today most of the notices are automated, which means a centralized computer sends out notices from the Income tax department, they might have set rules which determine whom to send notices. But once someone gets a notice, after that all interaction would be with the local Income tax officer.
Hi,
Thanks for your earlier reply. I need to file my income tax return for AY 2013-14. I’m a salaried person and my employer has deducted tax at source and produced the Form 16. I engaged in cash, 3 instance of FnO and commodity trading(no-agricultural) and had losses of around 28K (10k for Cash, 500 for FnO and 18k for Commodity) in FY 2012-13. I understand that I cannot carry forward the losses now as I’ve missed the deadline. I contacted several CAs and Tax consultants but got such contradictory responses that I’m a totally confused now. My net transaction in derivatives section(from the ledger) is around 2.2 lacs as credit and 2.5 lacs as debit. I believe my turnover is much less than 5 lacs. So in this case do I need to go for tax audit? Some tax consultants have told me that doing tax audit now and submission will attract penalty. If you please advise what documents need to be prepared as “books of accounts” , who can do that(CAs or Tax consultants) and whether they need to be submitted to IT dept or can be kept for future reference. I’ve been quoted ~Rs 8000 for tax audits by CAs and around Rs. 4000 for preparation of books of a/cs and filing of ITR>. Are these reasonable rates?
Thanks
Hi S,
Yes the time has passed to have filed your returns to get the benefit of carry forwarding your losses.
You can file delayed returns, and if your turnover is what you are mentioning, what I would suggest is that instead of showing loss show gross profits for 2012-13 of 8% of your turnover. So if 5lks is your turnover, show that you made 40k profit in 2012-13. This way you will not need an audit from a CA, and tax outgo on 40k will be maximum of 12k( if u r in the 30% bracket), even this could be reduced further by showing expenses to reduce your gross profit and hence the net tax outgo.
Book of accounts needs just your bank statement,your trading ledger & PNL, and keeping a book with all expenses you have incurred towards trading as a business, charting software cost, internet, tips etc etc.
The prices you have mentioned are pretty reasonable, do bounce the idea that I suggested with your CA.
Cheers,
Many Thanks for your quick reply.
Hi, A quick question, if I do not show it as a profit and my turnoevr is much less than the required limit (1 crore I believe) after which the audit is required, can a simple ITR 4 submission with no loss carry-over help me? Needless to say all the necessary books of documents will be prepared along with it.
S,
Until a couple of years back, audit was required only if turnover was more than 1crore, but there was a small change in section 44AD, because of which many people have been receiving notices. What this says is that if turnover is less than 1 crore and gross profit less than 8% of turnover, you will need to have the books audited. Hence I suggested you to declare a profit of 8% and file, that way you will not need an audit.
Yes I forgot this aspect. Really appreciate your quick responses.
can i incorporate a private limited company to trade futures? or does it need to be done only as an individual?
You can have a private limited trade the markets (stocks, futures, options, commodities, currency), but you need to include a line in your MOA and AOA saying that you intend to do so while forming the company, and if you have already have a company, your CA can include this onto the MOA and AOA
Hi, Regarding the expenditures to be offset against business gains, how can we determine and declare the depreciation of laptop? Which document is required?
The maximum depreciation that you can claim on a computer is 60% per year, so if you have bought it at 30k 1st year you can claim depreciation of 18k, 2nd year 60% of this 18k, and so on. Keeping an invoice/purchase bill of the computer would be good if tomorrow you are questioned about this.
Cheers,
I do on and off trades in futures buying stock and sells them when they are in profit or sometimes loss and or carry forwarding them also and simultaneously in same account I keep the delivery of equity of stock for 2-3 months ….
I’m in profit from stock futures and I have earned from deliveries of equities.
Should Gains of stock future fall in general tax slab? And gains from equity stock which I keep for 2-4 months fall in short term capital gain slab? or both fall in same slab ?..what should I show myself while filing it returns trader or investor…
You are doing a wonderful job by helping newbie like me who doesn’t know anything about taxes please clear this confusion also
Yes Hafiz, you need to consider yourself as a trader, so any income made from trading should be added to your any other income, and tax paid according to the slab you fall in.
Equity short term, if you are an active trader you have to show it as a business and hence it will also fall in the general tax slab. But if your short term trading is small, you can maintain a separate portfolio, and pay according short term capital gain.
I’d advise you to show all trading activity under the head of business, add it to your other income and pay accordingly. Make sure to show all your trading expenses as well..
Thanks sir for your immediate reply..
Please make it more clear
I have done 3 trades of delivery based in equities in full year and their volume turnover was 1 crore in fy13/14 and futures stocks I have done 11 trades in fy13/14 and the volume turnover was 6.5 crores..
In future stocks I have earned 3lakhs and in delivery I have earned 8 lakhs..
So have revealed every trade above
Please tell me should I file returns and show myself as trader for all trades and fall in normal tax slab or I have file different for delivery based trades whose delivery time was 1-3 months..
Sir you didn’t reply this please clear this situation
Hafiz, you are an active trader, so it is best you show both the activity of trading stocks and F&O as a business. So add this to other income, reduce all the expenses incurred for trading, and pay tax as per normal slab.
Cheers,
Thanks sir in this case my turnover settlement profits + settlement losses for individual contracts of f&o is 30 lakhs but I’m confused about equity here now !
Do I have to calculate equity turnover same as I did in f&o then it’s 10lakhs…
If not then purchase value + purchase sale= 90 lakhs
1) if I show myself as trader then my turnover would be 1.2 crore(equity 90lakhs +f&o 30lakhs) or 40 lakhs(30fno +10 stcg)?
2) if I show this as individual stcg 8lakhs x15%=90k tax
Then what be the tax for my f&o profit if it’s say for example 5 lakhs?
Can u calculate for me please and clear the stcg clubbing issue also..
Thanks a ton in advance
In case of equity, the turnover will be purchase value + Selling value = 90lks
But here is the thing though:
If you are choosing to show equity trading (short term and long term) under capital gains head and not as a business income, you will have to pay 15% as STCG and this turnover won’t add to your business turnover(F&O turnover).
If you are choosing to show equity trading also as your trading business, then you will need to add 90 lks to 30lks, so 1.2 crores, and pay taxes according to the slabs. But the good thing here is that you can claim on all your expenses.
Whatever stance you take, it is best to stick to it for long term and not keep changing it based on your convenience.
Cheers,
Sir how to calculate turnover in share market.
Priya, it is explained in the post above, also answered in detail on multiple queries in the Q&A section above.
in the blog u have mentioned – “Under section 271 B, failure to submit the tax audit in time has a penalty of 0.5% of turnover or Rs 1.5 lakhs, whichever is lesser.”
my question is, incase i am NOT under audit case, but filing after due date, what is the penalty?
thanks,
hemal
Hemal,
If a return is submitted after the due date, the following consequences could be applicable:
1. The assessee will be liable for penal interest under section 234A.
2. A penalty of Rs 5,000 may be imposed under section 271 F if belated return is submitted after the end of the assessment year.
3. If the return of loss is submitted after the due date, a few losses cannot be carried forward.
4. If the return is submitted belated, deductions allowable under certain sections will not be available.
thanks sir, just 1 last thing. penal interest under 234A will be calculated on what? turnover or taxable income?
All penal interest will be calculated based on the income tax payable.
can business expenses be carry forwarded? if yes, for how many years?
Vishal, Business expenses are as good as losses, and if filed on time can be carry forwarded for 8 years.
sir u have mentioned that broadband internet expenses can be showed as business expense. but the bill that i receive includes telephone calls also. can i show telephone calls also as expense or strictly only broadband expense? thanks
Vishal,
As long as you can prove tomorrow that those calls were for business purpose, you can show that as an expense.
Dear Sir,
Can you help me understand the meaning of audit? You have mentioned that if turnover is greater than Rs.1 crore, an audit is required? What exactly does it mean?
Jayesh
Audit basically means, that whatever you are filing is confirmed & signed by an auditor(CA)
sir my primary source of income is through futures, so my income is treated as business income. so if i buy a car in my name, can i claim depn on the car? secondly, can i claim interest incase the car is bought on loan?
Yes to both your questions Vishal.
to ensure smooth calculation of taxes hereafter, what details do u require us to maintain? ty
You will have a PL statement from the broker, so you just have to follow book keeping, which is basically make a note of credits/debits on your bank statements and for what purpose it is, if it is for the purpose of trading, make sure you keep a receipt of it, so that you can claim them as an expense and have it as a proof if questioned tomorrow.
It is actually a very simple process.
with regard to showing business expenses, brokerage can showed as business expense. but what about the other charges such as-
turnover charges
stamp charges
service tax
STT
SEBI charges
can these also be claimed as business expense?
fyi, i am a futures trader. ty
Everything other than STT can be shown as an expense.
Hi Nithin,
I have started trading only from May 2013 in futures segment and little in cash segment(intraday). So I understand that I come under trading business. My turnover is more than one crore definitely, but I do not have a record of what I did all this while. No journal, no cumulative P/L, nothing whatsoever .. How do I determine my taxable income?
Just to confirm, I have time till September 2014 to file returns, right?
Thank you.
Vijay,
If you have started trading from May 2013, the financial year end is March 31st 2014, you have to file all your returns only after Mar 31st. Turnover is not your contract turnover, it is settlement turnover, so ensure that you understand that correctly. The only need of turnover is to determine if you need an audit or not.
P/L statement will be available from whichever broker you are trading with, and shouldn’t take you more than 10 mins to determine profitability for taxation.
Most of what you need to do is already explained in the blog above, and yes you have time till Sep 2014 in case your books have to be audited (turnover more than 1 cr).
Cheers,
Hi…
I am basically a long term investor, holding stocks from 90’s. I have sold few stocks this year (worth 12.5 lac) which I was holding for more than 20yrs. I might sell few stocks holding from long term in the coming years also. This year I just tried trading in derivatives. I bought 2 lots of dr reddys and made a profit of 25k. Please tell me how the taxation be. This is the first time I am trading in futures, I normally dont trade in futures. I have gone through the blog above and got a fair idea on the same.
But I want to have a concrete idea on taxation part for the case that I will sell the long term holdings in the coming years and want to frequently trade in the futures segment … How should I file the returns. What should be my status trader/investor. For example say I sold 10 lc worth shares(long term holdings with profit of 9.5lac) and made a profit of 5lac in Futures…
Regards
Dil Mohan
Mohan, you can actually consider yourself as an investor cum trader, investor because you are holding long term investments. Show 2 portfolios, 1 as long term and one as trading. Show all your trading activity in futures in the trading portfolio, one of those things that you can do to be safe is do all your intraday equity trading in a different demat&trading account.
This way you can claim all the benefits of exemption on all your long term gain, and still do futures trading. Hope this clarifies, do consult your CA about this.
Cheers,
i’ve purchased metastock software directly from thomson reuters for around INR 85000. can i claim depn on this or should it be treated as business expense?
Kumar,
If you have purchased this, you can claim 60% of this Rs 85k as depreciation in the 1st year, if you have rented it then the entire 85k can be treated as a business expense.
sir if i have not filed my returns, can i simply start afresh from this year? i’ve been into trading for 3 years, but all 3 years in losses.
second, can i show brokerage paid to Zerodha as expense?
Kumar,
Firstly make sure that you are filing from this year on time, about your previous years can you tell me your approximate yearly turnover. Yes brokerage, software fees, tips, etc etc, all can be shown as an expense…
turnover for sure greater than 1cr. and i’ve traded only in futures.
could u pls tell me what to do if turnover is less than 1cr. since the 1st 2 years my turnover is less than 1cr.
Kumar, you can even now file delayed returns for year 2012 and 2013 if your turnover was less than 1crore(audit not required case). As I have mentioned above make sure you are calculating turnover the correct way, trading volume is not turnover. If your turnover is more than 1 crore for these 2 years(audit required case), the only way you will be able to file now would be if in case you receive a notice from the IT department.
Kumar, Turnover is not the contract turnover, it is the settlement turnover, you need to calculate it the way it is explained on the blog.
Sir I got notice for It Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
I am share trader from 2008.I invest in market 50000 rs. in 2008.My total turnover is 1crore in 2009-10 and 2011-12.I am private tuition teacher my income is 10000rs per month so not file itr for 2009-10 and 2010-11 and 2011-12. when i go to it dept. they say u got penalty on r ur turnover.
pls give advice.
Priya,
Firstly you need to check if your turnover is actually above 1 crore. The blog explains how to calculate the turnover, do that first to check what your turnover is for those years, and let me know.
Whether the turnover is above 1 Crore or below 1 Crore is secondary.
The cardinal error he has done is not filing returns at all even when he has done stock market transactions during all these years.
hiii
Is it true about the section 44ad that account needs to be audited if turnover is less than 1 crore and if there is only losses….It looks sumthing wrong with the system.
Could you pls. clarify?
Mahadish,
Yes, if turnover less than 1crore and profits less than 8%. Do check this blog and a bunch of queries posted with people who have received notice for this.
Ya…i read the blog completely….I think there is sumthng wrong in the taxation system…
Is it normal people who hav received it who does not trade with turnover of mr than 1 crore….or might be its only people who has more than 1 crore turover received it….
No Mahadish, many people with turnover less than Rs 1crore have received it, check out the last person who is a CA student in the Q&A. There is something seriously wrong, and we have already represented this to the IT department.
OK buddy…Thanks…
Is the notice received to people who only are in share market?
Or are they working proffesional too who do part time in stock market…
Everyone, notices are going to all kinds of people, I guess all these are auto generated notices.
hii,
As i am beginner , i tried everything i.e. Equity, F & O, Currency (futures n options). My loss from sharekhan trading account is around 50,000.(which i opened in june 13) and i have profit from Zerodha account around 10,000 (which i opened in nov 13). My total loss in F & O is more than 8%. Being a PSU employee my tax is already start deducting by my employer for FY 2013-14 . Now my question is
1. Should I have to show this loss to my employer , if no then when and how I have to fill Income tax. what is the date of filling ITR. Can loss and profit of two Demat account will be clubbed?
2. Is Book Audit required in my case because F & O loss is more than 8%. If yes how and through whom can i done audit. What will be the procedure of Book audit.
3. Which IT from is right for me as i m a PSU employee and salary is the only source of my income .
Thanks in advance.
Hi AKS,
1. Ideally you should tell your employer that you will file your own returns, no need of disclosing to them your profit/loss from trading.
2. Yes losses and profits from multiple accounts can be clubbed.
3. What I’d suggest in your case is, since your turnover seems very low even though you have made a loss, declare 8% of the turnover as a profit. So if you have done 1lk turnover, declare 8% which is Rs8000 as profit, this gets added to your other income, and your tax liability might be as little as Rs 1000. If you get the books audited, the cost might be much higher.
4. You need to use ITR 4, even though you are an employee, because you are trading on f&O
Hopefully this clarifies.
Hey thanks a lot for the prompt reply.. Very much appreciated..
I trade actively on stock market,both in intraday and short term . I am also a salaried individual and as part of income tax filing my company has asked me to submit form c before mid feb 2014 ,which will have details of all investments made for last year. They would need this to deduct appropriate tax from my salary for month of feb and march.
In this regards, I had the following questions:
1)Do i need to submit details of my share market trading to my company as part of form C? Or i will have to declare this while filing of Tax returns?
2) I trade only in stocks and not in F&O. Please advise which ITR form I should use?
I have not yet approached a CA for this and want to understand if Zerodha provides assistance in tax filing ? If yes please let me know where i can get additional details.
27 Jan 2014 at 05:26 PM
shravank30
Form C I am presuming is details of your investments under Section 80C so that they can give you the rebate to the extent of your investment from your taxable salary income.
1. Your share market transactions details need not be given to your employer. You can calculate the profit and pay taxes accordingly when filing the return.
2. As you have intraday trades, the same falls under speculative income and as such you will have to file using ITR 4 form
The above answer was from Shravan, and he is absolutely right.
@Shravan, make sure to click on reply rather than typing as a new comment, the other person wont’ get to know.
I had discussed 2-3 CA whom I knew personally, and all 3 gave 3 different views ranging from what you suggested to showing it as other income to showing just the profit as the sales when I filed my returns last year
Hi Nithin thanks for the reply.
In fact I would request that the moderators or anyone having a personal link with a senior IITO, to ask them for clarifications on the same to settle the issue once and for all.
I had approached the helpdesk in ITO office at Bangalore, but they were unable to give me the reply as I had approached them as an individual.
Hi Nithin
Logically what you are saying makes sense but technically speaking, there is no actual purchase or sale.of any goods.
In view of this are you still sure that returns should be filled as advised above
Thanks for advising
No ITR has anything specific to trading the markets, so while filing returns, everything has to be done using logic only 🙂 , But you can should have a word with your CA once..
Cheers,
I have no other income except F&O
I have 5 lakhs of Gross Profit and 2.50 lakhs of losses
Nett profit 2.50 lakhs
In which columns of ITR 4 would the 2 entries be reflected while filing my returns ?
Thanks for advising
Shravan, The ITR 4 is not designed specifically for F&O trading, it is used generally by all businesses. Your gross profit, show under Sales and Gross loss as purchases. Brokerage, taxes, and other charges has to be shown separately on the ITR.
Hi Nithin,
So thoughtful of u to post on one of the confusing topics.Keep up the impressive work.
My query:
the post clearly says that I have to take a stance either as an investor or trader, before looking at the taxes I should pay.
1)What is the thumb rule that distinguishes a trader from an investor?
2)I am a beginner.So , my capital,profits,losses,turnover, everything is less than 2lacs. I buy equities only and hold some stocks for more than a year…while some stocks i sell off within a year….Now, case1:I am an investor.So i need to pay 15% taxes.
case2:I am a trader.So My total income is less than 2lacs…so i am exempted from taxes.
which of the above two cases is apt?
1. There is no thumb rule as such when trading equity, but if you are trading futures and options, currency or commodity, you have to declare it as trader. But if your activity is the way you have described, you definitely look like an investor to me. 🙂
2.
a. Since you are an investor, for all long term profits(stocks that you held and sold after 1 year) the taxes are 0, and Short term capital gain tax is 15%( bought and sold before 1 year).
b. If you declare the same as a trader, you need to add any income from trading with any other income of yours including salary, and pay tax according to the slab you fall in as per IT department. But yes, if trading is your only income and if it is below Rs 2lks, there will be no taxes.
Hopefully this clarifies,
Hi Nithin,
Thanks for the superb explanation. I am happy and greatful.
Ofcourse clarifies! 🙂
Taxation Simplified indeed.
Keep up the good work. 🙂
Nithin , I think you are making a big mistake – For those who are in the business of futures and options and are declaring profits(or losses ) less than 8% of turnover(as defined ie absolutes of profits + absolutes of losses) you have been mentioning that they too need to get their accounts audited even if their turnover is below the 44AB limit of 1 Crores.But I urge you to please see the guidance note issued by the CA institute on 44AB page 30 which mentions that this will not apply to a person carrying on profession as referred to in sub-section (1) of section 44AA;Now if you see this 44AA(page 33) you will find “(vi) Stock and share broking and dealing in shares and securities – CIT v.Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom)” . I suggest you please clarify this so that those who are below 1 Crs to limit but whose profits are <8% need not get their accounts audited at all (not just tax audit but no need of any audit ) .
Hi Common,
Have been advising everyone, that they need to consult their CA before taking any decision on this. Multiple people I have spoken to have different views on this. Last year many traders received notice for defective returns, and it was mainly because of the applicability of Section 44AD. That is when we ran another post, saying that if you have received a notice, it could be the reason.
The reason for us to take the view was because, trading is not really mentioned as a profession anywhere. As per 44A profession defined are legal, medical, engineering, or architectural profession or profession of accountancy or technical consultancy or interior design or any other as is notified.
The case study you are referring to I guess is relevant to a stock broker, and not a trader. But as I said, it is our view, and as a trader when we already live in a stressful environment, it is always better to be safe than be hassled later.
Cheers,
Nithin
I do not deny that in its zest the IT dept is sending out 139(9) notices to even those below the 1 crore limit if their profits are below 8% (i am one of the recipients) .This however does not lend sanctity and is not legally tenable.
I repeat that there can be only 1 truth and not multiple versions of the same truth.Many CAs can have many opinions but that’s a derivative of their stage of learning and their stage of evolution.I am not faulting your advise that everyone consult their own CAs but when you post for Zerodha you need to stand by your advise .Now you raise a question on whether trading is a profession . I urge you (and I have done the same and I am also a trader) to read the guidance note prepared by the CA institute on 44AB and I urge you to ponder a bit on the exclusions in Sec 44AA (I have given page nos in my prior post) and its clear that trading is as much a profession as is architecture or accountancy or painting or technical consultancy.
Now I come to the actionable – yes consult your own ca is a good advise but in that case there is no need at all to give prior pointers.I think what you may wish to do is to look up the ca institute note on sec 44ab(google it and u will find this)and make a professional decision.Else get the view of one respected ca firm from the top 10 and let them give it to you in writing and you can publish it with their name and view.
Cheers from the common man.
Hi,
I am a real estate broker and wanted to know how much Tax I would be required to pay if I earn a Brokerage between 1 to 2 Cr. Please do reply
buddy first of all tell me how can i make that kind of money 🙂 .
Hi Ashvin
well real Estate has all the benefits of a lottery but its very hard to crack these deals…I am still trying.
Monty, We are keeping this post for discussion on taxes while trading the stock/commodity markets. But if you look at the post above, the tax slabs are mentioned, you will have to pay taxes according to those slabs.
Okay Thanks a lot I will try and find the above post ….TC
Dear team,
I wanna book a LTCL from sales of stocks. I understand from your article that this can only be done if the stocks are sold in an off market transaction. In this context could you please clarify the following:
1. May I sell to my spouse and book the capital loss?
2. May I sell to my son and book the capital loss?
3. At what price should I sell the stock – market, lower/higher so that the transaction is not considered shady?
4. With respect to the off market transaction, is it as simple as handing over a DI slip marked “off market” to the DP with proper instructions at the sellers end and a receipt instruction to the DP at the buyers end with matched details and a cheque to the seller for the appropriate consideration?
5. What must be shown as the purpose of the sale?
6. Are there any specifics which I must be careful about so that the loss is not disallowed?
Regards
Arpit
Hey guys, anyone care to help me out here, Nitin?
sorry Arpit, had missed this one.
yes you can sell it to your spouse/son and book capital loss. It is best to have this transaction at around the market price of the stock, to avoid any issues in the future.
Yes all you have to do is use the DL slip and transfer it to the other account, and get the cheque for the amount in return. Make sure to document all these transactions properly.
Purpose of the sale could be the need of capital for whatever purpose you have. You could speak to your CA about this.
As long as you document this entire transaction properly, there should not be any issue. It is best to double check with your CA on this.
Cheers,
Hi i trade only in mcx commodities i have incurred losses for last 4 years. I have been filing returns thru CA every year. I want to know for mcx how many years i can fle losses 4 years or 8 years
?
Trading on derivatives on either of the exchanges can be considered as a business income, so you can ideally carry forward these losses for upto 8 years.
Dear Nithin,
Filing the capital gains every year is a big head-ache. If you could add a software integrated with back office for capital gains, then u will be having a great product at hand and it will differentiate u from the crowd. give a serious business thought here…….
Makes sense Francis, we are working on our new backoffice, and we will have a full fledged capital gain report for you on that.
Dear Nithin,
Is your back office ready now with capital gain/loss report?
yes, can you login to bo2.zerodha.com, we have another report along with the P&L just for taxation that will be released within this week.
what should the returns be filed under, my CA is filing it under the heading Loss from speculation business, is that correct?
Until now what head to file returns while trading commodities has been ambiguous, the Fin act 2013 has clarified it saying it will be a business loss/gain and not speculative loss/gain. How you declare your previous years, hmmm I’d personally consider it as a business loss, but it is best to follow what your CA says.
I have understood all these matters which u have considered in your blog …..it is a ultimate blog for gaining knowledge of the taxation of derivatives.
I am also a CA student ….almost 90% of CA’s does not know about the proper treatment of derivatives.
i have 2 queries which is quite common ..but i m not getting the proper reply for that from any CA :-
1) what is the purchase & sale value to be disclosed in ITR 4 (Loss amount as purchase & profit as sale OR total of all sales contract as sales & purchase contract as purchase …as per you gross receipts means total of profit & Loss then how we will adjust to come to actual profit ) in case we are getting it audited under section 44 AD .????
2) Can i take depreciation of car as expense because we have to go brokers & bank for the purpose of submitting papers ?
and one more thing you have told code for derivatives other’s- 0204 …it may be of other’s – 0809 because it is below share brokers , banks & financial institutions ????
Gupta,
Most of the traders I know use the code 0204, because it is for trading generally and easier to categorize trading the markets in this code.
0808 and 0809 according to me seems more like for stock brokers and financial services business, not for a retail trader but for someone like Zerodha(stock broker) to file returns.
Gupta,
The tricky thing about calculating turnover is that there is no said guideline from the IT department especially while trading the markets. So if you are calculating for f&o or equity intraday, one of the ways to do it would be by summing up the settlement profits or settlement losses for every contract or stock. In case of equity delivery based trading, calculating turnover is simpler, basically sum of all debits or credits because of your purchases and sales of shares.
To come to your actual profits, you could take the PNL report from the broker and then substract all the expenses to get to your actual profit, the simplest way to do so.
Yes, you can depreciation of car as long as you think it is being used for the business of trading the markets. The idea is to be consistent with your expenses year on year and not to randomly add or remove expenses.
Cheers,
I have started trading this year in June (2013) and this will be the first time I will have to take the help of a Chartered Accountant to file returns (I have been filing myself so far). I am not sure which Chartered Accountant to go to . I live in Chennai. Would you be able to point to someone/some firm? I understand that I will engage their services at my risk and responsibility, but I need some contact.
You can ask the CA who has helped us put up the blog : http://www.taxiq.in , they should be able to help you out.
Hi
I am a student(age-18+) in college, my only source of income is by Teaching tuitions, whatever money i earn part time i invest in F&O(derivatives) and commodities and try to earn whatever possible.
From above reading i inferred that i belong to trader category and not an investor.
Am i supposed to file ITR-4 form?
I have started trading since Oct, 2013,
How should I file my ITR for March, 2014?
Please help me out.
Thanks in advance
Regards
Yes 47,
Once you start trading actively, you are like a businessman no matter what your age or what you do.
Since you have just started trading, the returns for 2013-2014 has to be file by next year september, you have to file them only once the closing of financial year which is 31st march 2014.
Until then there is nothing you have to do, but make sure to keep a tab on all expenses you incur towards the business of trading, it can be shown as a business expense and would bring down your taxable income.
Best of luck,
Hi,
Thanks for creating this blog and answering queries.
Hello,
15% tax for short term capital gain tax under section 111A
what does that mean?
Tharun,
Short term capital gain is basically the profit you make from short term trading in equities. By short term in India means equity position you take and sell anytime before 1 year(even intraday trading), if you hold it for more than 1 year it is called long term capital gain for which there are no taxes.
It’s confusing here please clear
I have bought Ibreal in futures about 10lots and got profit of 6lakhs in carrying forward the position for 3 months and in the same year I have bought equity share and kept it hold for 4 months and got profit of 4 lakhs..
What is my tax liability?
Should I show myself as trader or an investor for two different trades…
Over all I have profit of 10 lakhs for which tax slab my case fall Short term capital gain or business income..
I don’t have any source of income and this is my only source of income
Aijaz, in the case you have mentioned, since you trade f&o you will need to consider your trading as a business. So this profit of 10lks should be added to your all other income, since you have no other income, your total gross profits is 10lks. In this 10lks you can reduce all the expenses you have incurred towards trading, internet, brokerage, phone, computer depreication, or anything else (assume this is 1lk). Now your net income is Rs 9lks, 0 – 2 lks 0%, 2-5lks 10% so 30k, 5lks – 9lks 20% so 80k, your total tax liability would be 1.1lks. This could be planned much better, so do speak to a CA.
please clear the doubts.
case 1: a 30 year old man with annual work income of 4 lakh(gross) and net pay of 3.8 lakhs.
net profit from sale of shares within 1 year is (say) 20 lakhs.
case 2: a 30 year old man with annual work income of 4 lakh(gross) and net pay of 3.8 lakhs.
net profit from sale of shares greater than 1 year is (say) 20 lakhs.
case 3: a 81 year old man with no annual work income.
net profit from sale of shares within 1 year is (say) 20 lakhs.
please tell the tax to be paid in all the cases and how u calculate it…..thanks
Tax calculator is available on the income tax site: http://law.incometaxindia.gov.in/DIT/Xtras/taxcalc.aspxIn
Case1: You have capital gain of 4lks and Short term capital gains of Rs 20lks. Short term capital gains are taxed @15% and the 4lks will be taxed as per normal tax calculation. So net tax will be around 3lks.
Case 2: Since your profit of 20lks is on shares held for more than 1 year, it becomes long term capital gain, this is exempt from taxes. You will have to pay tax only on your 4lks salary, which based on the calculator will be around 20k.
Case 3: Since there is no other income, you have to pay short term capital gain on 20lks
@ zerodha,
1) In your equity reports (back office) for intraday the net receivables and net payable are not settlement profit and loss, they are value of buy and sell. That way if we add the net payable + net receivable the turnover is huge. But in the taxation blog you have always said that turnover means settlement profit + settlement loss, please explain how to get the settlement profit and settlement loss for intraday equity? In commodity MCX and currency I do get the settlement profit + settlement loss as net receivable + net payable but not in Equity report, so kindly clarify
2) Does TOTAL TURNOVER mean settlement profit + settlement loss of (a) eq intraday + (b) short term trading + (c) fno + (d) currency + (e) commodity Or, eq intraday is to be excluded
Smart,
1. Presently the equity reports won’t differentiate between delivery and intraday, we are working on this. You would have to presently manually show which is intraday and which is delivery.
While trading delivery , the credit and debit adds upto turnover and not the settlement profit and loss and hence the equity report shows that as turnover.
2. As mentioned above, in case of equity delivery based trades the money gets debited from your trading account and then gets credited, so you need to consider this as turnover. In all the other cases, money stays in your account and margin blocked and hence only settlement profit+settlement loss adds to turnover.
Cheers,
Hi OP/TAXIQ, A case of property, please reply as per the facts given below
FACTS:
1) Original Buyer (husband of present owner) bought 4 Katha 10 Lecha land on 04 Sept 1981 for a consideration Amount : Rs 4000
2) On death of original buyer land transferred to his legal heirs-wife (X) & son (Y) on 21.5.2011
3) Sold part of transferred land measuring 1 Katha 5 Lecha on 1 Oct 2013 for an amount Rs 10,00000. This amount paid by cash.
QUERIES:
A) What will be the capital gain tax on this amount (10,00000). Whether it will be short term or long term capital gain tax? How is it calculated? Please give the breakup. Please note both wife (senior citizen) and son annual income is 1,50,000 each.
B) Will wife and son have to share the tax equally, as both are now joint holders of the land.
C) Can they save the tax by constructing a new house on the vacant area of existing plot of land. If yes, during construction where should the money be kept (I mean any special account or just normal savings account)? What documents are to be kept as a proof of construction of house? What is the time limit for construction of the house?
Thanx in Advance
There you go:
1) Original Buyer (husband of present owner) bought 4 Katha 10 Lecha land on 04 Sept 1981 for a consideration Amount : Rs 4000
In case the Property is purchased on or before 01.04.1981 the cost of the property or fair value which ever is higher should be taken as cost of the property. In your case the Property is purchased after 01.04.1981 then its Rs 4000
2) On death of original buyer land transferred to his legal heirs-wife (X) & son (Y) on 21.5.2011
On the death of original buyer its inherited to his legal heirs 21.05.2011. In that case though the asset remains long term the indexation will be from 2011-12 financial year only.
3) Sold part of transferred land measuring 1 Katha 5 Lecha on 1 Oct 2013 for an amount Rs 10,00000. This amount paid by cash.
You can apportion the total cost to cost of land sold, The amount received is sale consideration for the purpose of capital Gain. It doesn’t make differentiate whether its received cash or cheque.
4. What will be the capital gain tax on this amount (10,00000). Whether it will be short term or long term capital gain tax? How is it calculated? Please
It will be long term gain … For Calculation do visit Some Consultant who can help you with the same.
5. Will wife and son have to share the tax equally, as both are now joint holders of the land.
As per Income and slab, taxes will have to be calculated.
6. Can they save the tax by constructing a new house on the vacant area of existing plot of land. If yes, during construction where should the money be kept (I mean any special account or just normal savings account)? What documents are to be kept as a proof of construction of house? What is the time limit for construction of the house?
There are various capital gain Schemes, one of them is opening a Capital gain Special account and is not your normal saving account. The Time limit is 3 years to Construct.
Suppose I trade in Oct nifty futures 2013 contract, say I have traded 4 times in it on different dates
trade 1 profit 1000 (1 oct 2013)
trade 2 profit 500 (3 oct 2013)
trade 3 loss 500 (4 oct 2013)
trade 4 loss 500 (4 oct 2013)
So my turnover is a) 1000+500+500+500
or b) net settlement of the contract which is 500?
As I had mentioned earlier Abrar, this entire calculation of turnover is pretty tricky as there is no guideline from the IT officials, my advise would be to consult a CA, but in the example I’d consider the net settlement profit of the contract which is Rs 500 as the turnover.
Cheers,
Thank you for the prompt reply. In your back office report the net receivables and payable the amount is as per settlement profit/loss of one contract as in the example above, or it includes the profit and loss of each trade?
It is as per the settlement profit/loss as per the above example
Is there different criterion for audit and mandatory keeping of books like cash book and ledger? I mean when is keeping of books mandatory?
1) Speculative losses can be carried for 4 years?
2) speculative losses can only be set off against speculative losses and not any other head, even in current year
3) a) Business Losses (F & O) can be set off against any loss (including FD interest) other than salary in current fiscal (same fiscal)
3 b) including speculative profits?
4) Business Loss can be carried for 8 years, and can be set off only against business income in those 8 years and not against FD interest etc?
Is my understanding correct
For turnover calculations long term delivery buys (which will not be sold) which will be kept for more than one year is not considered?
Or
We have to take the rate as on closing of 31 Mar to calculate the profit and loss? If that is the case how can we claim benefit of 0 tax under Long term cap gains?
Abrar,
The turnover calculation comes into play only for deciding if your books need to be audited or not. Since there is no clear rule on how to calculate turnover, my advise would be to keep your books and have it audited to avoid getting blanket notices that IT department has started sending from this year, especially if you are an active trader.
Yes you can keep your long term buys in a separate ledger and not consider that for turnover calculations for your active trading portfolio. So you need to clearly demarcate between the trading and investment portfolio.
1. Yes speculative losses can be carried for 4 years.
2. Yes.
3. a. yes.
b. No, you can’t set off the business loss against speculative profits.
4. Yes, the FD interest also can be set off, only the salary income is what can’t be set off.
Under what conditions book keeping (ledger and cash book) is mandatory for a trader of F&O and intraday equity whose turnover is less than 1 crore and profits >8% of turnover?
If turnover is less than 1cr and profits more than 8% of turnover then audit is not mandatory. But if profit is less than 8% of turnover, audit becomes compulsory.
Cheers,
what happens on profit of sale on 2nd residential property before 3 years as well as after 3 years.
The property is in joint name (both giving 50 %) So do both have tax benefit or both can deposit 50 lacs each in Capital gains account or bonds to save tax? please let me know
Thanks in advance
If you sell the 2nd property before 3 years, the gain exempted earlier will be taxed.
Each person is an individual assessee and he can get benefit of upto the extend of investment. So yes if both have invested 50%, both can get benefit upto that extent.
Cheers,
Dear i am intraday trader in stock market. From 2009 to till i never submitted it return as i think i have each year loss. But my total TURNOVER of year is more than 2 crore each year from 2009. So is their any requirement to submit any document to Incometax dept. I have no profit any year.
Before 1 month their is notice from Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
After consultation from local consultant, I send reply of “Non taxable income for 2009-2010, 2010-2011,2011-2012.
On http://www.traderji.com website I read that for Intraday trader there is no requirement of to do Audit, which is required only for derivative trader.
From 2012 i am Senior Citizen.
Please help, any TAX AUDIT required if there is loss??
Is their penalty for 2009,2010,2011,2012?
please i am under very big tension …pl guide me, what to do next procedure???
URGENT
Answer to your queries:
1. Tax audit required if there is a loss?
Intraday trading is considered as speculative business and comes under the head of business and profession only. If you are doing this as a regular activity, you need to get your books audited.
Audit is based on your turnover and not based on whether you have made a profit/loss.
2. Is there any penalty?
By not declaring loss, you have forego the benefit of carry forwarding the loss and netting it off against future profits. File the returns now and whether penalty or not will be dependent on the Income tax officer, but as long as you have not tried to hide anything in terms of profits, you should not have a penalty.
Don’t be worried about it, the notice you have received is a generic common notice sent to many people who have purchased securities for more than Rs 20,000.
File all the returns from previous years(from 2009) right now and since there is a loss you will not have any tax as such to pay.
Also for the previous years, if your profit is less than 8% of your turnover or if your turnover is more than 1 crore, you will have to get your books audited as per section 44AD.
hopefully clears your queries..
I have been investor( buying equity shares only from public issue) for last 30 years.Since last June I started delivery trading from some other broker(Religare) and since 17 th July I started Intraday trading.From 16th Sept.I started trading from Zerodha. In june 2013 I sold 300 shares of Suzlon @Rs.9.5.These share were purchased 2 years back @ Rs 50. Now suppose I want sell ITC shares (purchased in year 1980 at face value).So please let me know how the loss in case of Suzlon and the profit in case of ITC (340 times of face value before indexing) will be treated for income tax purpose. After reading your blog I thought I should stop trading as a trader to get the benefit of long term capital gains.Please advise.
Viju,
This could be still kept separate, just make sure to clearly mention what is your long term portfolio and what are your short term and keep all contract notes etc handy to prove this if required in the future.
ITC will still be a long term gain which is waived off capital gains tax.
If you are actively trading, you can keep a short term trading portfolio, so this loss on suzlon can be showed as a loss on your short term portfolio and net if off against any gain you make which is short term.
Hope this clarifies..
Don’t you think that your 1st and 2nd paras contradicts your introduction of your blog.
“
Viju,
Keeping your long term trades and short term trades separate is very tricky and if tomorrow the taxman calls you for an audit, might be very tough to explain. A lot of traders keep separate trading accounts one for long term investments and one for short term trades to keep both the accounts separate.
This is a very tricky subject and since there are no hard and fast rules given by the IT department, tough to explain.
But do ask your CA an opinion on this.
Cheers,
Thanks,
I already have two seperate accounts.I should use only one account (Zerodha) for intraday trading
Many traders follow the practice of keeping delivery based and intraday/short term/f&o in 2 separate trading accounts. I’d say best to ask your CA on how to go about this.
I AM A STOCK BROKER . MY INCOME FROM STOCK BROKERAGE COMMISSION IS RS 525000 FOR THE YEAR 2012-2013. MY GAINS & LOSSES ARE AS – SHORT TERM GAIN FROM EQUITY RS 27500 , INTRADAY TRADE LOSS FROM EQUITY IS RS 15500 LOSS FROM DERIVATIES IS RS 75500 . CAN I DEDUCT LOSS FROM DERIVATIES AND INTRADAY LOSS FROM MY MAIN COMMISSION INOCME .
Dinesh,
Derivatives trading is considered as a business profit/loss, so if you have made a loss trading it can be net off against your brokerage commission while calculation your returns.
Intraday equity trading loss is considered as speculative loss and can be set off against only speculative gains(intraday trading). So this loss you can carry forward by declaring and set it off in the future years whenever you make a profit..
MY TURNOVER IN DERIVATIVES INCLUDING OPTIONS EXCEED 1.5 CRORE . IS AUDIT IS COMPULSORY . IN P&L SHALL I COMPUTE MY DERIVATIES LOSS BY SHOWING SALES – PURCHASE TURNOVER
yes Dinesh, you will need to get your books audited.
If i have purchased property in 2006-2007 for 25 lacs agreement & if i sell it in 2013-2014 for 1.75 cr agreement what will be the tax if i want to own another property against that same amount?. Also to let you know that i bought another property for 35 lacs agreement in joint with my wife with half of proceedings coming from her account, so can i buy another property against sale of the 1st property?
Chica,
As long as you sell the property after 3 years from purchase it will be considered as a long term asset. You firstly get the indexation benefit which in your case is (25lks/519)*939 around 45lks, the number 519,939 for calculating indexation is available on this link.
Out of this 1.75 cr – 45lks = 1.3cr can be invested into any other property and will be exempt as per time limit.
Yes you can buy multiple residential properties from the sale of your 1st property.
It is best to go visit a CA on this aspect and the above is just our view on it.
i have commodity loss of 10 lacs in year 2011-2012, i have carried forward so can i use it as adjustment against any other income (other than salary)in this assessment year?
Also i have 2 lacs equity derivatives loss this year so can i adjust it against commission income this year?
Yes to both your questions chica
chica Sep 25 2013, 9:14 am
thanks a lot but are u sure 2011-2012 commodity loss can be considered for adjustment this year?
[ Click to thank ]Reply
Losses once you have declared while filing the returns can be carry forwarded for 8 years and can be net off during this period.
oh ok thanks a lot
Hi,
I had very tough time in e-filing tax this year so I herewith request you guys to give step by step procedure in e-filing that helps in filing independently for those who have turnover less than 1crore and also dont need CA Audit (Please post in perspective of whose income is less than 2lakhs).
Thank you.
Chan,
During the course of this year, we intend to introduce a tool to help benefit all of you in terms of filing returns.
Cheers,
Dear Sir,
I think that a number of traders doing f&o may not be aware of Sec 44AD. Whether ‘Trading’ is not a profession? I think professionals are exempted from newly introduced Sec 44AD. Whether a person doing few transactions in F&O where the turnover may not exceed even two lakhs and having net loss, whether required to maintain books of accounts and got it audited?
Chella,
F&O is considered as a business, so like in any other business doesn’t matter how much your business is you have to file your returns using an ITR4 or ITR4S. The new ITR4 when you are using to file, if you try to enter a turnover and resulting profit/loss less than 8%, it will immediately show up an error if you are doing this with the no audit option.
Dear Zerodha,
I have filed using the ‘No Account’ case and of course ‘No Audit’ too and my profit is in minus (net loss) so it is less than 8% of turnover, but I did not get any audit error as you have mentioned or was it because i used “No Account’ case ? Meaning I would have got an error had I filed with ‘Accounts to be maintained’ right ? I realize I will get a notice since I have carried forward the losses using ‘No Account’ case and will need to do the necessary rectifications.
Thanks and Regards,
Bhavesh
Bhavesh,
The thing about notice again is that it is not a guarantee, last year apparently 10lk notices were sent and this year it should be higher. So you getting or not getting a notice is again a chance.
Dear Zerodha,
The Equity Account Analysis gives ALL buys during the financial year and ALL sells for the deliveries, however it doesn’t give the loss / profit for the sell transactions. For example :
i) I sold 5 Reliance shares during 2012-13 which I had purchased during 2011-12, the account analysis for 2012-13 does not give me the profit / loss incurred over the above mentioned sell transaction, it just shows the net sale price from the sale of 5 shares and 0 purchases (since it was purchased in previous year)
ii) Bought 10 Reliance shares in 2010-11, 5 in 2011-12, 15 in 2012-13. And Sold 5 in 2012-13. The Account Analysis for 2012-13 would show me 15 in buy side and 5 in sell side, so you simply get a net value from 15 shares bought and 5 shares sold in the report and not a profit or loss for the 5 sold shares and also as per FIFO, the profit/loss (which the report does not calculate) should be calculated from the purchase price from the 15 shares purchased in 2010-11.
So I had to calculate the profit/loss of ALL such transactions manually. Can you please let me know if such a P/L report is possible on Equity Delivery Sell transactions where full or part of the concerned purchase is in 1 or more previous financial years ?
Thanks and Regards,
Bhavesh
Bhavesh,
Usually the P&L used for taxation will only give you for all transactions for that year. But I get the point you are mentioning, if you are holding shares from before. In such a case you would have to manually do this, atleast for now.
Let me speak to the CA and find out if there is anyway to provide more than 1 years in one statement, I doubt it though.
Cheers,
Dear Zerodha,
Thank you for your quick response.
1. A query on F&O MIS transactions which are objectively meant for intraday, so even this is not considered speculative, am I right or only NRML type order is considered as business income ?
2. It will be highly appreciated if such a report that actually gives the net profit / loss statement inclusive of the related purchase transactions from previous financial years as currently the Equity Account Analysis only gives the net purchases which could be same, less or 0 for the corresponding sold shares in the current year, for example if I bought 10 and sold 5 in the same financial year then too it wont give the net profit from the sale of 5 shares but instead it gives the net profit / loss plus the net value of the remaining 5 shares in the account.
3. Saw in this blog where it has been mentioned that you need to take the opening price of the current financial year in case of open positions from previous fiscal years, but I have found a different view that you need to take the original purchase price of the share and that too in FIFO fashion, so now I am confused with what purchase price should we arrive at the net profit for transactions spanning several years as you realize that if the net profit / loss is calculated incorrectly then the tax liability too can change significantly. For example with opening price as purchase price I may have 0 profit whereas with original purchase price I may have 1000 Rs. profit which should be taxed (if falling in tax slab), so is it possible for you to check and confirm this as its very important ? Since we need to know what thumb rule income tax department is following and we need to adhere to the same else there could be a tax default.
Thanks and Regards,
Bhavesh
Bko,
1. Irrespective of if you use MIS or NRML, trade intraday or overnight, f&O trading is considered as not a speculative but a business income
2. About hte P&L, it will be very tricky to show a previous financial year position in this years. But I have initiated the process to find out if it is allowed to do so, if we you are holding an open position.
3. Bhavesh, this can be done both the ways, considering original purchase price or you can take the value of all your holdings as per 31st March and then for the present year see your profitability based on that of 31st March. The reason we have mentioned this way is because it is the easiest way to file.
we have seen clients, if they are making loss as on 31st march on their open positions then they use our method and if the position is making profits as of 31st march they use the method you have mentioned which considers the original price. Both the methods are alright, remember there is no guidelines from CBDT on all of this, we have to use a method which we find it easy and be consistent to it.
Thank you Zerodha, this blog is invaluable and has been of immense help to us, really appreciate this effort !!
Hi, I had two suggestions for this Blog:
1) Please mention at end of Blog that Queries have been updated as per the latest Jun8 articles so view queries after this date to avoid confusion.
2) Rearrange the page so that latest Queries are seen first and the last ones, or remove irrelevant queries which got affected because of Section 44AD Jun 8 additions to this blog.
Its very beneficial article and lets make it more apt 🙂
Girish,
We will be moving the blog into a completely new format very soon, zconnect was initially setup to train people within Zerodha and had not anticipated the popularity.
Thanks for the input.
Cheers,
Dear Sir, In case of a house-wife who has been frequently trading in F&O making profit in certain transactions & losses in others but cumulatively only loss in each year and having no other income, whether she is required to file Income tax return? Assuming that she has no income and the margin requirement for the transactions are with money given to her by her son and her husband and she has only overall loss in each year whether she it is still mandatory to file the return? If no return is filed for the earlier years whether can it be done now? What are the legal implications involved?
What is the last date for filing the return for the assessment year 2013-2014? whether Section 44AD is applicable for the AY 2013 -14 or for previous years also?
Chella,
Firstly the biggest mistake people do is to assume that no profits means no need of filing your income tax returns. It is mandatory to file your returns even if you are making losses year on year.
There are 2 things which can happen when you haven’t filed:
1. You get a notice tomorrow asking you for the returns based on the turnover you have done on the exchange. If you haven’t filed, the risk is that as per 44AD, the IT department may ask you to pay taxes with penalty considering 8% of your turnover as profits.
2. If tomorrow you make profits from trading or any other business, you will have to pay taxes on the entire gain and can’t use these losses to set it off.
Yes 44AD is applicable from AY2011-12
Last day for 13-14 is 31st Sept with audit.
You can file belated returns for AY 12-13 even now.
Hope this helps
I am a salaried employee and also an active trader in F&O. I have incurrred losses in F&O of around 1Lakh, so I shall be filling the ITR4 form, is that right?
What is the last date for filing ITR4? Is it 5th Aug or 30 Sept?
Yes Girish, you can use the ITR4 and since you have made a loss, you will need the books to be audited by a CA as well, in which case the last date is 30th Sept..
I have received a letter from IT department. I have not filled the IT return from 2010 onwards. They give me 10 days time to proceed with the details for FY 2010-11, 2011-12, 2012-13.
I have no taxable income, I only do trading , but still now no profit made in yearly basic.
Please help me out. How can I proceed with that?
Regards
Gautam
Gautam,
This is the message that we are trying to tell fellow traders today, IT department is going online and these kind of notices will only go up in the future.
As far as your notice goes, meet a CA and firstly ask for extension in time, because 10 days may not be enough time for you to get 3 years details.
Doesn’t matter if you make a profit/loss trading f&O, you are supposed to declare the same. Your CA can file for your 3 years as delayed returns. If you have taxable income during this period, then there could be a penalty in terms of interest on taxes you are due.
Hope this helps
my turnover is below 1 crore and I also made loss during 2010 to 2012 , is it mean I should audit all my FYs before filing return ? How much it will cost for consecutive 3 audits.
44 AD is applicable from 2010, so yes it will be applicable. You would anyways need help of a CA because you are filing delayed returns. Around 10k should be a decent price per audit, but since you have 3 years, you might be able to push for a better price..
I have contact taxiq.in and sent the details ..lets see how much they will cost for the same
Hi,
I do have the following sources of income.
1. Salary from Job
2. Interest income from Fixed Deposits
3. Loss from Futures & Options
Q1 : Does the loss from Futures & Options can be set off against Interest Income from Fixed Deposits.
Q2 : I have filed my return through a tax consultant. He does say the loss from Futures & Options is Speculative loss and cant be set off against Interest Income. Is this correct ?
Thank You
Satya,
If you make a loss in f&O it is not a speculative loss but a business loss. You need to use ITR 4 or ITR4S for this.
Since it is a business loss, you can set off the loss from any gain other than your salary. So yes it can be set off against interest from FD’s.
Hi,
Could you please help me if you know any tax consultant for my case.
Thanks.
Satya,
You can check out http://www.taxiq.in
Cheers,
Hi,
I went back and asked my tax consultant to file for a revised return show it as business loss to get a refund.
His response was “please ask your broker to give me the notification of IT dept for the same”. Is there anything that you can help me with the details.
thank you.
Section 43(5) of Income tax act. It is very clearly mentioned if trades on recognized exchanges derivatives are traded, it is treated as a business income/loss. This year FM also calrified about commodity exchanges also, saying trading in commodity futures won’t be considered speculative.
Hi,
I am student trading in F&O with less capital of 10000 and having some loss. Also I dont have any other source of income, is it mandatory to e-file and if I dont what is going to happen.
Thank You.
Chan,
If you are trading in f&O it is best to file your returns and since you have a loss you would need the books to be audited by a CA.
You are a student and it might seem not required, but there is a small risk of you getting a notice if you don’t do this from the IT department tomorrow and it is best to avoid such a situation. IT department won’t know if you are a student or not while sending that notice.
All you need is the P&L statement from Zerodha, your bank statement and go to a CA, your job will be done in no time at all..
What is consequence if I get notice from the IT department. I am a student and dont have income over 2lk. What is going to happen if I neglect the notice in case I receive the notice, is any thing serious.
Can you see the last query on the blog just put up, gb333. Guess he has just received notice for not declaring. IT department in India is going online and all transactions are linked to your PAN and to your bank accounts. Advise would be to file your returns.
Cheers,
Thank you but sorry to say it was not my question.
Chan,
What I meant to say was that the consequence could be anything, you might get a notice or may not get notice tomorrow. If you get notice, then IT department can block your bank accounts very easily if you don’t pay the penalty..
Chan Aug 5 2013, 11:40 am
If I show F&O profit is more than 8% CA audit is not required am I correct.
[ Click to thank ]Reply
Chan,
This is a loophole that exists in the system presently that if your turnover is less than 1crore, you can get away showing 8% of this turnover as profits and not go through the audit. But this is not something which is advisable.
Hi,
I have trade in equities where I have mad intraday loss so I have to show it and what is the last date to file itr with showing it, and also having query for cash transaction, as I have did this loss for my friend, he was played in my account and incurred loss for that he gives cash which i deposit in bank and transfer to company. it is almost upto 5 lakh cash transaction, so in future IT dept can ask for the same .
Divyesh,
Last date is 31th July for those without audits and 30th Sept for with audits. In your case since you have done active equity trading and also made a loss, according to section 44AD you will have to get your books audited, so you will get time until Sep 30th.
Even if you deposit cash, you are accountable for the source.
Hi
The P&L Report for Fin Year 2012-13 includes April 2012 contracts which wer bought in March 2012 but sold in April 2012
The P&L report for the year 2012-13 shows only the sale value and treats this as gross receipt and gives an incorrect figure of turnover.
How do we treat this in our returns. Ideally we should be treating the purchases of March 2012 as our cost and reduce it from the sale value to get gross receipts / turnover.
Please comment
Shiva,
For these cases where you were holding contract before APR2012, you can use the opening price of the contract on April 1st 2012 to be your purchase price.
Hi Nithin, Om and team,
The P&L report which is generated gives total CONTRACT wise details. And this is what you said should be used to calculate the Turnover i.e. net profit + net loss of the TOTAL profit or loss of a particular contract. But I checked with my CA and he told me that the net profit or net loss is to be calculated per round trade basis on FIFO basis. So for an intraday trader it has to be calculated on daily basis and not on the CONTRACT total basis as what is showing in your P&L.
Kindly clarify who is right in this case.
Also he is asking for all contract notes from which he will copy the tradewise data to arrive at dialy turnover on Fifo basis
LTC,
Different CA’s have different opinion on this and what makes matter worse is that there is no guideline from CBDT on how to calculate turnover when trading the markets.
Our opinion is that settlement profits+ losses for every contract should add up to turnover. Turnover is a criterion to have your books audited or not, since there is a confusion, it is best to always have your books audited by a CA if you are trading f&O.
2nd : You could give him all the contract notes and let him calculate turnover that way, but our opinion is that it is not required.
Cheers,
Zerodha ,
as I have understood for calculating turnover of future and options procedure is absolutely same i.e. settlement profits+ settlement losses and there is no difference in turnover calculation of both.
Yes Dinesh,
But do consult with your CA
Dear Zerodha Team,
I would like to know what is the tax percentage for commodity intraday / carry forward.
Commodity trading be it intraday or carry forward similar to equity futures is considered as a business income. So you need to add profits to your other business income or debit losses from other business income. You can also debit all expenses incurred towards commodity trading, after all of this you have to pay tax according to the slab you are in as mentioned on the blog.
Cheers,
Dear team,
Kindly suggest the right way of filling the P&L in ‘no account case’ with:
Two F&O trades: Profit of 60000 in one and loss of 80000 in the other
Understand that the turnover becomes 140000, and loss of 20000
Can you please guide me in filling 51a, 51b and 51c i.e. Gross receipts, gross profit and expense? Understand that 51b doesnt take negative values, and 51c would include brokerages.
Nishant,
Firstly, i’d suggest you to consult a CA before going ahead with this,
Coming to your query,
Do read this blog first, there has been a change in section 44AD which has brought a lot of businesses under its umbrella including trading the markets.
What this says is that if your turnover is less 1crore and your profits less than 8% of the turnover you have to get your books audited. In your case since it is a loss you fall under this category.
51 a is gross turnover which is 1,40,000 in your case
51 b is profits and you cannot mention negative number here, this has to be 8% of the gross turnover atleast.
51 c is combined expenses.
You basically have 2 options now, show profit as 8% of your gross turnover or else have your books audited by a CA as prescribed by 44AD. When you have your books audited by CA, it won’t be a no account case, it will be a normal case. You can show your losses and carry forward this loss to set off against any business profit in the future.
As I mentioned earlier, do consult your CA..
Dear Nitin,
Could you explain, based on which report (from zerodha) total turnover will be computed? because when i compute from Profit Loss Report, turn-over value is huge than from Trading account analysis report( also called Client account analysis).
In Profit Loss report, each contract profit loss is listed monthly. but in Trading account analysis, profit loss is listed script basis yearly.
Best Regards,
Srinivas
Srinivas,
You will need to use the profit and loss report for this.
Q1) The above article says:
“As long as the trading in derivatives is carried out on a recognized exchange, it is not considered as a speculative transaction like in intraday stock trading. A person trading derivatives is automatically considered as a person who is an active trader or trading as a business. In such a case any profit or loss from derivative trading is considered as “Profits and Losses of business or profession.”
Any profit would be a business profit and you would have to pay taxes after adding it to your other income and according to the slabs mentioned on the table above.”
if other business activities generated an income of 3 lakhs and NSE futures trading resulted in a loss of 2 lakhs, can this futures loss not be carried forward since it should be calculated with the other business income ?
Q2) The article also states..
“Section 44AD until AY 2011-2012 was meant only for businesses in civil construction. From AY 2011-2012, this was made to include all businesses including the business of trading. What this section states is that even if your turnover is less than 1 crore, if your profit is less than 8% (if you made a loss also), you will still need to have your books audited by a CA.”
In the above case, only futures trading with a loss of 2 lakhs would have required an audit by CA.
But since the income from other business is 3 lakhs (a net profit of 1 lakhs), will it still need audit by CA (the net profit is greater than 8% of turnover).
Nithin, Thanks for this initiative to simplify taxation issues. It is a very helpful blog.
Regards,
Poonam
Poonam
1. If your other business makes a profit of Rs 3lks and trading a Rs 2lk Loss, your net income for the year is only Rs 1lk, you can set it off in the same year and can’t carry forward the loss.
2. Basically when you get your books audited, you cannot keep trading and other income as separate. Everything gets combined and you need to have this audited.
Cheers,
Hi Nithin,
How are settlement profits/losses calculated ?
For instance if i trade DecNifty futures 5 times, making a profit of Rs 1000 each in the first 3 trades and a loss of Rs 500 in the last 2 trades, will the turn over be Rs 4000 (1000+1000+1000+500+500) or Rs 2000 (1000+1000+1000-500-500).
In the Zerodha P&L statement, I see an accumulated P&L for all transactions done related to NIFTY12DECFUT futures in the financial year and it reflects Rs 2000 as the settlement profit and loss.
Regards,
Poonam
In that PNL report that you are looking at, the bottom of the page you will see net payable or net receivable, sum it up and that will be your net turnover for the year.
Dear Nitin,
I have got few questions on tax filing.
I Do FNO trading regularly.
I got the ZERODHA FNO Profit loss report from zerodha support team. Is this report correct one to find out the turnover or any other facility available @ zerodha?
In this report it have following components.
Net Receivable : x
Net Payable : y
Brokerage : a
Turnover Charges : b
Securities Transactions Tax : c
Stamp Charges : d
Service Tax : e
SEBI Charges :f
So turnover = x + y – a – b – c – d – e – f . is it correct or turn over includes all a, b, c, d , e, f???
And, I bought few FNO contracts in earlier financial year before 1st april 2012 and sold in the april 2012.
I sold some contracts in this year before march 31, 2013 and bought back in the april 2013. so how do i adjust these contracts into 2012-13 financial year filing >???
And, I have deleted some of the contract notes got through mail. Is there any place to download these contract notes in the zerodha.
Please Clarify…
Best Regards,
Srinivas
seenu.ii Jul 23 2013, 9:10 pm
Dear Nitin,
And also, i have a confusion, at one point.
My turnover is less than 1 crore. and my profit is more than 8%.
So, Still Do i need to get my books audited by CA for 2012-2013 returns???
Best regards,
Srinivas
Srinivas,
Firstly your turnover would be your total net receivable and total net payable. Basically X+Y
Turnover is mainly used for knowing if you need audit or not, if it is less than 1crore and because your profit is more than 8%, you would not need a CA audit.
For the open positions coming into a financial year, consider the opening price as on 1st April 2012 as the opening price of the contract for calculating taxes for this year.
Similarly if you have not closed a position, consider the closing price of 31st march 2013 as the closing position.
In the gross profit you can deduct a+b+c+d+e+f and also all other expenses that you had made towards your business of trading…
Thanks a lot…
Can you advise me where can i find opening price of the contracts for the old contracts,
I searched in the zerodha but did not found any where.
Best Regards,
Srinivas
You will not find it on Zerodha, You could look at the closing price as on that particular day by visiting NSE website and looking at the bhav copy there. Vist this link: http://www.nseindia.com/archives/archives.htm click on derivatives and mention the date at the bottom. You will get the price of that contract as on that day.
Cheers,
seenu.ii Jul 24 2013, 4:42 pm
Dear Nitin,
As you said,
Turnover would be your total net receivable and total net payable. Basically X+Y
CA audit not required if: Turnover is less than 1crore and profit is more than 8% of turnover
Here, Profit means,
is it just X-Y or X-Y-a-b-c-d-e-f
if it is just X-Y, my profit is more than 8% or
if it is X-Y-a-b-c-d-e-f : my profit is slightly less than required. Exact figure is 7.73%
where,
Net Receivable : x
Net Payable : y
Brokerage : a
Turnover Charges : b
Securities Transactions Tax : c
Stamp Charges : d
Service Tax : e
SEBI Charges : f
Now:
I am in big confusion on whether i should go ahead for CA audit or not required?
Please Advice..
Best regards,
Srinivas
[ Click to thank ]Reply
Srinivas,
It is best to keep all related questions in one query, I have deleted your separate post and made it part of this thread.
Your profit would be the gross profit – all expenses.
expenses would be a+b+c+d+e+f+ any other charges which you have incurred for trading business..
It will be best to consult your CA about this.
Dear Nithin,
As I said, my net profit is just 15k is less to make 8% of turnover.
When I consult some CA, they are saying their professional charges for auditing is 10k.
Can you tell me tentative auditing cost for the traders?
is this ok if I show my net profict as more (to make it more than 8%) and pay tax accordingly?
Some CA’s are asking, last year ITR reports for this year AUDIT. but last year i did not file ITR, i was in loss by some margin.
Best regards,
Srinivas
Srinivas,
Professional charges for CA can vary quite a bit, but 10k is a pretty decent prize.
If you show your profit over 8% of the turnover, yes you can pay taxes and get away without an audit, this is a loophole in the system for now. But the thing is, you would have declared wrong information and there are chances of this coming back to you, very little but definitely a small chance which is best avoided.
If you have not filed for last year, you can still file it now, but you will not get the benefit of the losses being carry forwarded. But you will find CA’s who will do without this as well..
Cheers,
Nitin,
I have another question, regarding my personal ITR.
1)Assume i only have salary income
2) I have own house which i have given for rent and i am paying homeloan interest
3) I my self staying in a rented house and company considers my HRA claim.
Which ITR form should i use to file such thngs. (ITR-1 or ITR-2)
In the online filing of ITR1 there is a section Income from house property, can i put my (Rental income-Interest) as loss?
Thanks in advance
Seenu,
ITR1 is for only Salary and interest income.
ITR 2 if you also have a rental income along with the above.
So you need to use ITR2
Dear Nithin,
I met 2 CA guys to get my tax filing done. What they are saying is, for the trading F & O trading,
ITR 4 should be used for the cases whose profits are less than 8% or turn over more than 1 crore and whose books must needs to be audited.
ITR4-S should be used for the people whose books need not be audited(i.e turnover < 1crore and profit is more than 8%)
I have bit confused now as u said, for trading f & o business ITR 4 only to be used.
Please Clarify..
Best Regards,
Srinivas
ans also, as per https://incometaxindiaefiling.gov.in/, forms usage explanation, ITR4-S seems applicable for trading..
If you feel the ITR4-S is not applicable, can you please give some CA people contacts?
Seenu,
Both ITR 4 and ITR 4S can be used, but it will be easier to use ITR 4s if there is no tax audit since lesser options to worry about while filling the ITR form. So yes it will make sense to go for ITR-4S if you don’t have an audit..
ITR 4 and ITR 4S is the same, ITR 4 S(saral) is a easier to fill version of ITR 4..
Thanks a lot..
Dear Nithin,
What is the code we have to select for the nature of business?
0204 is the code
> For financial year 2011-12, you will have time till 31st March 2014 to file revised returns. You need to choose revised return under section 139(5).
I contacted another CA who told me that last date for filing revised returns for FY 2011-12 was 31-03-2013 and it is late for any corrections. I had incorrectly shown F&O trading losses under STCG in ITR-1 and now want to file revised returns using ITR-4 for FY 2011-12. Please clarify.
Thanks,
Nitin
Hi Nitin,
If you have filed your returns in time for FY 2011-12, they you get time till 31/03/2014 to file your revised return..
@Anish, on your post of 10th July, i have another view – it is of intent backed by proportional claim on expenses.
1. If you are doing F&O, its always business income and added to income.
2. If you are doing short term equity (<1 year), you can club any profit/losses under short term capital gains, but you cannot claim expenses against this. Also, ensure that the turnover of short term equity <x% of F&O turnonver to justify intent. My x always <10%. Basically, If you are doing F&O and want to take short term capital gains too, short term equity should be a minor portion of your total turnover. Obviously, that all your expenses should also be proportioned in the same ratio.
3.Equity > 1 year is always tax free (under current laws), irrespective of your status on 1 and 2.
regarding f&o
http://money.outlookindia.com/article.aspx?286519
Dear sir,
I am a housewife and my husband is a government salaried employee. I am using his fund for trading in future and option, equity, commodity and get loss 1.5 lakhs in commodity future in silver . Income tax is charged on his salary. my husband can use this loss to file income tax refund or not. what will be our income tax slab. i have joint saving account for this purpose in sbi.
Another question is this, if i get benifit 2 lakh on my trading and his savings are 1.5 lakh than it will become 3.5 lakh than there will be any income tax charge on this amount.
How much amount can be used as tax free from my husband and my profit for FY 2012-13.
please give me detail about this..
Regards,
Reena sharma
Client id :- DR0555
Reena,
Firstly, I need to know if you are trading in your account or your husband’s account?
Assuming you are trading in your husband’s account,
Firstly, if you make a loss trading, this cannot be used to set off against salary income of your husband. If your husband tomorrow makes any business/trading profit at that time you can set this off. But to do this in the future, you need to declare your trading losses while filing your returns this year
Secondly, if tomorrow you make profit of 2lks after showing all expenses that you incurred for trading and if your husbands taxable income is 1.5lks, then he will have to pay taxes on the 3.5lks.
Nothin can be used as tax free, because your husband is on salary.
Cheers,
Sir,
I am trading in my account using my husband’s money. i am a housewife, no other income on my account. i lossed 1.5 lakh in my account using his money, can he setoff this money for his tax rebate.
Regards,
Reena Sharma
Reena,
Ideally your husband cannot setoff losses made on your account to his trading profits.
Cheers,
Hi,
Since I incurred only losses, I have not filed for any of the year, which I am planning to do now.
Can you suggest any CA in Bangalore or Hosur to assist in filing the returns.
I trade only in F & O
Thanks in Advance
Gnanamoorthi
It is advisable to not ignore this as it can have implications in the future. You could use any CA, we have practically covered everything in this blog. If you are looking at someone in Bangalore you can look at http://www.taxiq.in, they help us in maintaining this blog on taxation.
Hi,
i am a salaried person. I trade in F&O also .Please let me know which ITR form is applicable to be filled. ITR IV doesnt have provision to show salary income.
How much (in %) tax to be paid on the net profit?
please guide.
thanks
Shailesh
Shailesh,
ITR4 is pretty exhaustive and you can use this to show your salary and f&O trading business. You can also show all your business expense and hence reduce your net tax outgo.
How much % depends on what bracket you fall in, do read the blog above, mentioned on it.
Cheers,
I have a follow-up question to my last query. Is it possible to show the profit/loss in F&O trading as speculative income using ITR-2 or is it mandatory to be filed as business income only using ITR-4? My CA told me that it should be okay to consider yourself (a salaried person) as an investor even though dealing with F&O trading and file returns using ITR-2 only, showing F&O income as speculative income (and follow the condition that s
Nitin,
F&O has to be considered as a business income/loss and hence has to be shown using ITR4.
hi nithin,
A great help from this site.
have one query …SEC 44AD tells abt going by sec 44AB …
now sec 44AB tells :
(d) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and
Rajesh,
Section 44AB says:
carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD
AND
he has claimed such income to be lower than the profits and gains so deemed to be the profits
AND
gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
Do note that there is an AND in between all the clauses. Also when you file ITR online it doesn’t consider any taxes of the past. So tomorrow you might get a notice and then you can clarify saying section 44AB as you have mentioned above.
Best thing in the life is to avoid getting the notice rather than getting and then explaining.
Hopefully you get my point,
Cheers,
i agree to you that one should avoid getting the notice… but getting audit done is a tedious process so if i am eligible to file without audit shouldnt I file that way. audit will cost 4-5k minimum.
this is my 2nd year of filing and last year i wrongly filed and showed business loss as speculative loss. can anything be done now? kindly help
Rajesh,
The trick to making money in the markets is predict what can cause you a big loss and take that small one to be safe than sorry.
What I mean to say is it is much better to take the 4 to 5k audit today rather than risk the notice which can cause you potentially a lot more in terms of time and money.
About your returns from the last year, this can be rectified if you had filed last year in time.
After reading Anamika’s comment [Feb 3 2013, 9:44 pm], thought of making a table for quick ref.
If you find any mistake, comment. I’ll modify the table.
If the words are not clear, right click and open the image in a new tab.
It is all correct, small addition is that as a trader in the current year the loss can be adjusted against any income other than salary. However the losses brought forward from the previous year can be net off only against business income.
Cheers,
Hi,
As many people mentioned earlier, I too have (in my wife’s name) 3 broking accounts opened and having traded in equity(intraday & delivery), f&o, few stocks/ETFs holding more than a year…so in this scienario how do we declare ourself as trader, speculator or business P/L in ITR-4. please clarify.
In the past also I have made major loss in my trading in F&O but never declared and never filed IT returns in her name. what is your suggestion?
Do I need to consult CA even if I had made losses in F&O(net) and it is total less than 1cr?
by the way what and documents do I need to carry or keep it with me for filing this ITR. please clarify.
If you are actively trading in your wife’s account it will be very tough to keep your long term investments and f&o separate. Both would ideally have to be considered as a business.
Some people like to in such cases keep all investments from one demat account and show it as separate, but since you have not done it i’d say, show all the trading in your wife’s account as a business and use ITR-4.
You can’t really change the past, so forget about it, but make sure to start filing returns from this year.
Yes, you need to consult a CA even if turnover is less than 1crore since you have made a loss( profit less than 8% of turnover).
When you go to a CA, you would need the P&L statement and your bank statement. It is also best to be ready with a bank book explaining if any expense on your bank account is for the business of trading. If it is then your net loss would increase and you can use this to net off any other future business income(when I say business income, it is not just trading profits, it could be any profit she makes in future doing any business)
Hi Zerodha,
First of all I would like to thank you people for providing such trading platform and also this blog relating to taxation.
Now, I have few questions,
I have opened trading account in my wife name and trading behalf of her (she is a house wife and no source of income) So, I transfer the fund to her account and start trading..
Mainly I trade in F&O segment and and it is considered as Business Income. (as you mentioned before)
1)How to declare the Profit/losses in ITR-4
2) Can the expenses also be carry forwarded(added to P/L)
3) Do you have a voice support in case if I want to reach out you for further clarifications?
Regards,
Nagaraj
Nagaraj,
Your wife can show her trading activity as a business. In a business whatever is the related expense that you incur for trading can be shown as an expense like your internet cost, system depreciation and etc. If you have made profits, the expenses would reduce your profitability and hence the taxes, if you have made a loss the losses get increased because of the expense. Yes this increased loss can be carry forwarded for 8 years and net off against any other business income/gain.
IIt is best to consult a CA to help you out in filling up ITR4.
This initiative is to educate our clients and we are providing only online support. You can ask us any question here and we will answer it for you.
Cheers,
Hi Zerodha,
Please provide me a sample filled ITR4 form . I want to learn from it .
This is first time of filing . I am a full time trader.
1) I started trading in ICICI Direct from Feb-2012 to June-2012
Should have to declare the P/L in FY 2012-2013? Is the AY is 2013-2014?
2) I stopped in ICICI Direct on June – 2012 and started trading in Zerodha sunce June-2012 till now.
Should have to declare the P/L in FY 2012-2013? Is the AY is 2013-2014?
Thanks
Siva Sri
Siva,
You will need to show from April1st 2012 to Jun 2012 in Icici and Jun2012 till April 2013 in Zerodha as one P/L. Yes this would be Financial year 2012-13 or AY 2013-14.
Hope this helps..
Thanks a lot Zerodha for this excellent article.
I have 1 query:
If I file long term loss as a trader, can I net it off only against long term capital gain OR can I net it off against any profit/income?
When filing long term loss as a trader, can I net it off for the next 8 years?
Anish,
If you declare yourself as a trader, then long term gains and loss will be both be business profit/loss respectively. So yes, if you categorize yourself as a trader(ITR4, trading as abusiness), you can set off your long term loss against your long term gain or any other business income/gain.
If you are showing yourself as an investor and claim long term gain exemption, in that case your long term loss cannot be net off against anything else..
Hi,
I am a salaried person and regularly filling my income tax through SARAL form. I have two demat account and one is not operated since it is opened. and using other I am trading in F & O since 5 years but always made loss, which I never showned to income tax. You are requested to guide me, how to show these losses. and is it compulsary to show even if the losses made in F & O derivative trading?
Thanks in Advance.
Omp,
If you are trading on f&o, your activity is considered as a business and hence you need to use the ITR4 forms which gives you the facility to declare any trading profit/losses.
You cannot go back and file for all the years from before now, it is too late. But what you can do is to ensure that you start following it from now. For the last financial year 2012-13, ensure that you start showing the trading profit/loss. The reason you need to show is 1. IT department is going online and they can track all your activities linked to your PAN very easily. Their powers are increasing. Not showing a particular activity could lead to penalty. 2. There was a small change made to section 44AD, which now says that if your profit is less than 8% of your turnover, you need to have your books audited by a CA. If you don’t declare this as a loss, tomorrow the IT department might come back to you and ask you to pay taxes considering 8% of your turnover as profits. 3. If you declare you trading losses, you can set it off to any business profit you make in the next 8 years and eventually save taxes because of that.
Most of your queries are probably answered on this blog, if there is something which is not, ask me for it.
Hi,
I use my computer for trading purpose. Its hard disk got crashed and I had to replace the hard disk and reinstalled all the software again. Can I claim the repair/maintainance bill amount (which is around Rs. 3000/-) under my business expenses for trading in FNO?
Yes you could, as long as you can justify that the computer is being used for your business of trading.
What will be the code for nature of Business for F&O trading? This is to be filled in ITR4 under “Nature of Business” sheet. Please suggest?
Thanks,
Anjani
Hi,
In ITR4 I was filling “PART BS” sheet for my FNO trading. For No account case I have to fill these details:
1. Amount of total sundry debtors
2. Amount of total sundry creditors
3. Amount of total stock- in-trade
4. Amount of the cash balance
Scenario1:
Suppose I have 90K in my trading account as on 31st march 2013.
And I have 1 lakh cash in my saving account as on 31st march 2013.
I have no open position in FNO as on 31st march 2013.
I assume:
1. will be 90K
2. will be 0
3. will be 0
4. will be 1 lakh
Please correct me if I am wrong?
Scenario2:
Suppose I have 90K in my trading account as on 31st march 2013.
And I have 1 lakh cash in my saving account as on 31st march 2013.
I have sold an option contract on 29th March 2013 and collected a premium of 5k. This position is still open as on 31 march 2013.
I assume:
1. will be 90K
2. will be 0
3. will be 5k
4. will be 1 lakh
Please correct me if I am wrong?
I think reply for these 2 cases will be also helpful for others who trades in FNO.
Thanks in Advance.
Regards,
Anjani
Code you can use is 0204 which is others for nature of business.
For the 2nd query, I’d suggest you to create a full balance sheet and use ” Account case” instead of no account.
The reason is, the money in your trading account, can’t really be categorized in any of the options that you have mentioned there. 1 to 4.
So I’d suggest you to get a CA do this, he would not charge you much, better get it done the right way.
Cheers,
Hi,
I need to file ITR-4 with salary, trading loss in F& 0 , FD interests , Tax FD interests, SB interests and Dividends.
Can you give sample ITR-4 form? which site is gud to file returns?
Regards,
venki
It is best to consult a CA for this, especially also because you will need your books to be audited by a CA and this can’t be done online. Read this on why: http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
Since you have made a loss and hence your profit would be less than 8% of your turnover. In such a case, the books has to be audited by a CA. There were notices received this year for people who hadn’t got their books audited last assessment year.
Cheers..
Hi
I traded in equities, FNO and commodities in last FY, incurred losses. How do I declare all the three segments in ITR 4 ? I do trading full time from home. Can I add my house rent, electricity expenses, broadband charges, advisory charges etc to my loss while filing the returns ? Also, I work from home and is it possible to take the full value of electricity charges and rent for adding the loss or I have to work out some pro rata value for it ?
Could you please explain what is actual turnover, how one can calculate it ?
Thanks in advance.
Lala,
You look like an active trader, so you need to consider delivery based equity, fno and commodities as a business income/loss. Intraday equity trading needs to be considered as a speculative income/loss. I’d advise you to consult a CA to file your returns, but go to him after reading the blog and the Q&A, so you know what exactly the CA has to do.
Also read this blog .
About your expenses, as long as you can justify that it was used for business it should be alright. But i’d personally say, don’t show the whole thing as your business expense, because you are also living there.
Can you look at a few queries above, have explained clearly how to calculate turnover.
Cheers,
lala33Jun 27 2013, 4:30 pm
Hi
Turnover of 1 crore is to be taken only for FNO segment or will it be applicable to all segments ? Should the turnover be calculated on all segments like the FNO segment example given above, club them all together to arrive at actual turnover for all segments put together ?
Since I have made only losses in all segments last year, is it really necessary to show the loss in the returns ? It would be very hectic to find out the P/L and settlement turnover at this point of time, just one month before the last date for filing of returns.
I have accounts with more than 5 brokers for various segments and most of them do not even have the basic financial reports in their back office, I will have to compile everything from the contract notes which will take a lot of time.
[ Click to thank ]
Combined turnover of all segments together for turnover.
I know it might be trouble, but it is best to do this and show it, the reason I am saying this is because with inclusion of trading into Section 44AD, you risk a chance of getting a notice from the exchange asking you to pay taxes considering 8% of turnover as profits. Read this blog for more.
An added benefit is that if you declare this loss, which will add up if you are considering the expenses that you have incurred, it will be a sizable amount that you can carry forward for the next 8 years and net off against any future business profit( not just trading) and avoid paying taxes then.
my ca say this, what to do
“As your Turnover is less than Rs. 1 crore and you have F&O Loss you are not required to get your Books of account audited by CA if you file your return in ITR – 4 which is for Business income.”
Alok,
This is how all of us had considered until now. Do read this blog and you could probably get your CA to read it as well. There has been a change made to Section 44AD and you will see a few people who have received notices because of this also in the same blog.
Hi,
If i do intraday trading on F&O and make overall profit(entire year) of 50000 and overall loss of 20000, then i have to pay tax only for Rs 30000 (50000 profit – 20000 loss) right?
Sach,
Yes firstly your net profit for the year is Rs 30000 as per your calculation. But since f&o is a business, you can show the costs you have incurred to do these f&O trades, it could be computer depreciation, broadband charges, advisory fees etc.
You can add all of these expenses and reduce it from the net profit and pay tax only on that.
Do read the Q&A above, a lot of queries answered which should help you out.
Cheers,
Hello Zerodha,
Thank you very much for explaining everything in simple and clear language.
But I have one area of concern: the ambiguity and mixing about the idea of investment and trading.
As in my personal case,
I have bought and held shares for more than three years. I sold them last month and got a capital gain of 6 lacs.
But I opened zerodha recently and traded for couple of months heavily. In that process I have netted 50,000 loss.
Now, Ideally I should be treated as investor for the 6 lacs profit I got from the shares, right? (I have been holding that for much longer than a year) If that is the case, then the tax will be zero for that share sale. (Long term capital gain)
But because, I traded recently, why should I file ITR4 and show the 6 lacs (from sale of shares) as profit in business?
Then I have to pay 30% tax on the sale of shares as well because there is no long term capital gain concept for businesses.
Is there any solution for this?
1)can I treat the share sale as long term gain and trading loss as speculative business loss? (this would be the most advantageous for me)
2)Can I forget the short term trading loss and just file as an investor to get long term capital gain advantage on share of sales. (This will be the second best)
3)Should I file as business and show both trading loss and sale of shares as business income, effectively paying 30% tax on share sale ? (This is very disadvantageous.)
Can you please clarify this?
Thanks
Was waiting for someone to ask this question,
If your delivery based is not active and is just like an investment(like in your case), you can have 2 portfolios at a same time, one as a trader and one as an investor.
The reason for using ITR4 is because you get different heads to declare your income from.
So in your case, you can show your investment from before as long term holding of equity, hence long term capital gain and claim complete exemption.
The short term trading loss can be shown as a business loss in ITR4 and if you have any other business gain you can set it off against it either this year or in the future( anytime in the next 8 years).
But do make sure to not forget anything, the times are changing, the IT department is going online and getting more teeth.
You might need your books to be audited as well by a CA, read this Blog.
Hi,
Loss under Options and equity(delivery) comes under business income or capital gains?
For declaring loss, i would need consolidated statement of FY 2012-13. where can i get it on Zerodha?
Thanks,
Amit
If you have traded options, then it is a business income/loss and you will have to use the ITR4.
In our backoffice, you will see a PL statement which will carry all the details.
Cheers,
Hi,
I am a salaried person and had incurred losses from F&O trading in last financial year 2011-12. On wrongful advice of my CA, I filed the returns using ITR-1 and showed the loss as short-term capital loss and also offset it against other short-term gains. After reading this blog, it seems I should file a revised return using ITR-4.
a) Please confirm that I can file a revised return now for 2011-12. Any information online where I can get help on filing ITR-4 for a salaried person + F&O income?
b) Also, if someone can share details of a good CA based in Noida who has expert understanding of F&O taxation and can help with this tax computation and revised returns filing.
Thanks,
Nitin
Nitin,
Firstly, it is not correct to show f&O loss as a short term capital loss, so it would be best to file the revised returns using ITR4.
For financial year 2011-12, you will have time till 31st March 2014 to file revised returns. You need to choose revised return under section 139(5).
Presently there is no guide as such online, but you can ask us any queries and will be able to help you out.
Don’t really know any CA from Noida.
Cheers,
You said fno trading is considered as business income and i can include the rent i pay for my house as a business expense(as i trade from there),but can i get exemption even if the rent agreement is not in my name but i pay it from my bank account and have proof of address(that i’m staying there)?
Vivek,
Considering the entire rent of the house as your business expense, especially if you are living in the same place is not really playing by the books. You could firstly put part of this rent, which you consider is what you are using up for your business of trading as a business expense.
Yes even though the rental agreement is not in your name, you could show this as an expense when you are paying it.
Hello Team,
I have a query. I trade in Options and as on 31st March 2013, I have open positions of Sell on Nifty options. This means that I have premium present in my account for selling that option. Now, while calculation Profit and Loss, should I deduct that premium amount for that open position from my profit/loss or should I report that premium in my profi/loss? And if the answer is to deduct the premium amount from my P/L, the what price should I consider while deducting (Purchase price or present price)?
@rogue,
Let me answer your query in 2 parts,
1. While considering P&L, yes you deduct the premium received from the open position.
2. As we have mentioned on the blog, if your open position is making a loss as on 31st march it is better to consider the loss as on that date and if your position is in profit you could show that the position is still open and you don’t consider the profit.
Going per that logic, based on the short nifty option being in profit or loss you can deduct the premium. If it is in loss then deduct as per the purchase price and if in profit then as per present price.
Hope this clarifies..
Why isn’t ITR-4 form (excel workbook) available online on Income Tax website?
https://incometaxindiaefiling.gov.in/ only shows ITR1,2,3 & 4S.
Any idea why is it so?
Can you point me to the excel form of ITR-4 please?
Thanks in advance,
Santosh
Only pdf form is available at http://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/PDF/Ay-2013-2014/Form_ITR_4_2013-14.pdf
It is still not up on the website, should be available there in the next couple of weeks…
Zerodha team,
Thank you very much for clarifying the provisions of Chapter VIA applicable for 44AD. So, now there’s no option but to get the books of accounts audited and file ITR4 as you’ve mentioned. But, what about the return filed for last year AY2012-13 for which we’ve received the notice? Would it become invalid and losses carried forward over the previous years lost because of this audit issue? Also, even if we get the audit done now, would our revised return be acceptable since audit report date would’ve passed the due date?
And finally, would you like to provide any opinion on error 32 mentioned above? Many traders are puzzled with the statement “Where assessee furnish total of amount deducted in SL 2, 3, 4, &5 of schedule BP should be consistent with total credits in P&L SL no 5”
Since, we just use “NO ACCOUNT CASE” section in P&L section (Sl no. 51 only) to provide details on turnover and profit, not sure how can sl. 2,3,4 & 5 in BP can be consistent with P&L Sl. no. 5 when Sl. no. 5 is not filled up with any details in P&L section.
KRS,
The notice that you have received right now is for defective return and yes you can file a revised return. Yes the audit report date will be a present date which will mean a delayed penalty of 0.5% or 1.5lks whichever is lesser of the turnover under section 271(B). But this way you will atleast be able to carry forward your loss and also not worry about any other penalty from the Income tax department.
The reason I am saying this is because it is quite possible that you might get a demand notice to pay taxes considering 8% of your total turnover as profits tomorrow.
About the last 2 points, they seem to be errors made while filling up the ITR4 forms. I’d suggest you to meet a CA and get this done through him. To save a penny we shoudn’t be risking a dollar, a good CA will help to keep your books clean and be at peace.
Cheers,
Dear Sir,
I read the latest update regarding section 44AD. I am an engineer and have no accounting knowledge. I would like to know what are all included in the “books of accounts”. As per your post I understand books of accounts include contract notes, bank statements and DP statements.
Are only these 3 things enough (I assume these are electronically generated and I can get this through back office). Also could you specify more precisely what all DP statements are required (is it only PL statement and ledger or are any other statements required).
Could you kindly LIST ALL the things (SPECIFICALLY) included in maintaining “books of accounts”.
Also as per 44D calculating turnover has basically become mandatory for everyone. So with respect to turnover calculation, do I have to painstakingly calculate (by hand) the gross profits and gross losses?
If that is the case it is a nightmare because I may have averaged or added to positions and exited them in 2 or 3 parts and traded the same share many times a day… but the average price and quantity of buy and sell for the day are only given (which does not constitute turnover).
So how do I go about calculating my turnover in such daytrading of a single share?
Thanks for this support on taxation. This article and thread is the best resource available online for taxation on trading yet!
Sharan.
Sharan,
Do check this out..
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
ERROR CODE: 30 In schedule BP, assessee claiming expenses equal to the business income.
The Issue is:
I contacted 2-3 CA guys. They have absolutely no clue why this notice is for!!!
I called to cutomer care of Income tax office CVC Bengaluru. Even they were clueless. They too have no answer for the reason of the notice. They do not offer any solution and just told me to revised the return in 15days.
I do not know what to do now…Pathetic…
Dear Nitin- Please try to get some answer from IT official and a way out for this…I think there must be many persons who would have received these notices…
Thanks in advance for your effort…
Anjani
Have updated this info on the blog on why the error is showing up
Dear Zerodha Team,
Thank you for checking on checking on applicability of section 44AD for small traders. While it does make sense that audit could be mandatory under section 44AD if the assesse if declaring less that 8% of turnover (which includes loss), I just chanced upon a small information that could saves some of us small traders from the hassle of audit even if a trading loss(F&O) is declared as long as they also have salaried income and have shown deductions under Chapter VIA . As per the definition of eligibile assesse below, some of traders who have both salary income and F&O trading income(profit or loss) wouldn’t meet the criteria since they usually have deductions in their salary under Chapter VIA like section 80C, 80CCC,80CCD,etc. Could you please comment on my observation above so that many small traders having both salary and trading income can avoid an unnecessary audit?
Explanation.—For the purposes of this section 44AD,—
(a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A,10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. – Deductions in respect of certain incomes” in the relevant assessment year;
Deduction under provision of chapter VIA under heading C starts from Sec 80H to 80U. These sections except 80U are for export promotion business and 80U is for physically handicapped people. So I would say that this will be not applicable for individuals like me and you, but you could consult a CA to double check this.
Cheers..
Dear Nithin,
Thank you for writing a very informative artcile on taxation for stock market transactions. Perhaps, it would be very useful if you could share you views on audit requirement for F & O transactions especially when there’s loss to be filed in ITR 4 under business income.
I’ve received the exact same notice as mentioned by raj195 above, and I know multiple people have received the same notice from CPC, Bengaluru.
According to section 44 AB, audit is mandatory when turnover/receipts exceed the limit of 100 lakhs. However, when there are F&O losses to be filed in ITR under business income, there are some people who say that audit becomes mandatory under section 44AD even though the turnover is less than the prescribed limit as it meets the criteria of section 44AD which states that audit is mandatory if at least 8% of turnover is not shown as profit. Their argument is since it’s a loss declared, it will definitely be less than 8% of turnover and hence it meets audit criteria under secrion 44AD.
Please share your views on this thought as it would help many people get their confusion clarified.
Thanks
KRS
@KRS/Skann/Raj195, Looks like a tricky situation, especially since ITR4 is completely online and all the notices being received are also automated for the first time.
Guess CBDT didn’t think about this situation especially with lower volume f&o traders.
I am trying to get more clarity on it from my CA friends, but the reason why the automated notice received seems like because of section 44AD.
As per this section, if a person is doing business(we’d have to assume including share trading business) and if the turnover is less than 1crore and if your profit is lesser than 8% of turnover, you will have to get your books audited.So this would mean that if you have a loss than you will have to compulsorily have your books audited.
My advise would be to consult your CA on this and I will try to find out from officials at CBDT if we can get any clarity on this.
Dear Zerodha,
Is it possible to upload or send me a sample ITR 4s with details filled in. Thanks in advance.
Let me see what can be done about this, it is pretty tricky though to put this up. We will try what can be done on this and post on Zconnect in the next couple of days.
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
hi,
I do trading in F&O and incurred a loss during AY201213 which I declared as business loss. I filed my return in itr4 and in P&L filled 51(a), 51 (b) and 51(c) (No account case). My gross receipts (absolute value of total profit plus total loss) was about 2,50,000 only and so audit is not required. Now I have received notice u/s 139(9) from cpc, bangalore saying that my return is defective for following reasons and that I should file rectification.
1. Error 14: Assessee is entering -ve amount in gross profit or net profit without giving details in part B of P&L In SL 51(b) and 51 (d).
2. Error 23: Where assessee furnish total of amount deducted in SL 2, 3, 4, &5 of schedule BP should be consistent with total credits in P&L SL no 5
3. Error 32: assessee has claimed loss under head “profit and gain of business or profession”. However, he has not filed balance sheet and profit &loss account.
Is it possible for you to kindly send or upload a sample excel sheet (for schema itr4) with specific example of loss in F&O trading. This will be a great help to small part time occasional traders like me. Thanks Sir and hope to get some positive response.
Let me see what can be done about this, it is pretty tricky though to put this up. We will try what can be done on this and post on Zconnect in the next couple of days.
@KRS/Skann/Raj195, Looks like a tricky situation, especially since ITR4 is completely online and all the notices being received are also automated for the first time.
Guess CBDT didn’t think about this situation especially with lower volume f&o traders.
I am trying to get more clarity on it from my CA friends, but the reason why the automated notice received seems like because of section 44AD.
As per this section, if a person is doing business(we’d have to assume including share trading business) and if the turnover is less than 1crore and if your profit is lesser than 8% of turnover, you will have to get your books audited.So this would mean that if you have a loss than you will have to compulsorily have your books audited.
My advise would be to consult your CA on this and I will try to find out from officials at CBDT if we can get any clarity on this.
Posted a small update of this on the blog:
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
hi,
I was trying to fill ITR 4 excel sheet(for online application). It is very confusing. Is it possible for you to provide me sample excel sheet for a salaried person who is active trader in equity and options and has investments held for more than a year?
Thanks
Let me check this out and let you know..
Cheers,
I found the details for filling up ITR4 form for futures and options trade on a website and have posted the same. Can zerodha confirm if it is the right way of filling up the form, where books of accounts have been maintained. Here the gross receipts mean the net profit.
Thanking you
Hi,
I was going to fill ITR online but got confused. ITR 1 is for income and interest earning people. ITR 4 is for individuals and HUF’s having income from a propreitory business or profession. I have regular income from job and interest and i m active trader in equity and options. Which form will i fill?
Is saving bank interest taxable?
Are dividedns taxable?
Thanks,
Amit,
Because you are actively trading equity and options, you have to use the ITR4.
Saving bank interest is taxable but you get the benefit of deduction of upto Rs 10000 on Saving bank interest under section 80TTA. So technically you would have to pay taxes only if your SB interest is above 10000.
Dividends are tax free.
Dear Sir,
I would like further clarification regarding options turnover:
I have read the previous comment regarding the turnover for shorting (and covering) option.
My query is regarding turnover for going long on options (3 cases)
1) If suppose I BUY one rcom 100 ce (lot size 4000) at 3.00 and SELL it a week later at 4.00, then
I RECIEVE premium on sale worth 4*4000 = 16k and the difference (profit) is 1*4000= 4k.
Hence turnover is 20k … am I right?
2) Also in that case, if I buy it at 3.00 and sell it for 2.00 then the turnover is lesser than the above case, since then,
Premium received on sale of option is 2*4000 = 8k and the difference (loss) is 1 *4000= 4k
hence, turnover in this case is only 12k?
3) if I buy one lot of rcom 100 ce at 3 and it expires worthless (no sale after buying it)
then, is the turnover ZERO? (because no sale of option was done, and since no sale was done, there is no profit or loss)…
Sir can you please answer each of these 3 cases for going long on options separately and clarify what the turnover in each case would be?
Thanks a lot for the great help…
Sharan
Sharan,
I guess your query on option turnover is for knowing whether you will have to audit the books or not.
All settlement profits + losses together is considered as turnover.
1. In this case your settlement profit is Rs 4000 and that is your turnover.
2. Your settlement loss is Rs 4000 and that is your turnover.
3. If your option expires at 0, then you have made a loss of Rs 12000 and this would be considered as turnover.
Hope this helps,
Cheers,
For the same query, if we had sold the option in first place, then covered it by buying, what would be the turnover, because in one earlier reply you said that sale premium received plus difference between sale and buy.
For the same query, if we had sold the option in first place, then covered it by buying, what would be the turnover, because in one earlier reply you said that sale premium received plus difference between sale and buy.
There are different ways to calculate turnover,but the best way is to look at settlement profits + settlement losses. The settlement profit/loss you made on the short option position..
1) So if I sell Nifty PE first @ 20, 100 lots (20*100=2000) and buy it subsequently @ 10 (10*100lots=1000) my profit is Rs 1000, so will that be the turnover?
Or
2) Turnover = sell of rs 2000 + profit of rs 1000 = 3000?
Yes the Rs 1000 will be your turnover.
Cheers,
Now this is really confusing, to my same question in another reply you have mentioned turnover as 3000, (just an hour ago) Now here you are replying as 1000. Which one is true
Abrar,
Had replied back to the earlier post also saying it is Rs 1000 and was answered wrong earlier(search for ethan hunt, it is in the thread to his query). 1000 is the correct one,
Nithin – you are maintaining a very good blog. We find it very informative and useful. Please keep up the good work. I have a couple of questions as below:
1. I am trading in options. My turnover is below Rs.1 crore (approx Rs.30 lacs turnover). Can I file ITR4-S (SUGAM) to declare presumtive business income at 8% of turnover/gross receipts? Or am I required to maintain books of account, calculate actual business income and file ITR4? I also have pension income and bank FD interest.
2. For ITR4-S (SUGAM) how does one calculate Gross Receipts? Do we have to put Gross Receipts or Turnover for calculating Business Income at 8%?
Would appreciate if you could kindly answer.
Cheers,
Vinny
Vinny,
It is not a common practice in the business of trading to declare presumptive business income at 8% of turnover/gross receipts. I will have to take a further opinion on this.
The best option would be to calculate actual business income and file ITR4. Also add your other income and get benefit of respective deductions.
Cheers,
I have a query. My total turnover from F&O is 3.8 Lacs. I made a loss of 45k in FNO trading in FY12-13.
Do I need to get my account audited?
Books of accounts need to be audited only if turnover crosses Rs 1 croreSo audit is not required in your case.
But do make to file your returns on time and declare these losses so that you can set off against any future profits.
Cheers,
Hi, There is some confusion in this comment from Zerodha on Anjani’s query. As per your blog above no matter what size(small or big) everybody should get accounts audited. Correct me if I am wrong
Girish,
The answer to this question was given before adding the new changes on the blog. This year between June to now, many people received notices from the IT department and we found that this is because of change in section 44AD. So presently, if your turnover is less than 1crore and profit less than 8%, even then you need an audit.
You can read this blog for more.
murugesan.k
Hi,
i am trading from jan 15 2013, so i should file my tax this year 31st july,
regards,
murugesan.k
Yes you should.
Hi,
I want to trade in F&O segment from my mother’s or sister’s trading a/c and I will file ITR-4 in name of my mother or sister separately.
Is it ok or any illegal issue?
Rahul
As long as trading is happening in your mothers or sisters trading a/c and they are filing for the ITR4, there is no issues as such.
Hi,
I’m a intraday/positional trader of futures and options.
in the time of income tax filling, i should show only the profits.
Did my profits come under short term capital gains(covered under section 111A) Ex:my net profit is 10lac
if then how much % tax should i pay?
Thank You.
Tharun,
Guess you didn’t read the blog.
If you are trading f&O, it is considered as business income and not short term capital gains. All profits that you make is added to any other income of yours and then you have to pay according to the slabs as mentioned in the blog.
So if 10lk profit, then first 2lks 0% , 2 to 5lks 10% which is 50k, 5 to 10lks 20% which is 1lk, so together is 1.5lk..
Make sure you declare your losses also and not just profits. Why? Do read the above blog once.
I am a salarised person & My wife is a Housewife. She want to trade in F&O & She has around 1 Lac cash in her Bank Savings a/c.
say,
she makes profit of 4 Lac
& she invest 1 Lac in PPF
& She get Bank FD interest of 0.5 Lac
then what will be her income tax?
on that occasion she has to fill ITR-4 or I have to add her income in my ITR-1 ?
Regards,
Sourav
You have made profits of Rs 4lks in trading and 50k in FD interest so total Rs 4.5lks
Your investment of Rs 1lk in PPF will reduce the taxable income to Rs 3.5lks.
On Rs 3.5lks the tax payable would be: Rs 15450
She has to file ITR 4 as Trading F&O is Business Income
You should not add her income in your income tax returns. Keep it separate.
say, my taxable earnings from Salary is: 4,80,000
Bank Interest earned: 5,000
& Profit from F&O is: 1,50,000
then how much Tax i have to pay (Kindly illustrate)?
can I fill ITR-1 or I must fill ITR-4?
Last date for tax payment online?
Chalan no for online tax payment ?
Though I m a Trader, but can I show as investor while filling Returns ?
Regrads,
Sourav
Client: RS0813
Sourav,
Your income tax will be on your total income , 635000.
A very interesting tool to calculate taxes on income tax website: http://law.incometaxindia.gov.in/DIT/Xtras/taxcalc.aspx
You need to file ITR4 as you have a trading business(f&o) business and if you are a trader, you can’t file your returns as an investor.
last date for payment of taxes online: 31st March, Even if delayed, you can pay with an interest @1% per month.
Chalan numnber for online tax payment: Use challan 280 for your tax payment and make sure to select the right asessment year. https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp
Hope this clarifies,
TURNOVER FOR THE PURPOSE OF TAX AUDIT U/s 44AB AS PER CLAUSE 5.11 OF GUIDANCE NOTE ON TAX AUDIT BY ICAI.
As per guidance note by ICAI all CAs calculate turnover as below for FNO:
Point 1) The total of positive and negative differences , plus
Point 2) Premium received on sale of options is also to be included in turnover ,plus
Point 3) In respect of any reverse trades entered, the difference thereon.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Confusion in calculating Turnover for Options:
Option shorted at Rs.10 , lot 100 premium received = 1000
Option covered at Rs.6 premium paid = 600
Profit = 400
Turnover = 400 + 1000 = 1400
Should it be 400 ???
Hi,
Premium received on sale of option (Point 2): 1000
Option paid on account of having to cover the short option position (Point 3) : 600
Positive Difference (Point 1): 400
Total Turnover effected: 1400
Hope this clarifies.
What will be the options turnover if we first buy Nifty PE @10, 100 lots and sell the PE afterwards @ 20, 100 lots,
will it be a) 2000-1000 = 1000
or b) 2000+1000 = 3000?
@ abrar, option b
Sorry abrar about the previous answer, the turnover on that particular trade would be just your settlement profit which is Rs 1000. It has been answered wrong on this question..
@ethanhunt, it has been answered wrong earlier, the turnover would be 400 in the example you have given.
Dear Nithin,
This is a wonderful initiative from your end to educate investors on Tax Matters. Thanks a lot and keep up the great work.
Dear Om Prakash Jain,
Thanks a lot for the informative article and your patient responses. I have some questions for you as well on full time trading. I am planning to take up full time trading (as a Business) from Apr 1, 2013. I would not be earning a Salary on the side.
1) Does it make sense to register my trading as a Business or is it not needed? Are there any benefits to registering as a business in terms of tax rates? If I trade in my own house on an already available laptop can I still claim deductions towards expenses (depreciation on comp, trading software, rent etc)?
2) I know this is a real basic one but just to clarify to myself – When taking the P/L for income do I take the Net Profits (Gross Profits – Brokerages – Other Taxes/Cesses) or Gross Profits.
3) Can subscription charges to Advisory Firms and for Magazines also be treated as Expenses?
4) Can you suggest an easy to use and relatively cheaper book keeping application to manage the expenses and trades (executed trades) ?
5) Is there a need for retail traders to pay Advance Taxes or can I manage the same before the end of the Financial Year?
6) If I trade in Forex in Overseas Accounts, do I have any tax obligations in India?
Sorry for asking too many questions and thanks a lot for all the information.
Kind Regards,
Madhavan
Madhavan,
Here you go:
1. You can consider you trading as an individual or as a business. As an individual you get tax slabs upto Rs 10lks income per year and only over that have to pay 30%, as a business you don’t get such tax slabs.
Yes you can claim deductions like what you have mentioned as an expense as long as there is a logic behind it if tomorrow questioned.
2. When taking P/L for income you can either do it based on gross or net profits. It is upto you. You can take the gross profits and show expenses like brokerage, turnover charges, other expenses and then deduct it from your gross profits or just take the net profit and deduct your other expenses.
3. Yes subscription charges are a definite expense you incur while trading. So all charges like data feed charges, subscription, advisory etc can be used as expenses.
4. Our Backoffice itself has comprehensive reports which can be exported to excel and analysed. If you are looking at outside vendors, Direct shares , Mprofit etc are the options available.
5. Advance tax is payable by all individual/firms/companies as per law, and there is no such exception for traders. If you are doing trading for a living and in profits, it is best to start paying advance taxes.
6. Forex transactions by an Indian individual is not permitted as per FEMA guidelines. You are allowed to trade currency pairs that trade on recognized Indian exchanges. Do consult your CA on this, because this is not allowed legally.
Hopefully this answers your queries,
Cheers
i had bought some stocks in form of delivery 4 years back, money invested was 2 lakh & if i sell those shares now ,i will suffer 1 lakh loss.myself having small business & i have income from my business, interest income & dividend.my question is if i sell those shares now , can i deduct loss from stocks from my business income this financial year for computing income tax? if not,which type of gain in coming years i can net off loss ?
Sonia,
Unfortunately you cannot net off long term losses against any income/gain of yours.
Dear Nitin,
You guys are doing the best work. You have really made it very simple for taxation. The related tax consultants costs too much for the points you have discussed here. I appreciate your efforts and hope that you would continue this blog.
Keep going.
Hi Team,
Excelent initiative from your side…
I am a full time trader with no other source of income. I have 2 queries:
1. I trade derivatives. I am a bit confused as on one side u say that derivative trading is considered as business income while on the other hand u also refer to the tax slab… For an individual trader like me, do i pay flat 30% tax or i pay as per slab structure?
2. Can i deduct EMI on home loan as an expense for calculating taxable income?
Thanks.
Akash, You are a full time trader,
But you are an individual right?? As an individual the slabs will still apply, it is a flat 30% only if you are trading as a company. So you get the benefit of tax slabs as an individual conducting trading business.
You can use the home loan to deduct your taxable income as per section 24 and section 80-C.
Your home loan EMI will have 2 components to it,
a. the principal you are paying back.
b. the interest you are paying.
Every year you can show upto Rs 1.5lks which you pay as interest as a loss on your books to reduce your taxable income under section 24.
Every year you can show upto Rs 1lks which you pay as principal as a deduction to reduce your taxable income under section 80C
If you want to know how much of your EMI is going for principal and how much as an interest, ask your bank for the home loan statement..
So you can take benefit of upto Rs 2.5lks of the EMI you have paid to reduce your taxable income.
Hopefully this clarifies..
Cheers..
Thanks for the prompt reply. Kudos to Zerodha team 🙂
Hi Zerodha,
Thanks a lot for this extremely useful blog regarding taxation. I truly appreciate your efforts for traders. I am an options trader. My queries are as follows;
1] Do I need to file ITR 4 or 4S ?
2] I trade from home. Can I show my home use as business premise expense and how much?
3] You have mentioned that electricity, internet & mobile telephone
charges can be claimed as business expense. Is there a limit to these expenses?
4] For depreciation of asset like laptop you have mentioned 60% for 1st year, how about subsequent years like 2nd 3rd onwards? I had purchased a laptop 3 years ago for rs. 90k for trading. I did not knew this rule then.
5] Can technical analysis software price and fees paid for technical analysis workshops be calculated as business expense?
Thanks.
Pro, For your queries:
1. ITR 4 is what you need to use. ITR 4S is what is introduced this year for preemptive taxation for people who don’t come under audit and from the following sectors: Transport, construction contractors, small retail shops. You as a trader still need to use ITR4.
2. Yes you can show whatever is the cost for your trading as a business expense. If you are using an entire room for trading, there is a cost for keeping that room, so yes that much of the rent could be an expense.
3. There is no limit to the expense, as long as it is related to your business of trading you can claim as an expense.
4. Typically how depreciation for computers is calculated is this. Assume you spend Rs 90k on a laptop, the first year you can claim 60% of this as depreciation that is 54k. 2nd year, you can claim depreciation 60% of (90k – 54k) which is 21600 , 3rd year you can claim depreciation 60% of ( 90k -( 54 + 21.6)) = Rs 8600.. You cannot go back and claim for the first 2 years now..
5. Yes of course you show the cost of technical software and workshops as a business expense..
Hope this clarifies
Cheers,
Hi Zerodha,
I have incurred loss of more than Rs.20,000/- in equity trading in which I held all shares for more than 1 year. I am a salaried employee. I have not done any other trading like intraday, short term trading, f&o, etc. I have only done long term equity trading (shares held for more than 1 year).
I am a PSU/Govt. employee. I am in 20% income tax slab.
My doubts are
(1) Since I am a central govt./PSU employee, whether I am eligible to declare myself as trader?
(2) In case, if I declare myself as a trader, whether I can get the benefit of carrying over of losses and whether it can be adjusted in interest income of fixed deposits, long term capital gain of next year, short term capital gain of next year, intraday trading gain of next year, etc. ?
(3) In case, if I delcare myself as Investor, whether I can avail the benefit of carrying over of losses?
Kindly clarify my doubts.
Hi Venky,
Firstly, if you are working in central Govt/PSU, you need to first check if your allowed to trade in the stock markets. Certain govt organizations don’t allow you to.
The thing to remember is you cannot declare yourself as a trader/investor just to plan your taxes. If you have been investing into the markets ( long term, holding for more than 1 year) you ideally should not suddenly declare yourself as a trader just because there was a loss that you want to adjust with your other income.
Yes you can declare yourself as a trader with the above condition in mind.
As a trader you can set off the losses against interest income, but as an investor if this is your long term loss you cannot set it off against anything else.
Long term losses cannot be carry forwarded as well.
@zerodha
thank you very much its really helpfull..
Hi
One more query i have. My friend bought shares and took delivery from my demat account. He made profit in that as short term capital gain. I am an active trader. I would not like to pay tax on his behalf. So what procedure can i follow in this scenario?
Thanks
Amit, this is a tricky situation and upto you on how you would want to take it forward.
The profit in any case can be net off against your trading losses, so shouldn’t be any issues to show it on your books…
Exchanges/regulators, consider it as a money laundering, if someone gives you cash and you buy stocks on the exchanges on his behalf. In your case if the other guy transferred money to you which was invested into stocks then it is alright, but in any case try to refrain from such activity. Best thing would be to tell your friend about Zerodha and get him to open an account with us, which we will in a jiffy.. :)..
Cheers
Thanks. It was quick reply. 🙂
He does have account with Zerodha now. 🙂
Hi,
I have to say this is one best thing you did as this is one confusing and tricky matter. Hats Off to Zerodha.
I am a salaried person.
I have profit of 7000 in equity short term.
Currently, I have 27000 invested in equity for more than a year and its current value stands at 17000.
Since October I have been trading in Options and have loss in that.
My queries are
1. No loss whatsoever can be netted off against my salary, am i right?
2. Since, I m trading options I’m trader not investor, am I right?
3. All the profit and loss I mentioned will be business income, am I right?
4. If its a business income, then can I add purchase of laptop, internet device etc in expenses?
5. Is there any difference between intraday and positional Option trading?
6. Is there any loss i can net off against salary?
Thanks
Thanks Amit for the words, for your queries now:
1. Yes no loss can be netted off against salary income.
2. Yes you are trading options, so you need to consider yourself as a trader.
3. Yes all profit/loss will be business income.
4. As a business when you buy laptop, internet device etc ,it is an asset for you and not expense. On an asset you can claim depreciation, for computer/other similar products the depreciation that can be used is 60%. so if you bought a laptop for 30k, you can show 18k as depreciation in the first year which can be added as expense.
5. No difference between intraday and positional option trading.
6. No loss can be net off against salary, it can be net off against income other salary..
hi zerodha team
In past 2 month , i do intraday share trading sometimes. The total turnover in intraday is more than 2 crores of rupees. Whether I had to go for tax audit under section 44AB of Indian Income Tax? i am student ,also tell me they can imposed penlty under 271b???? any solution/advise???
i have only records in contracts notes nothing else..reply soon
thank you
Anand
Anand,
By turnover I meant as explained in the blog, the settlement profit + losses. What you are considering is turnover of traded value.. Let me explain you the difference..
If you buy 100 shares of RIL at 1000 and sell 100 shares at 1010. Your traded volume is Rs 2lk+ but your settlement turnover is just Rs 10*100= Rs 1000..
All such settlement profits and losses together if exceeds Rs 1crore, only then is the audit required..
Dear sir, very best point is targetted by you, about term “TURNOVER”.
Audit requirement = Settlement profit+settlement Loss > 1crore .
Zerodha is doing best working for trader and investor for many issue.
I am very thankfull to ZERODHA.
Hi Zerodha,
Got to say you guys are doing a fantastic job. I have been active trader on zerodha from last 6 months and my experienece is wonderful.
And this your new attempt to solve tax related queries is great and so helpful.
I have one query related to tax filling. How much maximum limit is there for advisory charges ( mean can I pay unlimited advisory charges to my family members)
Thanks Ashish,
There is no limit on any expense that you show, just that if tomorrow someone questions it has to be justified.
Cheers,
Thanks.
Hi Nithin
Thanks for the informative article and especially for your answers to all the queries. I would just like to have a clarification, though it may have already been posted. I am a salaried individual and occasionally do f&o trading, some of which intraday as well as positional. For the running fY year, I have incurred losses of around 20,000/-. My queries are as follows
1. As a primarily salaried individual, with interest from bank accounts being the only “other income” which ITR form would I use for showing my losses against f&o trading
2. Say, for e.g. interest component is 5000/- only. Does it mean that I can only offset 5000/- against loss in f&o trading, or can I account for the whole 20,000 loss
3. How can a loss shown in previous years be offset against gain in subsequent years when declaring the IT returns for the current year where a gain has been made
4. How Can I get a statement of transactions for the FY from Zerodha, where the cumulative profit/loss figures are available for the purpose of Income Tax declaration
5. If F&o is traded intra-day, is it termed as speculative
Thanks
Sanjib
Sanjib,
1. As an f&o trader, you have to use ITR-4
2. Depends on interest from what, on Savings bank interest you have a deduction of upto Rs 10k under section 80 TTA, so what this means is that only interest above 10k is taxable from savings bank account. No such deductions for FD
Assuming you have a interest of Rs 5000 and loss of 20,000, you can only offset 5000 of the gain and can carry forward the remaining Rs 15000 of the loss to the next year.
3. In ITR 4 there are specific sheets for current year loss, brought forward loss and losses to be carry forwarded to next year.
4. We send you quarterly statements from Zerodha and there are reports available on the Backoffice available all the time. Will be running a blog on backoffice explaining this soon ..
5. F&O done on an intraday basis is not speculative it is still considered business income..
Hi Nithin Sir,
Thanks for this informative blog..
I have few query. I’m a salaried person but my annual income from salary is around 1.5 lakh. I doing intraday in equity. Now I want to know that
1. If my total income from salary and trading cross Rs. 2 lakhs, how the tax will be calculated?
2. Which ITR to be used?
Thanks Pranab,
If your total income say goes to 2.5lks, then you would be paying 10% as taxes over 2lks .. So on 50k you will pay 10% which is Rs 5000.
But because you are doing intraday equity trading, you are doing trading as a business and hence can use business expenses to reduce your taxable income. So if you have paid 12k/year on internet, 10k in depreciation on the computer that you have, 5k as other such charges, your income drops by 12+10+5, 27k. Now your taxable income is 2.23lks and tax you have to pay is 10% on 23k which is 2.3k..
ITR4 to be used.
Even if you make a loss and not under tax brackets, make sure to file your returns..
Hello Nithin,
What kind of document should i provide for depreciation on computer?
Thanks
You don’t really have to provide a document, but it is best to keep it just in case you are asked for it tomorrow. The purchase copy/bill should be good enough.
Hi Nithin Sir,
Thanks for this informative blog…
I have one query.. I am trading derivatives.. not on a daily basis but occasionally..
You have explained we can deduct our internet charges, software tool charges etc.. Is there any option to mention that while filing.. or we need to simply calculate ourselves.. I mean this is not a business firm, but I trade from my home. So can I deduct my home net charges for the whole year considering it as my loss? Do we need to submit any proof for that?
I have made some losses in previous years, but has not declared those while filing. Is it possible to do that this time?
Thanks
Any expense that is incurred for trading is a deductible. In ITR form there are specific exenditure like conveyance, telephone, internet, electricity and a complete list which is available. Even if there are expenses which are not on this list, you have a section called other expenses, mention it on them.
Whatever you mention as an expense keep the supporting document or any further reference. You can maintain an excel sheet with a simple bank/cash book which show receipts and payments done for easy reference.
If you have not declared the losses in time for previous years, nothing much can be done about it. Make sure you start following it from this year, better late than never.
Cheers,
Hi,
I am a student, hence I have no source of income. I have Rs. 10000 invested in equity. I trade (say, once a week and delivery based) to make very small profits which I can spend as pocket money. Am I liable to pay any form of tax?
Yes Abhay,
It is better to start early and be disciplined financially.
Dear sir,
i am a purely commodity trader and i trade on intrday basis only . Suppose i invest 10 lakhs to my trading a/c and i am booking 1 lakh rs as profit every month and that will work to 12 lakhs per annum.. should i file income tax . i dont have any other source of income and this is my only source of income. if i have to pay tax what is the calculation and how i can reduce the tax by showing expenses.
Yes Kanan,
Profit or losses make sure you declare it every year, do go through the blog..
If you make 12lks profit then it becomes your business income and you will have to pay taxes as per the slab provided above in the blog.. But while filing your return you can declare the various costs like internet, advisory charges, electricity etc any charge that you incur for trading in the markets..
This blog is really very informative, thanks to Zerodha for educating your clients and also for giving such a nice brokerage services in India.
A) If we are filing IT Returns as business profession in current financial year as a professional trader and in the next year if we stop trading can we file a IT returns as salaried employee (ITR 1) or as an investor(if there is any small investment), is there any impact if we change our IT returns method year on year. How the losses of current financial year can be recovered in the future ?
B) Can we adjust our trading losses for income from dividend and bank deposit interest.
Regards,
Vinay
Thanks Vinay,
Yes you can change yourself from a trader(trading as a business) to an investor or vice versa when filing your returns from one year to another. But to do this there has to be some kind of justification, in your case if you stop trading, definitely you can say that you have gone from being a trader to an investor.. Our advise is to not do it frequently and not to do it for mere tax planning, it will show up in the future..
Since you have already filed your loss, you can keep netting it off even when you convert yourself from trader to investor.. You anyways get the benefit for the next 8 years to set off your losses.
Yes you can adjust your trading losses to dividend and interest income.
Hi,
Just have a small clarification, suppose I receive 50k as rental income every year, and I have made a lost 1 lac can I set off every year against my rental income.
Please Clarify
Thanks
Yes Vent you can if it is f&o trading loss or short term equity trading loss. If the loss is intraday equity trading then it is considered as speculative loss and that cannot be set off against your rental income..
Cheers..
Hi Zerodha,
I have a couple of queries relating to the commodities market.
1. Can u please provide me the relevant section or rule or any such circular which substantiate the fact, that the forwards commodity contracts does not come under speculative transactions. As per section 73 there is no such distinction given in respect of speculative contracts which requires actual delivery. Also from the judgement of ITAT Delhi in the case of ITO v. Ethno Financial Research Pvt. Ltd., Appeal No.: ITA No. 2743(Del) of 2008, the derivative contracts are said to be of speculative nature.
2. While preparing my P&L account for the year ending 31 March 2013, should I consider my income on cash basis or should I also consider the M2M difference of open positions.
Hi Tushar,
There are certain things which are debatable and what we are posting is our view, please ensure that you clarify with your CA before filing your returns.
1. Commodity derivatives don’t involve the purchase and sale of commodity and hence the loss cannot be speculation loss is our view. Also according to us derivative trading on commodity after 1st April 2006 would be eligible for being treated as non-speculation within exception provided u/s 43(5)(d) of the income tax act. There are many cases which you can google for where the case has gone in favor of the argument that we have mentioned.
2. It is always better to be conservative while preparing my P&L, by this what I mean is: If as on 31st March 2013 my open position is making a loss i’d consider the loss but if it is making a gain I will not consider the gain as by the time I exit the position it could be a loss making position.
Hope this clarifies..
Cheers,
Hi Zerodha,
Thanks for answering my query on this blog. Few more queries:
1. For a trader, Long Term Capital Gains (for equity held for more than an year) remains tax free or the same has to be included in business income.
2. For a trader, Can Intraday Profit/loss be treated as Busineess Income & clubbed with profit/loss from derivative/Short Term equity.
Thanks Anamika,
1.For a trader, the long term capital gain is a tricky thing, it depends on how you have treated the investment on the books. If you are trading as a business, you would have marked profits/losses on all your investments when you are filing your returns at the end of every year. In this case you have to pay a long term capital gain tax. If you haven’t taken this benefit on the stocks that is lying in your demat account, you could probably discuss it with your CA and show all these investments from before under separate book of accounts and get benefit of zero long term capital gain.
To explain you as an example. Assume you bought 100 shares of Reliance at 1000 in June 2012, you are also an f&amp;amp;amp;o trader and assume you made a profit of 1lk in 2012-2013. On 31st march, assume Reliance is at 900, so your notional loss is Rs 10000. When filing your return you can net off this notional loss on the stock with your trading gain and hence you pay tax only on Rs 90000 ( 1lk – Rs 10000 loss on reliance). You are supposed to do this as a trader and in such cases your long term capital gain tax will not be zero.
Hopefully this clarifies.. This is a pretty tricky subject..
2.Intraday equity trading is considered speculative. If you make speculative profits it is clubbed with f&amp;amp;amp;amp;amp;o/short term equity trading and taxes paid. If you make speculative losses it cannot be net off against profits in f&amp;amp;amp;o/short term equity trading.
Hope this clarifies..
Hi Zerodha,
Thanks a lot for this great initiative. I have been searching/ reading forums to understand tax implications, but only got confused after reading them. Request to keep this thread alive.
Can I request you to clarify the below query.
Assume that I fall under the 20% income tax slab (after all deductions) and have only ONE Demat account.
Suppose I made profit of:
(1) Rs. 20,000 (Short Term Capital Gain) from delivery/cash segment (NOT from Intraday).
(2) Rs. 30,000 (Business Income) from F&O (Equity) segment.
(3) Rs. 40,000 (Speculative Income) from Intraday (Equity) segment.
Q1. Kindly let me know what would be my tax liability.
(a) Will it be a total of Rs. 21,000
Calculation: 3,000 (15% of 20,000) + 6,000 (20% of 30,000) + 12,000 (30% of 40,000)
(b) Will it be a total of Rs. 27,000
Calculation: 27,000 (30% of 20,000 + 30,000 + 40,000)
Q2. If the answer to Q1 is “b”, then I guess, a flat 30% of tax (highest tax applicable to the kind of income (Business/ Speculative)) I made in that particular Demat account. In that case, will it be wise to have 2 Demat accounts, wherein one will be used exclusively for Cash/ Delivery segment (Short Term/ Long Term Capital Gains), which will be taxed at max 15% in case if I sell the stocks in less than a year…and the second Demat account will be used to make profit from F&O or Intraday, which will be taxed as per income tax slab?
Thanks in advance.
Jim.
Thanks Jim,
What I’d suggest is that it doesn’t matter if you do trading in one demat and short term investments in other, keep all your transactions in the capital markets under one category either you as a trader or you as an investor..
1. If you are trading in f&O, you automatically can consider yourself as a trader(trading as a business) so even your short term equity trading has to be considered as trading as business.
Your tax liability hence would be on 20000+30000+40000 = 90000.
On this 90000, you can set off your business expenses as internet connection, phone calls, advisory fees etc whichever applicable and then you pay 20% of that as your net taxes.
If this 90000 additional income pushes your tax slab to 30% then you will have to pay accordingly. Note that this income from markets though is business, what it means is that for a salaried person it adds to his salary income and you have to pay taxes according to the slabs..
2. As I said earlier, it is not being compliant to have 2 different demat accounts to show you as an investor in one and as a trader in another.
Cheers,
Nithin
Hi Nithin,
As per below CBDT Circular
http://www.incometaxindia.gov.in/communications/circular/910110000000000316.htm
“CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income.”
Other links
http://taxguru.in/income-tax/shares-investor-or-trader.html
http://articles.economictimes.indiatimes.com/2011-01-25/news/28427085_1_stt-long-term-gains-business-income
http://www.business-standard.com/article/pf/is-your-return-from-stocks-capital-gains-or-business-income-113081800685_1.html
Thanks for the links Ashutosh. Building a chinese wall between Investment and trading portfolio especially when someone is trading F&O actively is quite tricky. One of the reasons I was advising to show everything as trading portfolio in such a case.
Thank you so much Nithin, for this quick response and very detailed explanation.
Request you to clarify one more query, given below:
Q3. If I (salaried employee) makes profit by buying-and-selling Futures/ Options on the SAME day, would it be considered as Speculative income?
Thanks, Jim.
Jim,
If you trade f&o on the same day it is considered as business and not speculative. Only intraday trading in equity would be speculative..
Dear Zerodha,
Thanks for nice initiative of z-connect.
Would like to know if we make a loss in FO short term, can we net off from salaried income in the same Financial year or we need to wait for profit next year for the setoff.
What if, in a hypothetical case, someone doesn’t make profit in next 8 years.
How to get tax benifit out of the short term losses?
Thanks.
Thanks Anirud,
The losses that you make trading f&o is considered as a business loss and can be set off against any other business income of yours other than your salary. Salary can’t be net off against f&o loss.
Yes this f&o loss can be set off against any f&O or short term gain trading markets in the next 8 years, but along with it you can net it off against your business income.
When I say business income it could mean your rental income, interest income(this can be set off only in the first year) or any other similar gain you make other than salary.
Hope this helps
Cheers,
What does the line means “difference in respect of reverse trades” for calculating turnover ?
Hello,
When u say rental or interest income can be set off only in the first year (if we make losses in F&O), does it mean in the financial year for which we are filing the return or the next year after we file the losses in return?
Thanks
The financial year for which we are filing the return.
Hi
Can I offset my gain in selling ESOPS with the losses I made in F&O. Please reply
Only if you show your equity investment as business income. Check this https://zerodha.com/varsity/module/markets-and-taxation/
Thank You very much for informative article. Here are my comments/queries:
1. How and where one can declare that he is trader or investor (What I could gather is choice of ITR form says it all)?
2. What are the rules of taxation for BTST i.e. selling equity before taking delivery?
3. Is there any difference in taxation rules for intraday derivatives and derivatives trading with carryover position?
4. I have summarized the information gained through this blog for a salaried person as per my understanding:
(a) Equity Long Term – Profit: Nil Tax, Loss: Can be set against long term gains for next 8 years if declared in IT return, IT Form: ITR 1 or 2
(b) Equity Short Term – Profit: 15 %, Loss: Can be set against short term gains for next 4 years if declared in IT return, IT Form: ITR 1 or 2
(c) Equity Intraday – Profit: To be clubbed with income for calculation of tax, Loss: Can be set against speculative loss for next 4 years if declared in IT return, IT Form: ITR 4
(d) Derivatives – Profit: To be clubbed with income for calculation of tax, Loss: Can be set against Business loss for next 8 years if declared in IT return, IT Form: ITR 4
Also, In case ITR4 is being used by a salaried person because of equity intraday/ derivative trading, Short Term Equity gain/loss has to be included as business income and loss can be set up against business loss for next 8 years.
Hope my understanding is correct and would request comments from experts if I have erred.
5. I would be glad if a separate blog can cover guideline for maintaining profit/loss details for various segments (Long Term, Short Term, Intraday & derivatives) and where these entries should be added in respective ITR form.
Hi Anamika,
1. Yes the choice of your ITR forms itself tells about if you are a trader or investor.
2. A person who is doing BTST trading is not really an investor, he has to consider himself a trader. As a trader, the profits from BTST becomes business income.
3. There is no different rules for intraday f&O or overnight f&O.
4. Your assumptions are correct.
yes we are putting up a blog on book keeping and should be up soon.
Sir, How to calculate turnover and tax with regard to BTST transaction?
This is a tricky one, you can either show the profit/loss as turnover(like we do for intraday) or else show the sell value as turnover (like in delivery). I’d advise you to show the sell value as the turnover.
Thanks a lot sir !
I don’t think that is the correct advice
http://www.caalley.com/gn/30357dtc19988.pdf page 64 for speculative trade (which BTST is) only differences will be taken into account.
Thanks for pointing out Vinayak
thanks for taking it sportingly – and thanks for your earlier advice on my queries.
I came across this document only after your advice on those – was trying to calculate how much to show 🙂
Vinayak, taxation in India especially for someone trading the markets, there is nothing black and white, everything is grey… Most of the filing is done under assumptions on what makes sense logically and if you declare more turnover and actual is less there is no problem that will arise, usually the vice versa is what causes trouble..
Here is something that makes it tricky with BTST, a lot of brokerages (including some big names) when you buy shares and sell as BTST, still end up taking delivery before selling them, so they can also earn on the DP charges. So it is important to also see the DP transaction statement, because if delivery is taken then it won’t be speculative anymore.
Hi Nithin,
There is no grey here.
It is clearly a case of delivery transaction as you have paid STT which is applicable when buying and selling
The NSE records will show that it was a delivery based transaction
This my understanding of the issue
Something which is open for debate, how IT determines speculative is if a trade doesn’t result in delivery, and since the stocks never came to the demat account, it is speculative.
Hi team,
Could you please clarify that if an individual/ salaried person income is below the 2 lakh slab and he trades and makes some investments in shares . 1. This person doesn’t comes under taxable category. 2. Is it still mandatory to file returns because he trades in market? if he don’t what is the effect? 3. If yes which form he has to use? 4. Can he get benefit of carry forwarding the losses if his salary is the only income?
Hi Praveen,
If you are income is less than 2lks and you trade/invest in shares
1. You don’t come under taxable category and it is not required for you to file your returns. But my advise would be to still file it as it brings about a financial discipline and will help you in future when you approach a bank for a loan or other such activities.
2. It is not mandatory to file, but if you are filing you still use the same forms which I have mentioned in the article above.ITR1/ITR2/ITR4 based on how you are considering your trading.
3. Yes you can get the benefit of carry forwarding the losses even if salary is the only income. But to get benefit of carry forwarding the losses, you need to ensure that you have filed your returns before the due dates otherwise you let go of this benefit.
Appreciate this initiative to support members with their taxation queries 🙂
My question is related to declaring the loss in derivative trading. It is mentioned above that “Any loss is a business loss and this can be net off against any income other than salary either in the same year or if you file your losses in time anytime in the next 8 years. So if you made Rs 10,00,000 loss trading derivatives and Rs 20,00,000 in other income (excluding salary), your taxable income would be on Rs 20,00,000-Rs10,00,000 = Rs 10,00,000 only.”
– Say, I have a loss of Rs 50,000 in derivative trading. I have bank deposits which return Rs 75,000 as annual interest. So, can I declare my income from sources other than salary as Rs 25,000 (75k – 50k) now?
Hi Santosh,
Say the loss you made this financial year trading markets was 1lk and your rental income is 75k. If you are declaring trading as a business(active trader), you can net it off against the rental income this year. So you can net off 75k of your trading loss to your 75k rental income.
You are still left with a loss of 25k, which you can carry forward to the next year. Now this loss that is carry forwarded to the next year cannot be net off against your rental income, this carry forwarded loss can be net off only against any other business income of yours.
Hi,
I have doubt on US shares allocated by my company which are listed in NASDAQ. My company allocated unvested shares last year on Feb28,2012. That shares will vest on this month. what’s the tax rate on that shares?
is shares eligible for capital gain of india tax rules? How can decrease tax on those shares? Please request to advise?
Regards,
Venki
Venki, the short term capital gain of 15% (if you are trading as an investor) or the tax exemption for long term capital gain is only if they are traded on the recognized stock exchanges in India and for which STT is already paid.
In your case it is not so as they are listed on Nasdaq. In such a case any gain will be considered as an income and should be added to your other income(salary, rent etc) and you have to pay taxes according to normal taxation as per the slab you are in.
Thanks response. This year i got 3L income from sold the Nasdaq listed shares. My company/Fidelity deducted for 33% tax on income for income tax. I have nearly 2.5L carry forward losses(Equity * F&O) from last 2 years. Can i set off this income with last 2 years losses? Can i get refund with setoff profit with this year returns.
What’s the tax on Savings bank interest?
I have Over Draft for Fixed deposti. Monthly i am getting interest. I paid interest on Overdraft. Can i OD interest setoff against FD interest?
What’s the tax on ELSS MF dividends?
Regards,
Venki
Venki,
The critical thing here is if you have filed your losses of the previous year and if you have, is it done like a trader or as an investor.
If you have filed it as a trader, yes you can setoff the 2.5lk of carry forward losses with your income from the sale of NASDAQ listed shares and you can claim for refund.
No special rates on Saving bank, but you get the benefit of deduction upto Rs 10000 on savings bank interest U/S 80TTA. So what this means is if you have 12000 as SB interest income, the first 10000 is considered as deduction and the remaining 2000 is added to your taxable income.
Yes if you can show that the overdraft on FD is for the purpose of trading, you can show the interest as a business expense for trading. This can be setoff against your other income.
Will get back to you on the query on ELSS,
Do consult your CA before you take any decision.
Cheers,
Nithin
Nithin,
I disagree with you on setting off losses from business income against gain arising from shares sold on NASDAQ.
Generally these shares are allocated to an employee under ESOP/ESO(Employee Stock Ownership Plan/ Employee Stock Option Plan) .
Any gain arising from the sale of such shares form the part of employees income under the head salary and any business loss cannot be offset against salary income.
So the gain of 3L will be added to salary and taxed according to normal slabs..it cannot be offset against carried forward loss of 2.5L .
However interest earned on FD, RD etc which is normally taxable, can be used to offset loss in business income.
Thx,
Neo
Thanks Neo, I also had the same doubt and you clarified the same.
Nithin, can you also comment so that there is a conclusion?
Dear Neo
You are confusing the grant of the stocks from company to employee’s account and the decision the employee makes after the grant to hold the stocks (or sell immediately).
For example whenever I have gotten RSU grants (multiple companies, same procedure everywhere) this is the way it works – if I’m supposed to get 100 shares (let’s say the market price is $100 each), the company sells 31 shares in the market and credits 69 to my account; the money received from the sale of 31 shares ($3100) is paid directly as TDS (and later shows in my Form 16).
the 69 shares I get – these are my shares; If I then decide to hold them for some time – I am holding capital assets for which I “paid” $6900; let’s say I do hold them for a few months (or longer) and in the meantime the price increases to $300/share; I shall be in that case making a LTCG of 69*($300-$200) = $13800 and would pay taxes accordingly.
In the overall transaction above, my income would be $10000 under the head salary and $13800 under capital gains (STCG or LTCG notwithstanding).
Accordingly set-off against the capital-gains part is possible if someone has capital losses (short term or long term).
“Business Losses” that are not capital losses will still not be eligible for set-off.
Dear Zerodha,
Thanks for your initiative in the taxation, in which many of us almost get confused.
I have few questions. Please help me.
1) My husband is NRI and he is sending money to my account from abroad.(I am resident, living in India) , using which , I am actively trading in Zerodha. The money sent to me by my husband is taxable? Or I have to pay tax only to the Profits in trade?
2) How to declare in taxation , about the money sent by my husband?
Looking forward,
Sivasri
Hi Sivasri,
Money sent by Husband to wife is not taxable, it is not an income but a capital receipt. Don’t worry about taxes on the money you receive from your husband. While filing your taxes, you just have to show this money as a capital receipt from your husband.
While trading if you make profits in your trading account, then you have to pay taxes on the profit, but even if you make a loss make sure you declare it. The blog above explains on the same.
Cheers..
Really helpful and clear info. Thank you for info about a very critically important topic. Best regards and cheers.
Which ITR form should be used to file IT when one is doing trading in Derivative ??
I am assuming it is ITR 4
Also , if one is salaried + he is trading in derivatives then which form should be used ?
ITR 4 in both cases
I’m a salaried person. As I understand
1. Profits in Derivatives should be added to my salary income and will be taxed according to tax slabs.
2. Losses in Derivatives can NOT be deducted from salary income but offset against any other income in 8 next years.
Is above understanding correct?
Also, which ITR form should I use to file IT return if I have salary as primary income and profit/loss in Derivatives?
I would like to Thank Om Prakash Jain and Zerodha for this blog because I did not find this information on internet while filing last year’s IT return. I even approached a CA and he advised me not to show Derivatives income.
Really great initiative.
Thanks,
Amol
Yes Amol you are correct on points 1 and 2
ITR 4 would be the one, have updated the blog with your query.
Cheers.
Team Zerodha,
Appreciate your effort in sharing this topic.
This is a very very useful information for all traders. Usually I file my returns myself thru online and last FY, I could not do so because I had to declare the losses and was not knowing where to declare… Then had to contact one of the professional who did the online return with my ID itself and asked me to courier the acknowledgement myself and he charged me a hefty fee..:)
Wow, another feather in a cap.
Thanks Nithin for incorporating taxation part.
Dear Zerodha,
I have few following questions
1 If we take position in both F&O and equity, and we keep equity for more than a year, and we lost in equity but we have profit in F&O and some time lost in F&O and profit in equity, but all in total we have profit, how we calculate long term or short term profit.
2 Can we caary forward our profit of F&O if we not withdraw our cash, and convert to equity etc.
Please reply, Thanks
Alok
1. If you carry equity for more than a year and make a loss it becomes a long term loss, this can be net off against any long term capital gain like gain in gold, real estate or any other capital asset.
All f&o losses become like your business loss and can be net off against any short term gains( equity trading where you buy/sell within a year).
2. You cannot carry forward a profit even if you keep the cash in your trading account. If you make profits you have to pay the taxes the same year, but if you make losses you can carry forward.
Thanks for reply,
If we make a loss in FO and equity short term, can we net off from other income like salary, interest etc ??
Sorry Alok, loss under any head cannot be set-off from Salary
Thanks Tushar for replying, donno how I had missed the query from Alok.. 🙂 ..
@Alok, Tushar is correct.. it cannot be set off against salary, but in the year you make a loss it can be set off against your interest income..
Can I show business expenses (Brokerage Charges, Internet Charges, Advisory Charges, Computer Charges, Electricity Bill etc.) to reduce the taxable income from Speculative Income (Intraday/Day Trading Stocks (Equity))
Yes you can…
Thank you for this very informative article.
Can you please confirm how turnover is to be calculated for audit purpose. Is it the sum of total profits and losses, as stated by you or is it the total value of the contract? For eg if I buy 10 lots Nifty at say 6000 level and then sell at 6100, my profit would be 500*100 = Rs 50,000, while the total value of the contract would be (500*6000)+(500*6100)=Rs 60,50,000.
If it is sum of profit and losses, then is turnover to be calculated at say, Rs 20000 profit + Rs 10000 loss = Rs 30,000 turnover. Or is it Rs 20,000 minus 10,000 = 10,000 turnover.
Hi HBM,
By turnover we mean the settlement profits/losses. So for eg if you bought 10 lots at 6000 and sold 10 lots at 6100, your settlement profit for this is Rs 50000 ( 100 * 500(10 lots) ) .. All such settlement profits + settlement losses will add up together to form your turnover..
Hope this clarifies.
Settlement Losses would be negated from the settlement profits right?
In the above example, Rs50,000 is profit for the trade but for the next trade the guy runs a loss of Rs10,000, then what would be the turnover? Rs60,000 or Rs40,000?
You are calculating turnover, so it will be 50K+10k, together 60k turnover.
Sir, after auditing can I have to pay any amount or taxes ??
yes, you will have to pay taxes if you are in profits.
Hi Nithin
I am a salaried person and I also dabble in short & long term stock trade and also intra day trading . I had also made STCG and LTCG from MF SIP investments which i had redeemed this FY2014-15
My income is as below for FY 2014-15 —
1) Gross Salary Income before PF Deductions – 1,98,000
2) Short term MF CG – 9,950
3) Long term MF CG(absolute) – 45,000 (Indexed CG-31000)
( should one take absolute or indexed CG for filing or calculation)
4) Loss from intraday trading – 2,70,000
My Questions are –
a) Which ITR form is applicable to me?
b) Pls advise under which heads i should mention each of above income or loss in ITR form
c) If i fill my return online which documents i have to submit along with ITR ?
d) Will I get a notice from IT dept for incurring such loss which is more than my salaried income but i have used my redeemed money from MF SIP which i had invested over years and also taken personal loan (not advisable though sic. 🙁
Thanks in advance . Hope you do reply
1. Use ITR 4
2. Mutual funds in the capital gains head. Positive turnover of intraday trading in Sales and Negative turnover in Purchases.
3. Since you need an ITR4, it is best to do this through a CA.
4. As long as you haven’t deposited huge amounts of cash into your account, and you have lost more than your income, there is no need to worry. Since you have lost your MF redemption’s and on the personal loan, you don’t need to worry about this.
This I believe what we call adding value to the customers. Such initiatives will be a distinct USP in a market where competition is cut-throat. Keep it up.
Hi,
Great & excellent initiative….Traders had always many tax doubts in trading…Thanks for simple writeup….
Hi,
Nitin – this is an excellent initiative. And taxation is apt topic. Kudos.
1 question on STT. I was under the impression that STT paid can be considered as business expense. can you pl. clarify if this is correct
Hi Mandar,
STT is part of your cost, so yes it is an expense but cannot be a tax deductible. So what this means is if you bought 100 stocks at Rs 100 and all your costs(including brokerage, STT etc) adds upto Rs 15, then your actual buying price becomes 100.15. If you sell this stock at 101, the actual cost becomes 100.85( after your costs). Hence your net profit is Rs 70 and not Rs 100.
So yes, STT and other costs becomes part of the cost(or an expense as you said).
Hi,
You mentioned that it is also important to file losses when filing returns. Suppose one has posted net losses for the previous 5 years but didn’t file them each year. Is there a provision to accommodate them now?
Regards,
Shakeel
Shakeel, To get the benefit of carry forwarding the losses, it has to be filed before the due dates otherwise you let go of the benefit. You can however ensure that you start filing your returns from this financial year onward(2012-2013) so that you can use any losses to set off against other profits and save on your taxes.
Cheers
It’s a wonderful explanation for IT filing. Here i have few clarifications – Can we deduct total brokerage paid, other total charges like STT, stamp duty, sebi charges, turnover charges(for the particular year) from the profit to reduce the tax liability.
Yep, you can.
STT can not be included in the expenses. Can any one confirm please?
thanks
Sir. I’m new to trading started commodity intraday trading. 1. If I earn 3-5 lakhs in next 3_4 months . When I have to pay tax? Is it on July 2017 with 30% advance tax? 2. How to determine which tax slab I m into because another 6months remaining, and I may not be in profit? 3.one more thing , every quarter broker does settlement. Once money comes to bank account and again I transferred the money to trading account. How IT Dept treat this credit amount?
You can pay your taxes before 31st March. If you pay advance taxes, and make losses, you’ll have to claim refund. Quarterly Settlement is treated as normal payout of funds for the sake of filing IT returns.
Thanks for the reply.
Would it be then right to say that losses cant be carry forwarded?
Yes Shakeel, in your case because you haven’t filed your losses in the last 5 years it cannot be carry forwarded.
Only for this financial year, 2012-2013, you can file your losses before july 31st…
Hi Nithin,
Appreciate your effort and initiative in educating your investors.
I have started trading recently and would like to know what are the documents that has to be submitted with my tax return to provide the profit/loss that i am declaring.
Is there a consolidated statement for the year that i can obtain from Zerodha or should i attach my trading account statement or should i attach all the individual contract notes that i have received in that financial year (Number of contract notes in one year would be too high).
Please Advise.
Regards
Sukesh
The documents that would be required would be Account Statements( equity, f&o, Commodity), Contract notes and DP statement(in case of delivery based trades). Bank statements would anyways be required while filing your returns and this also will be used to determine the payins and payouts made from your trading account.
We provide a profit and loss statement for your trading account, but you will still need the contract notes and other statements. All the contract notes will be accessible to you on our backoffice whenever you want for as long as you want.
That said we are still improving on our reporting structure so that all your income tax needs can be pulled out from our backoffice in a click of a button.
Cheers,
Dear sir
The bank account is linked with trading account is also used for other general household expenditure on daily basis. Then how the reconciliation of bank statement and trading account p&l can be done.
Shalu sharma
RS1632
Housewife
Thanks
When you are trading, you move funds to trading account and then withdraw it back. So reconciliation is quite simple. Can you check this module http://zerodha.com/varsity/module/markets-and-taxation/
FIR for cheating against zerodha.
Initially placed request for fund withdrawal for 1.07 lacs (no F&O, equity alone, no open positions) on 25th Nov, Saturday. Called Zerodha on Monday to check funds status. They promised it will be processed by 8.30 PM, same day. Nothing happened, Called them again next day (to connect I had to hold for 12 minutes). A lady promised that it will be processed by EOD of Tuesday,28th Nov. Waited till next day morning to check the status. Nothing happened. Called them again next day (to connect the call had to hold for 18 minutes this time). More promise that it will be processed by EOD of Wednesday,29th Nov. Nothing till next morning. WTF!!!!
Due to personal situation couldnot call them to check the status till today…So today, 6th December, called them and to my surprise they told ‘no request’ for withdrawl.. F.c..u..k I waited around 7 min to connect and now Zerodha says no such request!!!!!. Placed a request again and shouted at them for 15 min, but I don’t think I will get my money back. Decided to file FIR against zerodha for fraud, as I donot think I will get my money back.
Three months back the junk ‘kite’ platform screwed me by 3 lacs. The platform didn’t allowed me to exit my position on time, instead it logged out me and waited for 5 min for re-login, which was good enough for 3 lacs loss. Moved to ICICI direct after this.
This withdrawal request should have been processed on the 27th itself. This is unusual. Can you share your client ID so we can check?
Dear Nithin,
The above case seems to be serious. Is the problem resolved to Mr.Prakash? or still he is struggling to get his money back?? We all are here in ur network because of ur innovated and simplified way of trading platform.
If customers are facing such a problem it really makes us (personally to myself) insecure in money transfers with ur platform.
And the second thing is logging off automatically, I also do intraday sometimes with some huge margins and it also happens to me that the kite used to log of automatically, but fortunately not when i do intraday.
In fact this bug happened to me today too. Please resolve the bug else I will also lose some bucks one day.
Matter very serious!
Awaiting for ur reply.
Best regards,
Rahul
Hi Rahul, this was indeed solved in December. This was an issue specific to this account and was resolved once brought to our notice. We’ve also put in place measures to ensure this isn’t repeated. Regarding the logouts, this would only happen if you log into more than one device and log out of one of them. This logout would kill all your Kite sessions.
From where i can access DP Statement ??
If IFSL , I dont know user ID and Password .
from where i can access it ??
Hi!
The P&L Statement generated by zerodha gives a lumpsum value of charges towards Intraday and Short Term trades. This does not help in filing my ITR as both categories of trades have to be reported separately and I am unable to segregate the charges for each type of trade based on your report. Customer helpline is oblivious of this and raising a ticket has given no response till date.
This is kind of disappointing as other brokers provide segregated charges for all 3 types of trades in borh P&L and Contract Notes.
Appreciated if you can resolve this problem on your platform.
Regards,
Dear i am intraday trader in stock market. From 2009 to till i never submitted it return as i think i have each year loss. But my total TURNOVER of year is more than 2 crore each year from 2009. So is their any requirement to submit any document to Incometax dept. I have no profit any year.
Before 1 month their is notice from Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
After consultation from local consultant, I send reply of “Non taxable income for 2009-2010, 2010-2011,2011-2012.
On http://www.traderji.com website I read that for Intraday trader there is no requirement of to do Audit, which is required only for derivative trader.
From 2012 i am Senior Citizen, pensioner of state Govt having annual pension near 2 lakh each year.
Please help, any TAX AUDIT required if there is loss??
Is their penalty for 2009,2010,2011,2012?
Case 1. I calculated Turnover= total buy amount+total sell amount.
Case 2. But on some website I read that Turnover=Settlement profit+ Settlement Loss
For ex. If RIL shares bought@1000 x qty 100, and sold @1010x qty 100
Trade volume= +2lakh and Turnover is just 10 x 100=1000
So which case is true???? How to really calculate turnover ,which I required for only Audit which is costly for me now , as I am in loss.
Please suggest too much confusion my mind.
URGENT
hi ganesh123,
I don’t see nitin’s reply on your query ! !
Did he reply ??
I wanted to know because i have the query.
Thanks…
JK, the reply to Ganesh was
1. If you haven’t filed taxes, it is never too late. Go and file for the last 3 years immediately if there was any income. Like I replied earlier, taxes is not just for trading, it is for all your income.
2. Intraday trading is considered as a speculative Business. Since it is a business, you have to use ITR4, and audit is applicable if either the turnover is more than 1crore or if the net profit earned is less than 8% of the total turnover. Again, audit is applicable only if your total income falls in a tax bracket. (so no audit if your total income is less than Rs 2.5lks).
3. Turnover calculation is wrong, I have explained in the post above.
Can you really file Income tax return for the previous years. My brother got similar notice for AY:2013-14(FY:2012-13) in July,2015. He tried to file the return,but was not allowed to do so as last date for filing return for FY: 2012-13 was 31st march, 2015.
is there a way out?
Sunanda
You can’t file the return for FY 2012/13 (more than 3 years old) now. You would have to go meet the ITO(income tax officer) and see how it goes. As long as you haven’t evaded taxes, should be alright.
Hi Nithin,
My father is a pensioner. His annual pension is 216000. During this year he made loss of 70000 in F&O. In intraday he made profit of 90000 and in delivery based equity he made profit of 80000. So, his total taxable income will become 316000. His total turnover is less than 1 crore.
Scenario 1: If he purchases ELSS mutual funds worth rs. 80000, then his taxable income will be 236000. In this case will he be required an audit or not?
Scenario 2: If he shows business expenses worth 70000, then his total taxable income will be 246000. In this case will he be required an audit or not?
Suggest you to go through this: http://zerodha.com/varsity/module/markets-and-taxation/
F&O loss can be setoff against Speculative (intraday) profit. Delivery based equity is best shown as capital gains if the frequency of trading is not high (tax on short term is 15% and long term 0).
Audit is required if business profit is less than 8% of turnover in case total turnover less than Rs 2 crores (limit increased from this year). You can’t mix pension/capital gains with business (intraday+F&O). Do go through the link I have provided.
Hi Sir,
Very good article and a detailed explanation. I have a question on (If turnover 1crore and profit is > 8% of turn over, what has to be done??
Can you please respond to this..
Also, If we trade through multiple brokers, how the calculation has to be done?
Thank you in advance.
Regards,
Nag
Nag, check this detailed module on taxation: http://zerodha.com/varsity/module/markets-and-taxation/.
1. What has to be done in case of audit, check the last chapter of the module. Make sure to start from the first chapter.
2. If turnover <1 crore and profit >8% of turnover, no audit required.
Audit might be required for speculation income also. There are IT officers who consider short term and long term transactions also under audit if the turnover is above 1 cr.
If you dont file returns on time you cannot file the losses to get carryforward
My wife is trading in equity (intraday) and has incurred a loss of RS. 3 lks.
Her turnover is less than Rs. 1 crore.
Her income from all other sources is less than Rs. 2 lacs ( after all eligible deductions) and not liable to pay any tax.
Is she liable for Tax Audit?
Thanks for detailed info on income tax.
But I read at maximum places that losses of business can be set off up to RS 21000 only .
So I made profit of 12lax in fno and loss of my business was 4lax but I can set off only 21000
2ndly can I show salaries to people I employed for TRADING from derivative income and upto what extent
1. There is no Rs 21000 limit. Trading is like any normal business, you can setoff any other business loss with it for any amount.
2. yes you can show salaries, similar to any other business.
for filing the details of trades in income tax return, they want it to be in prescribed format only. brokerage, STT, service tax etc , date of sale /purchase has to be mentioned for all the shares traded.
how can I tabulate details in such format
regards
I have short term gain 13000 and entrada loss 40000 . Which itr is better for me if I want to settlement loss with salary? Should I choose invested or trader.?