Taxation for Traders – Introduction
“Check out our detailed module on taxation while trading/investing on varsity.”
Traders,
Taking care of taxation is a critical aspect of the business which every trader needs to plan in advance. As and when the Income Tax (IT) department in India is going completely online, their efficiency of spotting deficiencies, misfiling or wrong filing is going up considerably. In the year of 2013, there was almost a million automated tax notices that was sent out by the IT department for people not filing or misfiling their taxes.
In the capital markets it is even more trickier as different people have divergent views on how to consider the income and expenses while trading. An important point to know though is that immaterial of you making profits/losses you are supposed to file your returns especially more if you are an active trader. It is also important to declare all trading activity as the chances of non compliance being spotted is extremely high with the technological advancement of our IT department.
The objective behind this section is to teach best practices while filing your returns when trading the markets and to make you aware of all the implications of wrong/misfiling. One of the biggest problems I faced as a trader was that it took me a long time before I could understand the meaning of all the financial terms my CA used. I will try to the best of my ability to keep this section as simple as possible, hopefully something which even a beginner with no background on taxation can understand.
Our expert who will be helping us in putting up the blog and also answering queries would be Om Prakash Jain a Chartered Accountant with TaxIQ.
Happy Learning,
I am a retired NRE. I have sarted swing trade since Aug’2021 and active till now, no any other earning. My questions..
1) What is the yearly taxable INCOME?
2) I believe INCOME is the profit generating from trading activities.
3) Do I need to file returns. If YES when?
Thanks.
Jose.
Hi Team ,
I am new to Zerodha trading platform. I started trading from May-2020 . Couple of thing i need to check –
1. do i need to submit ITR for 2019-2020 ? I suppose i need to fill for FY-2020-2021 .Please clarify?
2. If i need to fill the ITR then need suggestion i have traded in equity and intraday FnO then which ITR need to filed.
3. I have faced losses during the trading so am i eligible for tax exemption ?
Please clarify?
Thanks
Ajay
I am government servant
I invest short term investment and long term investment?
Best check with your employer. Different departments may have different policies.
Hi Nithin,
This is ganesh from germany,
(born in india and hold INDIAN PASSPORT
I have a question on trading from abroad.
I Came to germany from INDIA last year (01 feb 2018) to work on a project and will be returned to india by this year end (dec 31 2019)
my question is :
i have a normal trading/demat account in india but i have not traded in any segment (cash or FNO) as iam in germany from last one year.
Am i allowed to trade (intraday in future or options) being in germaný from a normal account ?
just thought of executing some orders through normal demat account as i see a good variations in NIFTY and in options
If I trade in a normal account being in germany , will there be any violations ?
Please guide me .
Thanks,
Ganesh.
+49
Hey Ganesh, while you can place trades from wherever you are, ideally, you should open an NRI account if you’re residing outside the country for a duration over 6 months.
Hi Nithin,
Please check below turn over detail from Zerodha Account =
Intra day profit -18163
Short term realized profit -18226
Intraday Turnover 49221
Total Charges 27545
Please let me know, do i require Audit for this Transactions and where should i have to mention this transactions in ITR ?
Thanks
Sanjay laal
Hi Sir,
Waiting for your response on this request.
Please advise.
Thanks
An audit is required if –
1. Turnover for the year crosses the Rs 2 crores. This is in case of digital transactions, and stock market trading is 100% digital. (Otherwise, it is Rs 1 crore). Also, Rs 2 Cr limit for no audit is if you declare under 44AD (read below) only, else Audit is applicable for one crore.
2. Section 44AD – If the turnover is less than Rs 2 crore, and if profit less than 6% of turnover and total income exceeds basic exemption limit (An audit is not required if turnover is less than Rs 2 crores but your total income is within the taxable limit of Rs 2.5lks).
More about turnover and tax audit is explained here.
Need information on derivative tax structure. Unable to understand how to file tax for loss or profit, do we need to engage a CA or can be done by anyone. Please let me know procedure for filing tax.
Thanking you in advance for your prompt response.
Hey Gauri, I suggest you check out the Varsity module on taxation.
Hi Experts,
I faced huge loss in some lakhs in the last financial year in trading, while filing income tax can I get those taxes refunded atleast. ? OR anyother benefit I can get by showing those losses?
Please suggest
Can you give the P&L reports in Tally format as my CA says for audit he needs to feed the reports in Tally format.
Hi,
Sorry If this question has already been asked or if this isn’t a portal for asking these questions in the first place. But, it would be great if I can get an answer to the question below:
Suppose I invested in Equity MF scheme say “A” on Jan 01, 2018 with 10,000 Rs and suppose after 5 Months on June 01, 2018, I add 20,000 Rs more to the same MF scheme “A” (same folio) , when does the short term/long term capital gains switch-over happen? Is it on Jan 01, 2019 or June 01, 2019? Or is it based on the amount that gets withdrawn (Is partial withdrawal even possible ?)? . It would be great if some light can be shed on this aspect as well.
I could not find this information on the “Markets and Taxation” module and also in a quick google search.
Thanks
Vinod
P.S. Great work you guys, making financial markets and education accessible to common man!
The STCG/LTCG is calculated on the redemption date on a FIFO basis, so the longer held units, if eligible for LTCG will be considered.
Hi Nitin,
I am a salaried individual working for IT MNC earning 10 lakhs per year.
My Query:
Can i take a personal loan of 5 lakhs from bank and trade in F&O ?
Does the market regulation allow this ? and also the RBI guideline says the personal loan cannot be used for trading/investing in stock market or any other speculative activity.
So taking personal loan and trading in F&O is entertained?
Thanks in advance!
Yeah you can take a loan and trade. No RBI regulation. But I’d advise not to.
Hey Nitin
I am a intraday trader.
Most commonly I make profit on a daily basis. I am trading since May.
How can I see total income I have gained during this period in my trading account.
And if my income is less than 2.5 lakhs then do I need to pay ITR.
You can go to Q.zerodha.com and under reports check for P&L. No need to pay taxes if income less than 2.5lks. But make sure to file your ITR.
For FY 2016-17 I have a Pension Income of 94,000/-,Long Term Capital Gains of 1,42,000/-(Sale Value-5,12,000/-),Short Term Capital Gains 84,000/-(Sale Value 4,26,000/-) and Derivative(Futures Trading) Losses of 1,75,000/-(Turnover i.e Addition of profit & loss figures is 18,31,000/-) on Shares traded through online platform.What amount shall I consider as Turnover for the purpose of Presumptive Income while preparing ITR-4 Sugam.At what rate 6% or 8%,shall I calculate Presumptive Income on this while preparing ITR-4 Sugam?
Check the chapter on turnover here: https://zerodha.com/varsity/module/markets-and-taxation/
I am a salaried person (below 5lakh) and I had a FD and RD (below 1lakh) during this period.
I had only traded in delivery based stocks during this time and made a loss of around 6k.
This is the details from back office (Tax P&L report)
Intraday gross profit : N/A
Intraday turnover : N/A
Short term gross profit : ₹-5,936.85
Short term turnover : ₹14,110.00
Long term gross profit : N/A
Long term turnover : N/A
Total Charges : ₹59.27
Could you help me on deciding which ITR form I should use for filing income tax returns for the FY 2016-17?
ITR 2 as you have capital gains.
Thank you.
Can I use this loss for tax benefits on capital gains next year?
Yeah.
I have made Short Term Profit of Rs37000/- and Long Term Profit of Rs.8000/- I have made loss on F&O of Rs.25000/-.
Further previous FY Short Term Loss carried forward is Rs.15000/-.
Can I settle F&O loss against my Short Term profit along with previous FY Short Term Loss carried forward ?
No, Short term gain can be setoff only agains short term losses and not business loss (F&O). Check this module: https://zerodha.com/varsity/module/markets-and-taxation/
Hi,
Would you please clear my following question?
If I buy one lot of reliance future and sell it on the same day, then the profit & loss by this intraday F&O activity will be treated under specutative business or non speculative business. Since it is intraday squareoff I feel it is considered as intraday (speculative business income/loss) but since it is Future lot which comes under nonspeculative business income/loss.
Please clarify my this question.
All Intraday F&O activity including F&O intraday is considered non speculative business income.
Here’s the blog: http://zerodha.com/varsity/chapter/taxation-for-traders/
Quoting from the blog: “Non-speculative business income – Income from trading F&O (both intraday and overnight) on all the exchanges is considered as non-speculative business income as it has been specifically defined this way. “
Hello Nithin,
I have opened a demat and trading account jointly with my wife with her name as the first holder. I get all the contract notes in her name and against her PAN number. The bank account linked to the trading account is also a joint account.
Both of us are pensioners and due to this, I fall in the 20% tax slab whereas my wife is under the 10% tax slab.
This is my first year of trading and I have made considerable profit by trading in F&O. I understood from your previous answers that this profit is a business income.
But my question now is:-
1) Under whose name this profit is to be shown, provided these are joint savings and there is no formal partnership agreement between both of us?
2) Or can the profit be split among both of us?
3) Or can it be shown in her name as she is in the relatively lower tax bracket?
Thanks in advance..
Trading account can’t be opened in joint names, I am guessing it is in the name of your wife. So best to show this income in her name.
HI NITHIN,
CURRENTLY AM TRYING TO FILE ITR for FY15-16/AY16-17… I HAVE BEEN DOING TRADING FOR A COUPLE OF YEAR ALONG WITH MY STUDIES..
>>>IN THE FINANCIAL YEAR 2015-16 I MADE SHORT TERM CAP.GAIN OF RS.21000
>>>I DIDN’T INVOLE IN ANY F&O ACTIVITIES FOR THAT PERIOD
>>> I HAVE NO OTHER INCOME SO MY TOTAL REALISED PROFIT IN SHARE MARKET AS STCG IS 21000(i haven’t added my long term loss of 10000)
>>>>since my total income for that period is very low (21K) ,whether i need to pay tax of 15%(for STCG)
thanks in advance…expecting ur help… :-)))
If your total income is less than 2.5lks, no STCG or any income tax need to be paid.
Hello, I’m Adarsh, 19 years old and I’m an engineering student. If I start trading now, will I have to pay income tax? I don’t have any income since I’m a student and I haven’t used/submitted my PAN card till date for any transactions or bank accounts. Also, since it is almost the end of the year, if I start this month (or before Dec 31,2016), will I have to complete tax forms and such stuff and pay this year’s tax? RSVP ASAP.
Adarsh, if your income is more than Rs 2.5lks per year, yep you will have to pay tax. It doesn’t matter when you start trading, if you end this financial year (March 31st) with over 2.5lks in profit, u will have to pay taxes otherwise no.
Thank you so much, Sir. Really appreciate your speedy response. I’m planning to invest on stocks through Zerodha. So I’m currently getting myself acquainted with the stock basics through your highly informative portal Varsity. Please continue your support when I start trading via Zerodha. I may start in a week or two (semester exams are going on!), and will get back if I have further questions. Thanks once again.
I work as a consultant and receives Rs. 9 lakh per annum. I do delivery based share trading for which I have Rs. 13 lakhs in the bank account of HDFC. I use their platform for trading. The volume of trading crossed Rs 5 crore in a year. I made only losses.
1. What ITR form I need to use
2. I want to show my loss / profit from share trading under Capital gains/loss. Is it possible.
3. Do I need to carry out TAX audit.
1. ITR2 if only delivery based trades.
2. Yep
3. If capital gain, no need of audit.
Suggest you to go through: http://zerodha.com/varsity/module/markets-and-taxation/
My trading has been quite active – once a day or one time in two days. Still it will be treated as capital gain / loss
There are two more things. Since I am a consultant I have shown in my ITR expenses for driver, telephone and some misc expenses.
hmmm.. it is a call you have to take. If you have done it like a business, best to use ITR4. No easy answer to this.
Nitin – Many thanks for your prompt reply. Much appreciated!!
While filing ITR4 and putting my derivative income under ‘Income from business or profession’, Can I claim deduction as business expense the fees that I paid for a Derivative workshop/course that I recently attended.?
Neil
Yes neil you can.
gud day sir
you are doing an extremely gud job.this service is anmol and praiseworthy.
My Query:Can i take a personal loan and trade in commodities. I am a PSU employer with mote than 10 lakh annual income.Or can i give that monry to my husband and he trade with that money.
please suggest.
thankd
Sonali, there is no law that blocks you from doing this. Make sure to find out from your employer if they are okay.
i have some query if you can solve this
1.How to calculate option turnover which one is right way to calculate for itr filing……
A. Buy value + sell value + profit + loss
B. Sell value + profit +loss
C. Profit + loss only (when buy first and sell then means no shortsell or writting of option)
D. Profit + loss + premium received (when short sell or writing of option occurs means sell first then buy)
2. Do i need to audit if my turnover cross 2 crore and i have loss in total and my total income by other sources with trading loss donot cross taxable income.
1. b is the most compliant way. But most people follow c. It is upto you. As long as you are not evading taxes, it should be okay.
2. Yes.
Hi Nitin,
I am a salaried individual with income of 10 lakhs.
I have a loss of 5.5 lakhs in F&O for 2015-16. Should i be filing ITR4 or ITR4S ?
Is it mandatory for me to do audit & show book of accounts ? (turnover is not 1cr)
Thanks,
Rohit
If you aren’t declaring 8% profit of turnover, then yes, you’ll need to do audit. You’ve to file ITR 4s.
I have trading losses, and looking for CA and Audit
i came across cleartax , do you suggest using cleartax for tax filing
has anyone used their services
hi zerodha…
i need some clarification about stamp duty…
how you are charging stamp duty for these?
1.equty intraday
2.equity delivery?
Stamp duty is based on the state you are from. Check the detailed charge list for stamp duty here: https://zerodha.com/brokerage-calculator
thank you for your reply sir…
but what i am asking is if i buy 100 shares of sbi today as CNC..and sell those100 shares after 3 days how much stamp duty i have to pay?
i am from telangana state
The link has stamp duty for every state. Telangana it is 0.01% with max Rs 100 per contract note. So if you buy and sell for Rs 3lks, it is Rs 30 + 30 as stamp.
I need some clarification on carrying forward losses for various assessment years.
I had incurred equity delivery losses in 2010 (Rs 10000), 2011 (Rs 15000), 2012 (Rs 7000) which I was filing in ITR2 under the respective assessment year. In 2015, I made a profit of Rs 12000 and the losses of 2010 were fully offset while 2011 were partially offset. Now, the remaining losses ( 2011 – Rs 13000, 2012 – Rs 7000) is Rs 20,000. This is the total carry forward loss for AY 2015-16.
To file ITR2 for the current year, I am confused about filling in “CFL” sheet. Should I be filling in the rows for AY 2011-12 (Rs 13000), AY 2012-13 (Rs 7000)? OR the total carry forward losses in one row AY 2015-16 (Rs 20,000)? pls clarify
you should be filling in the rows for AY 2011-12 (Rs 13000), AY 2012-13 (Rs 7000)
Nitin, Thanks so much!
Hello,
i pay a tax of nearly 10% on my income on form 16a. After doing intraday trading and hopefully gaining a profit, do i have to pay 30 % tax on both equity income as well as on my income? would the taxation on my incomes be considered separate?
You will have to pay taxes based on the income tax slab you are on. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
I am planning to trade forex currency trading with US dollars. I am an Indian citizen. If I gain 10,000$ a month how can I pay income tax and show it as legal money?
Satya, unfortunately trading forex outside Indian stock exchanges is illegal in India. Check this link. If you are talking about trading on Indian exchanges, refer this module on taxation.
Dear Sir,
I opened Zerodha account last year and before that had ICICIDIRECT. I need one help on tax calculation. I have done transactions of few shares in this financial year in both Zerodha and ICICIDIRECT due to several reasons (such as VTC, funds blocked due to sell in last 2 days, mobile site availability, etc.). While doing tax calculation will the tax be considered based on my demat account or my PAN number? For example if I bought Reliance first in ICICIDIRECT, then in Zerodha, then sold first in Zerodha, then in ICICDIRECT (none on speculative, but delivery). So how will the transaction be considered here for tax? Do I need to group these transactions together and then calculate tax or do i need to calculate tax separately due to different demat accounts?
Please provide your valuable inputs.
Thank you.
You file your returns based on your PAN so you’ll have to include transactions across all brokers & all demat accounts.
What will be the consequences for not filing the ITR4 return if there have been recorded and provable losses? Can I file the returns for the previous years now? What will be the effect? Can the earlier losses since FY 2012-13 be carried forward if I file the returns now? No notice or communication from the IT dept. but I still want to play safe even if losses cannot be permitted to be carried forward. I hope Kamath sir will see this query and reply.
As long as you haven’t evaded taxes, non filing is not a very serious issue. But the chances of getting a notice are very high, so if you haven’t filed you would have to go meet the ITO and give him an explanation and all.
If you haven’t filed your returns in time, you can’t carry forward losses. Suggest you to go through this module: http://zerodha.com/varsity/module/markets-and-taxation/
Thank you very much. Actually I gave the last two years info to the CA but he could not file it. Unlucky. I will from this year onwards.
sir
please tell me also what show DERIVATIVE TRADER or EQUITY TRADER in itr 4s coloumn of TRADE NAME. thank you
I didn’t get your question.
I have no Trade name or business name I trade individualy, but in itr 4s, ask trade name, my question is what I fill in this column.
Your individual name.
dear nitin sir,
please answer my question -i trade actively in only equity derivatives segment, my f&o trading turnover is less than 1 crore and profit more than 8% . can i use presumptive taxation scheme and show 8% income and pay tax on that. because i dont want to maintain books of accounts. so please guide me if i do it, will any problem in future. what documents should i keep for record.
By doing this if you are evading taxes (which you are), it is best not to do it. Use ITR4 and pay taxes as per the slab you are on.
Thanks sir but presumptive taxation scheme sec 44 ad for businesses who do not want burden of maintaining books of accounts. And I trade only f&o as business full time, f&o trading is not speculative business. Please clear sir this confusion.
Yes, since there is only non-speculative business, technically you can file using ITR4S. The issue here though is, if you are saving on a lot of taxes by taking this route, it can come back to you in the future.
Sir, I Am a salary employee
My salary is 5 lac Yearly.I have some question 1.If have 10000 profit in intraday trade .This profit show as other income or business income in which ITR FORM ITR 1 OR ITR 4 TAX SLAB FOR THIS PROFIT. 2.IF I HAVE PROFIT 10000 IN SHORT TERM DELIVERY TRADE SELL SHARE WITHIN ONE YEAR .THIS PROFIT SHOW AS CAPITAL GAIN IN ITR FORM 2 & TAX SLAB 15 % AM I RIGHT.PLEASE GUIDE ME. Thanks in advance
1. ITR4 under speculative income
2. Yes
Everything you need to know about taxation is on this module.
Hi
i am a house wife i have only trading income using my husbands money around 5 lak i made profit of 4 lak in this finacial year
approx how much will be my tax and will i get exemption as thr is no tax until 5 lak …..
http://zerodha.com/varsity/chapter/basics/ has tax slabs. 10% of 1.5lks need to be paid as taxes.
I am student with pancard i have no source of income but i do participate in trade few times make profits sometimes but its less than 30,000 a year.do i have to file return
Its best to file your returns regardless of what your income range is.
Remember, filing returns doesn’t mean you have to pay taxes.
thanks Nitin for prompt response.. Am in Chennai..pl suggest someone in chennai pls
Dear Nithin, i have got few losses and i think i need to do get tax audit done considering the turnover conditions..
request you to kindly suggest any good auditor .. did google search, but unfortunately, am not able to decide one… pls let know
If you are in Blore, I can suggest you to check out taxiq.in
thanks Nitin for prompt response.. Am in Chennai..pl suggest someone in chennai pls
Can’t think of any in Chennai.
Sir,
I am a student of bcom 3rd year. I am a customer with zerodha since last 5 months and I am satisfied with services provided by u. I mainly do intraday trading . but I have a query do I have to pay advance tax if I earn profit and file the return. feedback needed
Yeah advance tax required, check this module explains all about taxation while trading: http://zerodha.com/varsity/module/markets-and-taxation/
i am a beginner in trading and i am curious to know …if we have rs 50,000 and trade on margin (20x) of total 10 lac rs and make a profit of rs1000 .am i eligible for income tax coz i traded for rs 10lac ?
You will pay tax only on Rs 1000 which is profit. You pay tax only if your total income for the year is more than 2.5lks. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
Sir,
I have received a letter from income tax dept. asking me why i have not filed my return for fy 2012-13 it has also asked me to provide the details about the share trading transactions which i have done in FY 2012-13. As i am a house wife hence i do trading on few occassions also my tax audit limit is also not exceding the limit, thus there is no other source of income for me which would require me to file my ITR further I had incurred a loss of about 35000 in that FY.
Please advise me
Vijaya Agarwal
You will have to reply to that notice with all details (P&L and tradebook). Mention that you had no income that year from trading and hence you didn’t file your taxes. Shouldn’t be any issue.
Hello Nitinji,
I have question
I am a regular tax payer, i have a 10-12 items which was purchased before 1 year , Now if i trade regularly in one item frequently , the gain or loss from that item would we business income, or my whole income treated as business income, if i should file business return.
one of my friend told me that if i trade frequently in one item than gain from the script will be business income and you have to pay tax on it as a business income .
please clarify sir.
Prakash, Can you go through this: http://zerodha.com/varsity/module/markets-and-taxation/
Good day,
I have not filed my return for the last financial year yet. I have incurred losses from derivative trading during that time. Other than trading ,agricultural income is my only source of income.
My trading turnover was less than 1 crore as per zerodha statement and with losses. So i presume that i have to get the books audited. The auditor i have consulted advised me to either get the audit done or pay 8% of the turnover as presumptive gain u/s 44AD.
But i have also read in your article that , even though the turnover is less than 1 crore with out any profit , one NEED NOT get the audit done , if the total income is not taxable .
So since my only other income is from agriculture which is tax free , can i get away without getting the audit done OR filing under the 44AD in which case i have to pay 8% of turnover as presumptive gain.
Since the due date for filing the return is over , i understand that i cannot carry forward the losses. So is it legally mandatory that i have to file the return ?
My auditor has not dealed with any cases of trading yet , so he may not be aware of all the loopholes ,hence i would appreciate if you could help me out.
If there is no net tax to be paid (your total income less than 2.5lks or in your case any income from agriculture that is not taxed), there is no need of an audit to be done. But i’d still say it is best to be safe and have it audited.
Thank you for your reply.
But is it legally mandatory to file the return in this case ( Turnover less than 1 crore with no taxable income from any of the sources ) ?
( I understand that your advise is to file the audited return and i might get a notice from the tax department in the coming months for non filing of a tax return. )
Thank you in advance for your sincere efforts.
Legally, if there is no tax to be paid there is no need to. But since you have traded F&O actively, the IT department will know that you have traded the markets and not filed returns. The chances of getting a notice is quite high, so best to file it.
When we have net profits in f&o and use ITR4, can we show anyone as stock advisor and seek tax exemption provided that we pay the money to him? Is any documentation required?
Yes you can deduct advisory charges. Just make sure you keep the invoices handy in case required.
How the Profit made in Buy today and sell tomorrow trade treated? “speculative” or “Short term”
It would depend on the number of times you’ve done such BTST transactions. If its too few in the FY, then it could be considered as Short term, else speculative.
Dear sir,
basically i am trader in cash market for intrady & delivery from april 2015
iam not under any tax bracket slabs
but i recieved salary in cash.
so what would be the % of tax i pay in future &when
If u receive salary in cash, the IT department won’t know ur salary. U have to declare your income and pay tax accordingly. Check this http://zerodha.com/varsity/chapter/basics/ for tax slabs.
Hi,
I am a housewife and I’ve received an intimation for filling IT return for AY 2014-15.
I have no income as such though I had 2 FDs during the year for which income tax was already paid by bank itself before giving me interest for that year.
I also have a loss trading FnO. Now my turn over is less than 1 crore and loss is around 1 lakh.
Queries are :
1. Which form should I fill in for fillling IT return ? ITR-1 or ITR-4 or ITR-4s ?
2. My total income is less than 1 lac, should i really file ITR ?
3. Is audit required ?
1. ITR 4 since F&O
2. Not mandatory, but since u have received an intimation, it is best done.
3. No, since total income less than 2.5lks.
Sub : All Trading Expenses (Brokerages,STT,Transaction charges etc)..+ Option sell side for turnover issues.
Dear Sir
I like to know that while passing entries in Acc Softwares like Tally – Do I have to include all the Trading Expenses in the Gross value(Qty*RATE of Shares) or which exp. to include and which to give separate effect in Books of Accounts.
While turnover matter – sell side in Options means (Qty*sell Rate) = Amount. Now this Amount is considered in Turnover. So i have to include Trading Expenses also for turnover?
Hope you have understood my Query.
Regards
Mayur Patel
email – [email protected]
If you are showing trading as a business (which you have to if trading F&O), then you can show all expenses as trading expense.
Turnover is just to determine if you need an audit or not. Yeah, it will make sense to include trading expense also in your tunrover.
Hi,
My question is related to DIGITAL SIGNATURE. I need to get audit done and file my ITR. As this time govt has made DSC mandatory I am bit worried as to how to share this with a CA. Since i am not even in the country i cant personally br there infront of CA to confirm how he uses it. So, Is it OK to share the DSC with CA or anything else that I need to be aware of. I have no idea about DSC as to how it works except that it is admissible in court of law which freaks me out a bit what if a CA misuses it. Look forward to your reply.
Regards,
Prime
If you are not sure, best to have a legal representative of yours in India who can go sign using your digital signature and get it back.
Hi Zerodha Team,
i need suggestions regrading tax on my investments . i work for mnc earning CTC 5.25 lakhs per year and from my salary i transferred 4 lakhs to my father and invested in stockamarket on his name . he got profit 6 lakhs profit in F&O segment and lost 1.3 lakhs in equity (short term only ) . my doubt is should i show profits of my father in my filings or it is should be showed only in my father filings ? and how much tax he approx need pay , he dont have any other income .
kindly please reply
Thanks & Regards,
Ravindra
File income tax in the name of your father itself. Since you have done active trading, you can consider your father as a trader and hence show both F&O and Short term equtiy as non-speculative business income. So the net gain for the year will be 4.7 lks. upto 2.5lks no tax, on the next 2.2lks 10%, so around 22k as tax. Check this module: http://zerodha.com/varsity/module/markets-and-taxation/
i just invested 50000 in futures ….daily i am doing no.of trades like 30 to 50 trades..SBI future….
how to calculate turnover in this situation…..total contract value (1000*sbi share value) or invested amount (50000)? in tax returns…
it is enough to show that 50000 in IT returns?
plz explain me…
if i do no.of trades is there any problem? if so how to over come it?
Check out the turnover chapter in this module: http://zerodha.com/varsity/module/markets-and-taxation/
Dear Sir,
How I know the STT, brokerage and other expenses in intraday, STCG and LTCG separetly in Q.
Download the Tax P&L on Q. If you want to know the current holdings time period, go to the holdings page on Q.
Sir,
I want to know that what was the P&L and total charges in equity trading for intra-day only in last 6 months. The Q gives the P&L and combined total charges for intraday, STCG and LTCG. But I need to know the separate total charges for intra-day, STCG and LTCG respectively.
Dilip, currently the charges come combined. We are working on showing them separately. It will take longer.
Hi Nithin,
Recently I have been following Zerodha on taxation part of F&O. Appreciate all the effort you are incurring in clarifying the doubts of traders with so much clarity and detail. I too have a query, request your 2 minutes of time. I have been observing in your replies that if turnover in F&O less than 1 crore and profit less than 8%, audit is compulsory, probably because of 44AD. But if you see 44 AD(5) it clearly includes “and whose total income exceeds the maximum amount which is not chargeable to income-tax” meaning even if i have profit less than 8% turnover, audit is required only if profit is greater than 2.5 lakh, [max amount not taxed]
My doubt is what is the total income, is it only business income or we should include salary also
http://taxguru.in/income-tax/loss-return-turnover-1-croreno-audit-44ab.html
My salary – taxable income is 3 59 440
F&O turnover – 9 42 352 Loss is 69 132
Delivery – Buy value – 26 28 941 and sell value is 26 95 557. So profit is 66 616
please assist what to be done, ITR or Audit
Sandy, check this out: http://zerodha.com/varsity/module/markets-and-taxation/, full module on this broken down in easy to understand chapters.
Yes, if there is no tax liability (less than 2.5lk income) then no audit required. Total income is sum of all your income (salary+business). Audit required in your case.
Dear Nithin,
Urgent
I received a Show cause notice with some STT reference of my trading. in the year 2012-2013
But I made loss only during that year of 1,45,000 and My total Income is very below 2lac. That too from agriculture.
in compilance What should I do?
IT dept is sending out automated notices to people who have traded but not filed returns. If you have made net loss for that year, I guess you can meet the ITO and explain him that. Probably carry all your bank statements, trading ledger and P&L. Best to do it through a CA. No need to worry if your haven’t evaded paying any taxes.
Thank you Very much for that fast n best guidence. I am on the way to meet a CA.
Lokesh here.
I’m employed in a private firm and receiving 6Lakh as salary, I’m a regular intraday trader doing transaction of morethan 50lakh every day in future and options and in cash segment also.
does my transactions comes uder speculation transaction or business transaction ( my annual transaction may be crossing 50-70 crore.)
Should i Use ITR 4 to file tax , should my transaction need to be verified by CA before filing tax ?
Thanks,
Lokesh
Lokesh, check this module: http://zerodha.com/varsity/module/markets-and-taxation/, you will get a proper understanding.
Yes you will need an ITR4, and yes you will most likely need it to be audited. The above module will give all details.
Hi Nithin,
As I mentioned in above post, I am still not clear if i need to maintain two different demate accounts?
I read the module and also found below line from circular.
5. In the case of Commissioner of Income Tax (Central), Calcutta Vs Associated Industrial Development Company (P) Ltd (82 ITR 586), 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.”
But it doesn’t mention requirements to show distinction. In general case even in same demate account , if a script is there for more than a year, should’t it be consider for long term? Or the time will be counted with the latest purchase of same script, which might be an intraday only.
Jay, Don’t think two different demats is really required. But like you already probably know, this is a grey area. If you are trading delivery based trades very actively and trading is your primary source of revenue, best to declare even equity delivery based trading as non-speculative business income.
Hi Nithin,
Thanks for clearing it.
I would like to add I am doing a job and equity is not my primary source.
I also have not done more delivery based transaction. in fact I have not sold single script till now from the delivery based scripts.
I only did intraday of some of the same company shares which i also have in my demate.
Now as you said, if I declare all (intraday/delivery shares) as non-speculative business, Will I still get tax exemption post 1 year?
Thanks in advance.
Jay, you have to declare intraday as speculative business. If you declare delivery trades also as business, no you don’t get tax exemptions. But the way you have described your activity, I think you should declare all equity delivery as capital gains.
My login id is ds2567. Can u check and let me know if I have to get my books audited and also last date for filing returns. Also would be helpful if you could suggest some ca who would audit my account statements online.
Sharath, you will have to do this on your own. You can check this module: http://zerodha.com/varsity/module/markets-and-taxation/. Also, it is best to find a CA where you are located.
Hi Nithin,
I have recently joined zerodha in june’15.
I have mapped my existing demate account with zerodha trading account.
I did some intraday transaction for a few days only.
After which I came to know (by reading some online posts) that there are two categories investor and trader.
Now I already had a few scripts in my demate account which I kept as investment, and some Scripts I bought from zerodha trading account for long term.
But at the same time now as I have done some intraday, How would I get taxes?
As trader/investor?
If suppose I sell other scripts (of same company/other company) after 5 years will I get tax examption on that? (in both case where in 5th year i have done some intraday/ not doing any intradayu in that year.)
As per a talk with one of my CA Friend, It seems If I want to invest as well as trade same time, I need to have two different demate account, hence for one account transaction I will be taxed as trader and for other as investor(hence getting tax exemptipon as well for LTCG).
Can you please tell something about , as it is not clear to me.
even if there are different demate accounts I am same person who has earned some speculative income as intraday? so how tax department will see it?
Sorry for the long question, just wanted to give as much I can in same post.
Hi,
In your Intraday margin exposure calculations, the exposure for commodities is only 2 times calculated. Here can it be allowed 3 times intraday as you mentioned in Margin FAQs up to 3 times for NSE futures. nothing is mentioned about commodities in FAQs.
Thanks
Check this for commodities https://zerodha.com/margin-calculator/Commodity/. If you trade for intraday it is 2.5 times, and if you use cover orders it is higher.
Best,
Dear Nithin,
My email is going to be long.I request ypu to be patient.
1. How do I calculate FO turnover? If I have understood correctly the net payment and receipts have to added up. One day I incurr a loss of Rs60000 and on another day I incur a profit of Rs50000, is my turnover is 110000 or -10000. If I have understood correctly my turnover is -10000.
2. During 2014-15 I have incurred a FO loss of about Rs 5 lacs, which is the turnover for that year. How can show a negative turnover in ITR4?
Is it possible to talk with you?
Hi,
1. Different ways to calculate turnover. Check chapter 6 in this module: http://zerodha.com/varsity/module/markets-and-taxation/
In your example, the turnover would be Rs 1.1 lks. Absolute sum of all profits and losses. Profits and losses could be scripwise or tradewise. Explained in the module.
2. Turnover can never be negative. Do read up the module, explained in detail. If any queries, do post it on Varsity itself.
Best,
I have salary income 8,00,000/- and I have intraday trading loss 10,000/-, short term loss 15,000, F&O loss 23,000 and commodity loss 2,75,000. Total turnover is less than 25 lakh so is it required to do CA audit or not?
Yes, an audit would be required as your profits is less than 8% of turnover and you have tax liability. Check this module on detailed explanation: http://zerodha.com/varsity/module/markets-and-taxation/
Hi
For user ID RR0806, have following tax P&L statement. But in that total turnover for futures and options is shown as Rs 91 Lakhs for FY 2013-2014.
Please clarify how Rs 91 Lakhs was arrived at
TOTAL FUTURES TURNOVER₹1,52,390.00
TOTAL OPTIONS TURNOVER₹90,21,136.25
TOTAL TURNOVER₹91,73,526.25
Sum of futures and options turnover is the total turnover. There are two turnover statements we have, Check this post, explained here.
I am a salaried person. I traded only in equities in last FY – All Intraday, Short Term and Long Term.
My turnover in terms of absolute profits/losses in around 35 lacs and I made considerable losses in Long Term due to which I was overall in loss as well. Can I file as investor?
If I need to file as trader, would I need CA audit?
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,
Chethan 🙂
I thought just answered ur query. 🙂 . ITR4 and last date is Aug 31st.
Dear Nithin,
I’m a pro. trader in zerodha from past 1 yr and earning more than 1 lakh/month, my question to you is :-
1) I’m going for car loan, and they need IT details, can i give stock trading details ? If so , how to download all the details in zerodha trader ?
Please clarify me
thanks,
nagesh
Nagesh, I doubt if banks will accept your trading details. What bank will accept is your IT returns, and you can use our Tax P&L for filing your IT returns. Check this post.
Hi,
I have a question related to profit/loss accounting with a mixture of intra-day and regular (delivery based, or extra-day) trades:
I want to know if the “FIFO rules” for profit/loss accounting and taxation are different for the following two scenarios, since my own accounting and that of my broker are differing on this:
Scenario 1: I buy 100 shares of a stock on day T; buy and sell 100 shares of the same stock on day T+1, and sometime later, say on T+30, sell the 100 shares that I took delivery of.
Scenario 2: I buy 100 shares of a stock on day T; buy and sell 100 shares of the same stock on day T+N (N>2), and sometime later, say on T+30, sell the 100 shares that I took delivery of.
I see that my broker is applying the 0.1% STT rate for the transactions on day T and day T+30, and 0.025% STT for the sell transaction of the intra-day trade, for *both* the above scenarios.
However, for profit/loss accounting, they are being treated differently: in Scenario 2, the “intra-day FIFO” and the “extra-day FIFO” do not interfere, but in Scenario 1, they seem to do. I suspect this has something to do with the “T+2” settlement cycle policy, but I’m not very sure – can you please clarify?
Also, what is the speculative/non-speculative partitioning of the profit/loss from the transactions above (for both scenarios)?
Yep, looks like your broker considers FIFO for intraday based on anything that is not lying in your demat account (stocks undelivered) for calculating P&L. Both the methods are correct.
The easiest way to calculate speculative and non speculative is based on STT (this also acts as a proof if there is an ITO scrutiny). All P&L where STT is 0.025% can be considered as speculative and with 0.1% as capital gains.
Thanks, Nithin.
Sometimes, the two methods result in significantly different P/L computations, which is why I asked. I was thinking I’ll just go by the STT record, and do the P/L book-keeping myself.
Regards,
Sriram
Yes STT record is a better way, that is how we do it on Q at Zerodha. I guess you are not trading with us.
If i sell option and collect premium in a particular month and square off in the next month. Will this premium will be considered as profit and deducted 30% tds on this premium. Please clarify.
No it won’t Ramesh, only the profit you make from the trade is considered for profitability. There is no TDS deduction while trading. At the end of every financial year, you have to file your returns and declare your profit and losses. All profits made from trading F&O has to be added to all your other income and tax paid according to the tax slab you fall in. Check this post.
I had sold options and received say 30,000 during the month of Mar’15 and squared off the same during Apr’15. In that case, the bank has deducted 30% TDS on 30,000 mentioning that this is as per the Income tax act. I have to file return at the end of the financial year showing the loss and get the refund. Can i know whether really income tax act mentiones so. Please clarify and i need to speak to the bank and get the refund immediately for wrong deduction of the tds.
:), Ramesh you must be mistaken or the bank has done a mistake. There is no way the bank can cut TDS on that 30,0000. Also when you short options, the money doesn’t go to bank account, it stays in your trading account, so there is no way bank has any access to debit from your trading account.
Hi Nithin,
I was working on my taxation for FY 14-15. Tried to pull the P&L report from the Old Backoffice platform (IDEALx) but could not find it there.
Has it been removed from there?
I somehow felt the statement given in the Old backoffice much concise then the one in Q.
Thanks
Sukesh
Some issues with P&L on old BO. It is better you follow the one on Q, it is detailed, but more precise in terms of taxation.
Zerodha/Trader-tax payers:
for FY 2014-15 i need to file my taxes. Losses on derivatives trading.
Per Zerodha, if Turnover > 1Cr then Audit is required.
Form to be used in such a case is ITR IV
Now, the CA i met in Pune – says since you are just a retail trader, file taxes as per ITR2 and you can carry forward the losses to next financial year. No need for ITR IV. I told him that i have done ONLY Derivatives trading and NO equity trading (no demat as well); despite this, he insist on using ITR 2.
How true is this? can someone please throw some light on this issue please?
Very surprising that your CA said this. From assessment year (AY) 2006-07 (financial year 2005-06), transactions in derivatives are not considered as speculative transaction – Section 43 (5) of Income Tax (IT) Act, 1961. You have to consider this as a business, and income from derivatives can’t be considered as capital gain.
Most CA’s don’t have experience filing returns for people who trade derivatives, so best to consult someone who does.
Many thanks Nitin for the prompt reply. I’ll go with Taxiq guys for filing my taxes. Was hesitant with me being in Pune and Taxiq being in B’lore.
But at least they know how to file taxes.
Dear Sir,
I have a shop which gives around 2 lakh of income
and i also did trading (delivery+intraday) with turn over of around 35lakh (huge amount is because of intraday trading) but the profit made is only 40000.
my queries:
1. Do i need to fill ITR2 or ITR4?
2. Do i show the trading as my business or as other income?
3. in calculation of capital gain in ITR,
Will i have to show the complete turn over amount or i can show only the base amount which i invested and the final amount which i got in end year.
1. ITR4 (because you run a business/shop).
2. Show your delivery trading under capital gains. Show intraday as speculative business.
3. For capital gains, selling value of the stock is the turnover. But since you are showing this as capital gain and not business, turnover is not required to be mentioned. You have to show turnover of you business income only.
Thanx nithin for quick reply.
regarding point 3, For capital Gain by delivery trading: “Full value of consideration” and “Cost of acquisition” is the turnover itself. So i have to mention that.
yep
Nithin,
I’m software engineer by profession and my CTC is 8 Lakh.
I’m regular intraday trader in cash and FnO, Many days my transactions crosses more than One Crore.
In my demat account I have around 3 lakh as cash and with that money I will be placing the intraday cash and FnO orders.
Now I’m planing to borrow 5 lakh money from my friend as hand loan and will dump the money into my demat account. What will be the income tax slab if i make the profit in my demat (Please note: I will not be taking any equity shares on delivery, but FnO will be taken for delivery till expiry) . I’m planning to return my friends hand loan after making 5 lakh profit in the calender year. How to show the 5 lakh borrowed from my friend ?. Should the form 16 given by my company be filed first then I have to show the demat transactions statement to be filed ?? Or should i submit company form 16 and demat transactions be filled together to incometax.
Please let me know the ITR return sections for salaried who are trading in Demat.
Thanks,
Muralidhar.
Murali, Suggest you to read this post: http://zerodha.com/z-connect/traders-zone/taxation-for-traders/taxation-simplified.
You are supposed to file your Income tax returns using ITR4. You add all your profits to you salary + any other income, you pay tax according to individual tax slabs for the total income. But since you show your trading as a business, you can also show all the related expenses. All your queries will be answered on the other post I have mentioned above.
Lets say for year2014 i had income in F&O and also in stocks (i held these stocks for more than 1 year).
Now if i use ITR4 I can’t claim LTCG. So that means my long term income will be taxed?
Any way to get out of this?
Secondly, If i fill ITR4 in 2014 then can i use ITR2 in year 2015 (if there is no income in F&O)?
Because income tax authorites will consider me a trader even if i earn income in stocks in long term, once i’ve declared that in year 2014?
Please correct if I’m wrong.
Nitin, you can show your trading and investment portfolio separately. So you can show investments under LTCG and trading under business income on ITR4. But to do this, keep your books completely separate for investments and trading. It might also make sense to keep your investments in a different demat/trading account.
Yes, if you have stopped trading, you can move back to being just an investor, and use ITR2. But I think it is advisable to best not to keep switching between ITR 2 and ITR 4 (once or twice is okay).
Dear Sir,
Does your P&L report contains First In First Out (FIFO) method ? for a financial year or not ?
Or I have to do it manually ?
Yes Sanjay, all calculations are based on FIFO, you don’t have to do anything manually.
Hi Zerodha team,
I am a proud customer of Zerodha since 2013 and your are doing a great job in updating the backoffice portal! I have the following questions regarding my tax filing. Kindly clarify how I can proceed.
I am working in US since December 2013. Hence my tax filing status is NRI as per 180 days rule. As per Zerodha, below is my profit and turnover details for FY 14-15
INTRADAY/SPECULATIVE PROFIT ₹1,62,079.77
INTRADAY/SPECULATIVE TURNOVER ₹1,62,079.77
SHORT-TERM PROFIT ₹69,912.74
SHORT-TERM TURNOVER ₹57,09,160.23
Question 1:
Do I need to go for audit as profitability is less than 8% of the turn over?
Question 2:
I am hearing that, being NRI, I need to pay flat 15% short term capital gain and it can not be taxed as per my income tax slab. Is that true?
Question 3:
All my trading is in equity space and I did not do any futures and options trading. Do I need to file ITR2?
Thanks,
Sriram.
Hey Thanks Sriram,
As an NRI, you are not allowed to trade intraday. Unless you update the details with us, and setup your NRI account (details here), for us you will continue to be a local resident account.
Since you have done some intraday trading you will need to use ITR4 to show this. If it was only short term equity, you could have just used ITR2.
1. You can show your short term under capital gains. So only your intraday equity trading will be considered as a business. Even if you are making less than 8% of your intraday trading as profit, it would make sense to show 8% (since your turnover is less) to avoid an audit. 8% of 1.7lks is around 10k, so even if you are in the 30% bracket, you pay only 3k as taxes much lesser than the tax audit charges.
2. Yes NRI or local resident, short term capital gain is 15% flat and Long term is zero. If you declare your short term trading as a business, then you would have to add it to your other income and pay according to the slabs.
3. You could have used ITR2 if there was no intraday equity trade. So if you want to be 100% compliant, yes you need ITR4. But not everyone is, (hinting u) 🙂
Thank you so much Nithin! I was unaware of this and did lot of trading with the local resident account last FY. Will there be any issues while filing the tax return.
As long as you are filing, shouldn’t be any issues.
sir,
iam salaried and doing trading on delivery past 6 months. total trunover during financial year must be considered for taX as an income? what are all the documents can be submit for tax relaxation? can we show internet expense on tax relaxation?
Mani, if you are doing only delivery based trading, you can consider yourself as an investor and pay fixed 15% as tax for Short term gains and nil for long term gains (anything over 1year). You can show this gain under Capital gains head on ITR2. But if you show this as capital gains, you can’t show any expenses.
Hi,
I wish to to clarify my doubts with regard to tax.
Imagine I am a fno trader total income from trading and salary is 4.5lakh. My tax will be 20000. Have paid 18000 for lic.
My question is
1. What will be my tax.
2. If I have brought a mobile of 15000 can it be shown as business expenses. If it can be I hope it is 4.5lk-15k while taxing.
3. What are other expenses usually shown.
Please don’t direct me to your tax link 🙂
Thank you,
Chethan.
1. Yes 10% of 2lks as tax. Since you 18k saved on LIC, so tax will be around Rs 18k.
2. Yes, if you are using mobile for trading it could be used.
3. Any expenses that you incur towards trading.
And yes, if you had read this post, all your questions are already answered there. 🙂
Best,
Thank you 🙂
Sir,
I am a new trader and have never filled ITR before. I traded only on F&O and Commodity derivative markets from Zerodha and didn’t make any profit but lost some of my money. My total income from all the sources is less than Rs. 2,00,000. I am attaching my P&L screenshot for your reference. I request you to guide me whether I need to file ITR?
If yes than
Do I need any auditing?
Which ITR form should I fill and do I need to submit any supporting documents? ( if yes which are the documents)
Can I fill ITR online?
And what is the last date to fill ITR for me?
I think I asked lots of questions but being a new one I request you to Please Help.
Kumar, you need to use ITR4. There is no need of an audit as your income is less than Rs 2lks. It is best to use a CA, you will need your P&L statements, Bank statements (with explanation on any expenses on your statement for the business of your trading). Most things are already answered on this post.
Hello Nitin
First of all thanks for this wonderful initiative which is proving to very helpful particularly to retail traders!
I have received SMSs as well as emails from Income Tax department to file ITR for AY 2013-14. When I logged in departments website I saw information summary CIB-502,STT-01,02,03,04,05 mentioned in my case.
My details for AY 2013-14 are as follows-
Interest income= 163214
Short Term CG on sale of equity shares through recognized exchange= 5144.7
Loss from intraday trading= 7001
Gains from F&O= 1193.94
Total turnover from all segments= 191880
Premium paid to LIC= 11964
So my total income as well as turnover is less than Rs. 2,00,000
So my questions are-
1. Do I need to file ITR?
2. If yes, is it ITR-4 as I do lots of intraday equity and F&O trading?
3. Is everybody trading in equity, F&O, commodity bound to file ITR or is it because I once bought shares worth 104000 for delivery in this period?
4. Do I need to get my books audited under section 44AD if my income from trading business is less than 8% of turnover, even if my total income is less than taxable income of 2,00,000?
Thanks and Regards
Jai
1. Yes, you need to file.
2. Yes ITR4
3. No everyone is bound to file ITR. Exchanges have started sharing trading data with ITR, hence a lot of such notices this year.
4. Since your total income is less than taxable income, no need of audit.
Thanks for your prompt reply Nithin
A further clarification please do I need to file ITR even if total income from all sources is less taxable income i.e. Rs. 2,00,000/-
Where can I find a specimen filled ITR-4 for a person with interest and financial market’s income/loss?
Thanks again
Jai
Yes you need to file ITR even if below 2lks. Specimen ITR4 is not really available online, these forms keep changing every other year.
Hi Nithin,
Thanks for all the knowledge sharing though blogs. It is very helpful.
I have 2 accounts with Zerodha. One is on my name and second is on my wife’s name..
I do long term investing through my wife’s account. Then I pledge those shares and do FNO trading. What happens if I close out my long term holdings(holding period > 1 year). Will the gains be tax free? I am actively trading in FNO through her account…
I do arbitrage trading in my account. Again I pledge the holdings and I do FNO trading on margin I get after pledging.. Now what happens if I hold on do equity part of Arbitrage for more than year? Will gain on that part be tax free? Arbitrage funds in market based on same principle are tax free if holding period is more than 1 year.
Please advise…I need a way out in this so that my long term holdings are not taxed..
Thanks
Rahul
Rahul,
Ideally if you are trading very actively, you should show both your equity and F&O as business income. But you can still speak to your CA and trying to keep the investing and trading book separate so that all your long term holdings are tax free.
Hello Nithin Sir,
Thanks for repying earlier queries .
May I take opportunity to ask answers for various cases with respect to 44AD. It will be highly appreciated if you can confirm and correct my understanding as it will not be useful only for me but all others.
Here I will be referring to ‘Trader’ and current tax free income limit is 250k.
1.
Salary income = 200k. other income(Interest income)=30k.
Turnover is 300k and loss is 20k.
Inference- As total income=230 is less than 250k and loss is incurred, trader need not do Audit. He is free not to file return.But it’s advisable to do and he can carry forward losses.
Query- Will ‘Without’ audit filling return be done to carry forward losses ?
2.
Salary income = 200k. other income(Interest income)=30k.
Turnover is 500k and profit is 25k= 5%
Total income = 200k+30k+25k=255k.
So trader has to file return and pay taxes.
In this case, as trading profit is <8%, hence audit is required. BUT if trader club other income(interest income) to trading profit and does he satisfies 8% criteria (30+25)/500=11% and bypass audit ? Is audit compulsory in this case ?
3.
Salary income = 200k. other income(Interest income)=10k.
Turnover is 500k and profit is 25k= 5%
Total income = 200k+10k+25k=235k.
Inference- Eventhough profit is <8%, no need to do audit as total income is less than 250k. It’s advisable to file return even though there’s no tax.
4.
Salary income = 300k. other income(Interest income)=0.
Turnover is 500k and profit is 25k= 5%
Total income = 300k+25k=325k.
Trader either to do audit or declare 8% as profit. He chooses second . So total income will be 300k+ 8% of 500k= 340k.
Now, can trader invest 90k ( 340k-250k=90k) in instruments permissible under 80/c to save tax ?
5.
Salary income = 300k. other income(Interest income)=10k.
Turnover is 500k and profit is 50k= 10%
Business Expernses incurred ( internet,electricity)=30k
Now, in this case which will be correct –
a. 50K/500K=10%. So no audit.
Income=300k+10k+50k-30k= 330k
b. Profit= 50k-30k (expenses)=20k
20k/500k=4%…hence audit required or need to forego some expenses.
Hence I can maximum count 10k as expenses so that net profit=50k-10k=40k comes as 8% of turnover.
thanks
Check this income tax calculator
1. Yes
2. Firstly you can’t combine salary income with Trading income. The business of trading has to be kept separate. So if your business profit is less than 8% of the turnover, you need an audit. You can club only other business income and can’t club (Salary, interest, or rental income).
3. No, your income is 25k and turnover is 500k, so 5% and yes audit required.
4. Yes you can use section 80C for deductions, but like I said earlier you can’t combine other income.
5. Like I said, you can’t combine all those other income. So assuming your turnover is 500k and profit is 50k (10%). But assume after the expense, your profit is 20k which is 4% profit. You will need an audit in this case.
hello sir
thanks for your reply.
I am confused about case-3.
http://www.incometaxindia.gov.in/tutorials/section-44ad-theory.pdf
Declaration of lower income
If the actual income from the business covered under section 44AD is lower than the income
prescribed under the presumptive scheme, then the assessee can declare income from aforesaid
business at a lower rate (i.e., at less than 8%).
If the assessee does so, i.e., declares lower income and “his actual income exceeds the maximum amount which is not chargeable to tax”, then the relief from maintenance of books of account is not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB.
Sir, in case number 3, total income is less than 250k. I am unable to understand why audit / presumptive is required in this case
thanks
ah my bad, that was a typo, yes no audit required for case 3. I answered thinking about the old tax slabs (from 2lks onwards).
Dear Sir,
Anything for the Stock market traders taxation from d budget?
Nopes, nothing.
Hi, Nithin sir
I am a government servent. Can I trade? ( intraday, delivery etc.)
Ram, depends on which department. Delivery based shouldn’t be an issue, but it is best to confirm if you can trade intraday/F&O.
thanks sir for reply, i am in minor irrigation department in UP Govt. Now what you say sir ?
Hmm.. Can’t say Ram, best to ask your department if it is okay for you to trade F&O or intraday. Equity delivery shouldn’t be an issue.
ok sir thank you
i am new in this forum. i like to know what types of documents needed to maintain books of accounts for trading in cash and F&O.
Is there anything needed beyond broker given like- ledger,trading list, monthly summary,expiry summary,contract notes,bill etc
pls inform me
Hi
Actually I am salaried person with a small firm. My wage is below the income slab. I did not file the ITR till now. I did the trading in Nifty futures/Options & MCX Commodities this year. I did not get any profit from the trading actually I loose some what. Can I have to file the ITR for this even I did not gain?
If your income is below tax slab, then no not required to file ITR.
Hi,
I have a few doubts about taxation and stuff.
1. My friends and family have invested in me. I day-trade and give returns accordingly. Now that this has become my primary source of income, I would like to start a fund so that many can invest. What is the legal procedure to start sucha firm?
You might ask why I’m asking this question to zerodha.
There are two reasons:
1.I remember reading this statement in the 60day challenge page: “Consistent performer might win a chance to work in zerodha associated hedge funds”.
2. Zerodha has always been customer supportive in all aspects. So I’m confident that Zerodha can give me a better answer than anyone else.
Thankyou.
Sibi, if you are taking money from others to day trade, the legal way to do this is quite tough.
1. Get a PMS license, with a PMS license you cannot do intraday trades though. You can do delivery based trades, and F&O trades can be done only to the extent where you are hedging your portfolio. Also Minimum investment per individual is Rs 25lks.
2. AIF (alternate investment fund), basically a hedge fund, this requires you to have minimum of 20 crores worth asset under management. Minimum Rs 2 crores per individual.
My guess is that, the above might be a little steep as per your requirement. One of those things that you can do, which is kind of a grey area is to create a limited liability partnerships. Your friends and you together start a LLP with an objective to trade/invest. Each of the partner invests money into the LLP, and he gets a shareholding based on this. But do speak to a CA before taking any steps.
Thanks for the detailed reply Nithin.
I have plenty of doubts to ask to a ca about starting such funds and stuff. But all the CAs I contacted, said that they knew only accounting and auditing and are not able to give me any answers regarding starting such funds.
Any idea how to get a CA who knows all ins and outs in stock markets and deals with business(that involves pooling money to trade)?
It would be so generous of you if you’d help me here.
Thank you.
Can’t help you on this Sibi, the CA’s I know will all only help if you are taking the PMS/Hedge fund route. I guess you have to meet smaller firms, and tell them that you are looking at starting an LLP with partners who will invest into the business. You can start there, and then the business could be anything (trading also).
hello
Let us say i have other which is rs 2lacs in 2014-15 from other sources
and 50 lacs from trading equity and f&o
what will be the tax liablity
please calculate for me?
thanks a lot
other income of 2lks? over and above 50 lks from trading?
If yes, then it is 52lks profit, first 2.5lks 0%, 2.5 to 5lks (10%, so 25k), 5lks to 10lks (20% so 1lk), 10lks to 52lks ( 30% of 42lks, so a around 12.6lks) together 13.85 lks.
Hi Nithin,
I have request at back office can you start tax assistance or It return dept for zerodha clients since many including me do not know how to show profit loss or barrowed money for trading could be adjusted in it filing return since you people have all the knowledge
Hi,
I was working for a Startup which was in the process of registration in India last year. Because of this, I was paid by its US parent company directly from US via Foreign remittance last year for 6 months and then I was paid Indian salary regularly. In last financial year, I also did F&O trading and incurred losses. Now, I have following queries.
1) In ITR-4 form, I have to choose which option for my work, which received foreign remittance? Consultancy Services or Professional -others?
2) Can my income received via foreign remittance for my technical job, be offset against my F&O trading losses for FY 2013-14?
Thanks,
Mahesh
Hmm, can you look at the form 16 you have received from your employer and see if the first 6 months income received from US is shown on that? If it is not, I guess you can show that as professional income. But do consult a CA.
1. as explained above.
2. If you are showing this as a professional income, then yes it can be offset with trading losses.
hello nitin. i am new to zerodha and trading. i read about your blog of payment of taxes , i wasnt aware of payment of tax for trading until now. My query is : i am an nri and i opened zerodha account as a local with local account savings account( i dont have an nri account currently) . I traded equity intraday for 5 days now and realized i carnt file income taxes. I stopped trading intraday and have only holdings delivery equity which i plan to keep for over a year. So now do i need to file an income tax for the 5 days or do i just ignore it. Moreover do i need to file any income tax reports even for the delivery stocks or i just keep in mind i dont need to pay taxes for long term holding and ignore mentioning its presence anywhere. thanks in advance
If you want to be 100% compliant, yes you will have to declare these intraday trades as well, but you could choose to ignore as the they are just 5 days of trading. You need file income tax in India if you are earning any income, rental, trading, bank interest, or anything else. If there is no income, then no need to file. When you file for your returns, make sure to declare your stock holdings. You don’t have to pay any taxes if you sell your long term holdings for a profit.
Hi.
I have one query about NRI trading in FNO.
Since 1.5 years I am in abroad and having NRE account in India where I am depositing my salary income and investing it in only NRE FDs.
1. When I was in India, I used to trade in one FNO trading account . Since last 3 months (I am resident of foreign country now with valid work visa), I again started my trading with same online FNO trading account (sitting abroad). I have funded my this FNO account with my ordinary resident account from other Indian bank. Is it ok to trade like this? I am not using my NRE fund for trading.
2. I have a Demat account with the shares purchased 2 years back. What if I sell them and again buy other shares with same amount without transferring new fund in account.?
3. Similarly what should I do with my MF holdings?
Thanks in advance for your guidance.
1. Ideally you should not use that normal trading account any more .You will have to convert this into a NRI trading account. NRI’s are not allowed to directly trade on F&O, it has to happen through a custodian. It is a time consuming process to open a custodial account and won’t make sense to open one unless you are planning to trade aggressively. The other option is to trade on F&O through any of your family members account.
2. Yes, you can and this is also exempt from long term capital gain. But do change the status of your trading/demat to NRI.
3. Same as above.
Check this link which explains how an NRI can get started and documents required.
Dear Nithin, Thanks a lot for your guidance. Well understood you point.
How should I rectify my mistake which I did by trading in my normal account for FY 14-15?
You don’t have to be worried about IT department, as long as your paying taxes and declaring this, you are okay. The issue might be with FEMA (am not a FEMA expert), so I’d say if you have done it, stop it and there should not be any issue since you have probably done this on a retail individual level.
Thanks Nithin for your guidance. Wish you very Happy Diwali and Happy new year.
I am very much new to trading. I normally do intra day and short term(2-3) weeks trading. I have got to know that govt Wl be charging 15% of profit as tax. I have a question : can i save this tax if i have a insurance. I.e can I file it return for this tax
Rahul,
Intraday trading is considered speculative and hence considered as a business. Taxation for intraday trading works like this, add the intraday profits with all your other income and then pay tax according to the tax slab.
Short term trading (STCG short term capital gain) is 15%, but you cannot claim any deductions from your insurance purchase with this.
You can claim the benefit of investing into insurance on your total income (other than STCG)
OK.. THANK U..
because definitely it cannot be considered as day trade
If you have sold stocks without taking delivery, it has to be considered specualtive (like intraday equity trading).
HI ZERODHA,
please give me tax implications for profit made from swing trading (i.e,stocks sold before getting delivery on T+2) whether it should be considered as short term capital gain?
Hi Nitin,
I am Prasanna. I stay in London and aim to trade Futures contract. I hope you are able to advise with the following queries;
1. How long would it take to get an account set up for an NRI at Zerodha. Please note I do not have Non Repatriable PIS Account yet. More than happy to open an account with whom Zerodha is linkedup.
2. I understand I will have to open Non Repatriable PIS Account. Do I have to file my tax if I earn any amount from my F&O Trades in India?
3. I understand I cannot do intraday trading but I can do F&O. As an NRI can i buy and sell futures contract on the same day?
4. My brother stays in India – Can I transfer 2 lacs to him to enable him to trade?. i.e. he opens an account with Zerodha and trades F&O. Please note; my brother has no earnings so his source of income to trade F&O will be funds transferred by me.
Many Thanks
Prasanna
1. If you want to trade F&O, you will also need to get a CP code(custodial participant code) along with the PIS account (HDFC/Axis) we have a tie up with.
2. Yes
3. Yes you can trade F&O (intraday and positional), but you will have to do this through a CP code.
4. This will probably be the best way, (CP code make sense if your account size is atleast 25 to 50lks). Your brother can give his 6 months bank statement, and if there are credits on it, can be considered as an income. that would be enough to get him started.
Thanks Nitin – much appreciated.
Good to know my brother can get started and I guess I cannot trade on his behalf from London. My account size will be in early single digit lacs.
Is there a way to trade on behalf of my brother from London from Zerodha?
Truly appreciate your inputs
Prasanna
If your brother shares his login credentials, you can trade on his behalf.
please clarify
suppose i day trade only in the equity segment and i gain 5000 one day and loose 5000 next day assume my there are 250 trading days in a year. so my turnover would be 5000 x 250 = 1250000 and profit would be 0. which is less that 8% of the turnover.
now my questions are
1) do i need to get my books audited. ?
2) in ITR 4 where do you enter the turnover, don’t you only put in the speculative gain and loss ? how does the income tax dept know how much is your turnover ?
thanks in advance.
1. If trading is your only source of income, there is no need of getting audited as you don’t fall under any tax slabs. But if you have other income (salary/business) that will need to get added to it and if either turnover is over Rs 1 crore or if your income is less than 8% of your turnover, you will need an audit.
2. The turnover will be all gain + loss which in your case will be 12.5lks.
Last year I have submit tax return with audit format, CA calcualate F&O and intra turvover is buying and selling turnover so its come above 1 cr so we filled as a audit format form but not audit just put buy turnover and sell turnover and difference as a loss. But they send 271 B because of not submit audit report. Today I have studied in Internet Turover of F&O and Intraday is Total of either positive or negative of difference of buy and sell, In that case my turnover is 30 lacs, So what can i do and tell to Income tax people, please reply.
If you haven’t gotten a notice and if it is within 1 year from when you filed your returns, you can revise it. If you have gotten a notice, you can rectify and explain to the assessing officer.
i have declared the losses and its carried forward till date….. so i can consider it against my options profit right?
I have “Commodity derivative” losses of year 2010-2011 & 2011-2012
Can i adjust this loss against current years profit in “Stock Options”.
Please also let me know whether i can claim expenses against the income of Stock Options as well
Regards
Parag
Chica, if you haven’t declared the losses in time, you cannot carryforward them. So not possible with your 2010 and 2011 losses. But if you had declared those losses then, yeah definitely. Yes even trading in options is considered as a business, so you can claim your expenses.
yes i have declared my losses & its carried forward till date, so i can consider my profits in options against that loss right?
Yes
thank you very much for ur reply
I have one simple Question. I have turnover less than 1 crore. I had net loss 2 lakhs. Can I claim the loss by getting Tax Audit? What is the deadline to file ITR so that I could carry the losses forward.
Please Reply
Yep you can, Sept 30th is the last day.
Hi Nitin,
I follow you regularly, thanks for those efforts which you make to keep us updated and making every investor informed.
Here is the situation:
A trader who only trades in NIFTY Options and invest in about 4 Lacs every day and sells them every day no carry over to next day. Assuming He makes a profit of 50K every day and trading for 250 days in a year he will make a GROSS profit of 1.25 Crore profit (The profit includes bokerage, and other trading expenses i.e internet , phone bills etc.) The trader is also a regular service personnel working for a Pvt. Ltd. Company. I wanted to know the following:
1. Whether The trader need to get his books audited, or the trader can simply show this a short term Capital gain and can add this income to his salary income and pays the income tax and not consider this as business.
2. Does this trader needs to register under proprietorship firm is it mandatory or the trader can still be working with his company and can trade and its ok to do that with this kind of profits.
3. How do you calculate the turnover here.
Regards
Deb
Deb,
1. Intraday equity and F&O are both considered as a business, so you need to add this income and along with your salary file using ITR 4. The good thing with ITR 4 is that you can consider all those costs that you incurred toward trading, like internet, mobile bill, subscription, depreciation of computer and etc as expenses.
2. You can be an individual, no need of propreitorship/partnership/pvt ltd.
3. Check this for turnover.
Hi Nithin,
My simple question to you is what has to be the Purchase Amount and the Sell Amount in ITR 4. Should the Purchase Amount be Total LOSS Trade value and Sell Amount be Total PROFIT Trades value.
Thanks
Yes, you could do it this way.
Nithin, I consulted a friend CA who also is a partner of trading firm in FO and as per him for the turnover purpose only net of difference of profit and loss trades have to be considered and that too on the basis of EACH trade by FIFO method and not on the basis of contract wise total for that particular contract. For this purpose he has a software to generate this report as none of the brokers give this report as per him.
Also he mentioned that the sell value of Options in the turnover is only for naked sell options which are NOT squared off by the trader and are settled by the exchange on expiry either in profit or loss. For all other options trades which are squared off by the trader only the difference for profit and loss (just like in Futures) have to be taken.
But he also said that for retail traders adherence to all such things may not matter as long as correct profit or loss is shown and tax thereon paid, if any.
I am confused now.
Sharad, your friend is right, as long as you a retail trader is declaring it in whichever way you want to, but ensure that your actions doesn’t drastically change your income tax liability, I think you will be alright. Best way to avoid this confusion is to file an ITR 4 and get yourself audited in any case.
If you are planning to declare 8% of your turnover as income(ITR 4S) and declare say Rs 10lks as your turnover. If tomorrow the ITO decides your turnover is 1 crore, that is when the problem arises. If you use an ITR 4 and get a CA audit your returns, turnover doesn’t really matter.
Hi Nithin, thanks for this wonderful information !
Here is a quick question about FNO loss. Is it mandatory to report this in the return ? In my case, FNO loss is apprx. 30K. I am fine if I end up paying a little more taxes than furnishing ITR4 and showing income and getting the audit done by a CA.
Would it be ok if I don’t show this ? Any implications ?
Also, in case I need to get the audit done, I can file by Sep 30 th right ?
By law you have to show your losses, otherwise there is a risk of this coming back and ITO asking the reason why it was not shown, the penalty at that time would be based on your turnover. Note that if you don’t need an audit you can show presumptive income as 8% of your F&O turnover, we have quite a few discussions above on that. Yes Sept 30th is the last day.
Hi Nithin, Firstly thanks for this wonderful initiative by Zerodha. Withouth which I would have ended up filing a different ITR. One thing what I donot understand is why people are not informed well in advance by the Govt about tax implications(like audit and business income) due to trading in Intra and Derivate segments. Anyway my question is I have done trading in Intraday and delivery. My turnover in intraday is 4 lakhs but is in loss of 60k. Also, I am salaried and I understand I need to get tax audit done since my salary is around 6 lakhs. So for audit I need to maintain book of accounts. Can the electronic ledger given by brokerage firm like your’s be considered as book of accounts? Or do i have to maintain any other physical books. Many of the CA’s i met are also not well informed about this 8% taxation clause for audit and they are not giving proper advice. so thought of asking zerodha as I have account in Zerodha and current year i have done only F&O without having known this implications my total sales is around 17 cr. but in loss 😀
HI,
I trade mainly in futures and options. Sometimes I have closed my positions on the same day(either due to Stop Loss or may be for a small profit anticipating trend changes). Do I need to consider them as speculative trades or do speculation trade apply only for Intraday cash trades.
All F&O trades (intraday and overnight) are considered as a business income and not speculative. Only intraday equity trading is considered speculative.
Hi Nithin.Thanks for your quick reply.
While filling out my ITR 4 form I had few doubts. Hope you could clear it for me.
Do we need to fill the Balance Sheet and P&L schedule both(I am already mentioning Capital Gains separately under schedule CG). Balance Sheet and P&L seems to be for those who are selling goods and services. I may be wrong.
Also in schedule BP(Computation of Income from business or profession).
Part A 3 – Income/receipts credited to P&L account considered under other heads of income:
subsection (c) Capital Gains: Do I need to mention capital gains here as I am already mentioning Capital Gains separately under section CG.Here it is not accepting negative values and I have a loss this year.
Finally in Schedule CG,part A Short Term Capital Gain ,
section 3a. Full value of Consideration – Does this refer to the total amount of Shares & Futures sold?. If so do we consider value of sale after deducting brokerage and taxes.
section 3b(i) Similarly cost of Acquisition(without indexation): Does this refer to total buy amount in the year and if so do we include brokerage amount here or do we show brokerage and taxes separately.
section 3b(ii):Cost of improvement without indexation: Can I Include cost of training as I had joined a paid newsletter which provided me with a daily review of stock market.
section 3b(iii)Expenditure wholly and exclusively in connection with transfer: What is this field for. Should I be mentioning my total brokerage and taxes(STT, stamp duty etc) here.
I know I have asked a lot of questions in one post. Hope you answer quickly as always and thanks in advance.
1. Balance sheet is required only if audit is required (for everyone, including traders). IF no audit, it is not mandatory.
2. If you are already mentioning under CG head, you don’t need to mention again under other heads.
3. Firstly if you are showing under capital gain, you can’t include STT as an expense. Also futures and options have to be shown in the other business head, not under capital gain.
a. Yes this indicates full value of shares sold, you have an option either to show after deduction or before.
b. Yes total buy value of shares, again you have an option of showing with or without.
c. Ideally this training cost, you should include in your business expenses and not here.
d. So if in points a,b, if you don’t show the value after brokerage and other charges, you can show all the brokerage and other charges here separately.
Cheers,
Hi,
Nithin. Thanks again for the quick reply.
A few more queries.
1. Don’t futures trading count as capital gains.
2. Also can I or not carry forward loss from futures trading as Capital loss for the next year.
3. In case Derivatives don’t count Capital gains and I already have capital loss the previous year then can I adjust my profit (hypothetical) with previous year capital loss or in case of loss this year add to the capital loss I already have in the previous year(my present case).
4. In which schedule do I have to mention Futures as Business Income in ITR4.
Thanks a lot in advance. I would have made a mess of my tax filing without your help.
1. No, futures are considered as business income
2. You can carry forward f&O loss forward for 8 years, but as a business loss and not capital loss.
3. If you have capital loss from previous year, you can adjust it with capital gain this year and not against business gains (futures profit), and vice versa.
4. Business and profession schedule
Thanks for the lightning fast response. A few more queries. Likely to be my last 🙂
1.The business profit and loss that I show here can I club it with other businesses as I am going to start an online business soon. Will I be able to set off my loss in trading with the profit in that business and vice versa.
2.My tax consultant has been mistakenly using FormA2 for the past 2 years and has been filing it as Capital loss(He doesn’t understand stock market).
In ITR 4 there is a schedule CFL(Losses to be carried forward).By default when I fetched the details from my PAN my past losses were shown in the section short term capital loss. Should I edit and instead change it to business loss. Or Should I file my return and then file correction return for last year and this year.
3. You mentioned that F&O details should be mentioned in Business and Profession section.I did not find it.There is a P&L section.Is this what you were referring to.
4.In case P&L is the relevant schedule, there are 2 ways it can be filled.
One is where they ask all the details like sales,duties,other income,stocks etc.(to be filled in case of regular books being maintained); and the other method is NO ACCOUNT METHOD(where regular books are not maintained) and where they ask for Gross Receipt,Gross Profits,Expenses,Net Profit.
5.What is Gross Receipt:Is it total sale value of Futures for the year or is it Total Sale-Total Buy value.
Again Thanks for starting this blog. If I had come across this blog a couple of years ago,I wouldn’t have ever gone to my clueless TAX CONSULTANT.
1. Yep definitely.
2. Ideally you should rectify your previous year returns first.
3. Yes P&L section is what I am referring to
4. No account method is in case if you don’t need an audit, check the post above on cases when audit is not required. If audit is required then, you need to maintain the book of accounts.
5. Gross receipt is total sell value, Gross purchases is total buy value
Cheers,
After filing IT returns online do I need to send the hard copy of my trade report or P&L report or daily contract note from Zerodha; of the various trades that I have done in FY2013-14 along with my IT return hard copy.
In the P&L schedule using No accounts method I entered my Gross receipts as Gross sale of futures for FY13-14 which was 12.82 crores, I have Gross Purchase of 12.833 crores . I have net loss of 1.3 Lakhs. My turnover based on total of profit or loss per scrip method would only amount to approx Rs.5 to 6 Lakhs.
After entering My Gross receipts when I tried to save an error was generated stating I had to tick Audit required section due to my High turnover. I think that the tax utility was taking gross receipts as my turnover. I am beginning to think we have to enter the turnover for Gross receipts. Can you clarify as you previously mentioned that Gross Receipts meant Total Sales had to be entered.
ahh.. you are entering contract turnover.. I was trying to say you can enter gross profits under sales and gross losses under Receipts.
I forgot to ask one more thing. I had filed one correction return last year itself.
Can I file correction return for previous assessment year one more time?
Thanks in advance.
yes you can, revision can happen multiple times.But you cannot revise in case any income tax order is passed on that.
Nopes, not required unless if you get a scrutiny and the Income tax officer asks for it, which is very slim chances.
I want to thank you one more time. I don’t have many friends who are active traders but whenever someone asks me I always mention Zerodha. Great Service at Great Price. 🙂
Thanx Nitin ji for ur reply regarding ITR to b used in our case.
Becoz Audit is required if Turnover is more than 1 Crore or we incurred losses, what is the last date for filing ?
Is it 31st July or 30th Sep 2014 ?
30th Sept
1. I am a pensioner and received nearly Rs, 1,80,000 as pension.
I traded F&O. I traded Equity Intraday & Delivery based. Made losses.
What is the ITR i have to file if I want to carry forward my losses. Is it ITR-2, 4 or 4S ?
Do I have to file the returns compulsorily before 31st July 2014 to carry forward losses or time is there upto 30th Sep 2014?
2. My wife is a home maker. She is having Interest income which is less than Rs. 2,00,00.
She also traded in F&O, Equity Intraday & Delivery. Made losses
To carry forward the losses for next 8 year What is the ITR to be filed in her case & what is the Last date for filing the same ?
You have to use ITR 4 to be able to carry forward your losses, both for you and your wife.
Hi can you please tell me what shd I fill in the nature of business in ITR 4s. I am a salaried person doing Future and option trading.
Trading – other, Code: 0204, it is the same code as in ITR4
Hi Nitin,
In the reports for option trading, could you please provide with information like strike price and premium paid for each trade. There is no way to verify the total turnover amount given in tax P&L statement without these information.
Regards,
Mohan
raj, for options we are calculating turnover charges as absolute sum of settlement profits and losses (scripwise and not tradewise) and sum of all sell values of option premium, it is explained on the landing of Tax P&L. are u looking at our new reporting tool Q or the old BO?
Hi Nitin
I trade FNO with you. Total Trade turnover as per back office is about 17 lacs. I have a loss of about 15K ( after factoring in brokerages etc). Do I need to necessarily get myself tax audited since my turnover is less than 1 cr but the loss means it is less than the presumptive tax of 8%.
You may answered this before but hv unable to find it in the blog
thanks
Sunil Arora
Sunil, Do check out our new reporting tool Q, it is in beta will be live in the next 2 days.
Yes you need to get yourself audited if profit is less than 8% of turnover. The other way out if you want to avoid audit is to use ITR 4S and declare presumptive income of 8% of your turnover and pay taxes accordingly.
First thanks for response.
That means in futures
1. I got one scrip 10K profit and other scrip was 9K loss . Turnover is 10-9 = 1 or 10+9 =19. Which one is correct.
I know this information will file in P&L statement of ITR -4. which columns need to fill in ITR 4 for Derivatives trading? Could you have any sample ITR -4?
Thanks & Regards,
Venki
Hi Nitin,
In P&L statement of zerodha is showing total buy value is 16799081.25 and total sell value is 16653090.00 in futures. Total loss is 145991.25. I tried to fill on ITR 4 of P&L,
sales and gross receipts is : 16653090.00
Purchases:16799081.25. After i am trying to upload the ITR4, it’s showing error, 44A/B for autditing (greter than 1crore of turnover). In this case what’s the turnover? How can i calculate turnover for sales and gross receipts and purcharses according zerodha P&L account?
Is it mandatory for audit in my case?
Thanks & Regards,
Venki
Net receivable: 233183.75, Net Payable: (488735.00).
In this case what’s the values of ITR4 —> sale and gross receipts and purchases columns of p&L statement of ITR 4?
What I follow while declaring turnover is:
Turnover for equity delivery is Total sell value
Turnover for intraday equity and futures (absolute sum of all profits and losses scrip wise)
Turnover for options (absolute sum of all profits and losses + Total sell value of options)
If you are using an ITR 4 and if either your turnover is over 1 crore or if profit is less than 8% of your turnover (your case), you will need a mandatory audit.
which papers i need for filling income tax and from where i get these papers.
I searched back office… for nse i get the P N L statement but bse i couldn’t get. Is there any combined P n L statement for NSE, BSE and Futures n options?
Can you check out our new backoffice Q, you can use it on any browser you want. We are adding a Tax PNL statement here by tomorrow, all exchanges combined.
I do only BTST, and I think it comes under the Short term capital gain. What if I re invest all the money earned from BTST in the same financial year.
If you have made a profit and even if you are reinvest, you have to pay taxes for the realized gains.
Sir, Kindly clarify as how to account the unsettled positions in the P&L account for taxation purposes? for example imagine that FUTIDX 25APR2013 NIFTY of 50 Nos were sold on 25-03-2013 for Rs.5746.5 and another FUTIDX 25APR2013 NIFTY of 50 Nos were sold on 02-04-2013 for Rs.5758.95. And supposing that these two positions were closed on 08-04-2013 for Rs.5581 (i.e Qty of 100 bought for Rs.5581 each).
The above two transactions typically appear in the P&L statement for the year ending 31-03-2013 and 31-03-2014 as below:-
For 2012-13
Buy Qty: 0, Buy Value: 0, Sell Qty: 50, Sell Value: 287105.89, Realized P&L: 0, Balance Qty: (-50), Avg Price: 5742.12, Clsng Rate: 0, Holding Value: 287106, Mkt Value: 0, UnRealized P&L: 287105.89, Total P&L: 2,87,105.89
For 2013-14
Buy Qty: 100, Buy Value: 558363.16, Sell Qty: 50, Sell Value : 287713.14, Realized P&L: 8531.56, Balance Qty: 50, Avg Price:- 5583.63, Clsng Rate: 0, Holding Value:- 279181.50, Mkt Value:- 0, UnRealized P&L: -279181.58, Total P&L: (-270650.02)
By accounting these transactions in the aforesaid manner, I think that certain excess profit is shown for the year 2012-13 and correspondingly excess loss shown for the year 2013-14. I hope the manner of accounting as stated above is incorrect. I request you to enlighten me how to correctly account the above transactions.
So you have 1 lot carried forward to 13/14 on April 1st, for this don’t consider the price that you have bought on 25 march, but consider the MTM price as on 31th march. So assuming the Nifty closing price was 5800 on March 30th, that is your base price on which P&L needs to be calculated. So now assume on 2nd April you have bought another one lot at 5700, now your average buy value is 5750 for 2 lots. If these lots were sold at 5600, you made a loss of 150 points x 100 = Rs 15000.
So this would be the correct way for filing, if you are trading with us, give us time till this weekend, we will have a tax ready P&L on our new backoffice. The current backoffice P&L is a little confusing.
Cheers,
Thanks for your reply. Still I am having confusion. On the other hand, please clarify whether it is all right to take it into account only the realized profit or loss during the year for taxation purposes ignoring the positions that are not closed as on 31st March (f&o contracts). I’m more convenient with this. As the positions as on 31 st March that are not closed would be carried forward next year and profit or loss would be realised in the subsequent year.
Chella, that is a call you have to take, it is convenient to take the MTM unrealized profits/losses as on 31st March, so that it becomes easy reference for the next year. But yeah, you could also consider such open positions for next year whenever you exit them.
Hi Nitin
If I do only intraday in cash segment and sometimes in delivery. How to calculate turnover.
for ex.
intraday buy adani for 420 * 100 and sell for 430 * 100 = profit is Rs. 1000.
delivery buy adani for 420 * 100 and sell for 430 * 100 = profit is Rs. 1000
How to calculate turnover and profit
For Intraday : Rs 1000
For Delivery if you have to go by the book definition then it is sell value of the stock which is Rs 43000 (Rs 430 x 100).
Thanks Nitin
So the total turnover is Rs. 44000/- so the profit is Rs. 2000/-. If my calculation is correct is correct than the profit is less than 8%. So we have go for audit of accounts.
Am I right in this?
Shiva in your example, Intraday equity trading is considered speculative and delivery based equity comes under the long term/short term head. The profits you make under the long term/short term doesn’t come under business income so there is no need of an audit, if you are above or below the 8% mark(it wouldn’t matter). Intraday is considered speculative business, so your turnover is Rs 1000 and profit Rs 1000, so you will not need an audit.
hi Nithin sir,
correct me if i am interpreting it wrong.
If one is trading intraday equity, then it’s advisable to declare himself as a ‘Trader’….am i right ?
If he declares himself as trader, then won’t longterm+short term come under business and need to be considered while calculating turnover and profits criteria ?
Intraday equity trading is called ” Speculative business”, and you cannot declare this in your normal ITR. You will need to use ITR4 or ITR4S, so yes you are considering yourself as a trader/business.
Even if you declare yourself as a trader, and if you can keep the books separate, you can show investing and trading activity separately. Speak to a good CA about this.
Thank you sir.
Hi Nitin,
Thanks for the valuable input that you have been providing on the various queries.
I too was looking for some clarification on the taxation on BSE.
Assuming that I have a particular stock of quantity 100 for over two years and then I buy additional quantities (50) of the same stock which are less than a year.
Soon I decide to sell 100 units of the 150 that I hold.
Will the sale consider the 100 units being sold as those being held for over a period of one year or should the whole of quantity be held over 1 year to avail long term investment related tax benefit?
Ashok,
You need to follow FIFO (First in First out) method, so when you sell that 100 shares you have to consider it sold from your long term holdings. So yeah on the new purchase you will have to hold for a year to get the long term benefit.
Cheers,
Thank You.. cleared the doubt
Hello Nithin,
Do we have any CA, who can help us ? I’m from chennai
Thanks
Ravikumar
When do we need to get the books audited from CA ?
is it if we make profit of 1C in a financial year or our Buy and sell values crosses 1 Crore ?
You need audit in 2 cases:
1. Turnover more than 1crore
2. If your turnover is less than 1 crore and profitability less than 8% of the turnover.
Sir, I am unable to see the profit/loss report of year basis of NSE equity. The back-office shows FNO-profit/loss and 60-days challenge profit/loss. please help me to generate the profit/loss report of NSE Equity.
To generate P&L for your Equity segment, please follow the below path:
Login –> NSE EQ –> NSE EQ Account Analaysis –> Enter the date range for which you want to generate the report and click “Report” to generate your P&L report for the Equity Segment.
Thanks
hello nithin i have a dout just casual like others
1) if i made profit of 1 crore on intraday trading during year what would be the final tax should pay (30% as of slab for business income)
2) if i made profit of 1 crore on belivery(includes btst/stbt) basis trading during the accounting year what would be the final tax should pay (15% as of short term capital gain)
1. Gross profit is 1crore, you remove all expenses, and then on the net you pay according to the slabs mentioned in the post.
2. If you are trading only equity delivery, yes you pay 15% as STCG
Many discussions on this post
HI Nithin,
I want to file my tax and my tax consultant wants me to give him a report with all the trades with buy price and sell price(inclusive of brokerage and tax)i.e. if I buy 100 TCS @ 2000 and total brokerge+tax comes to Rs100(or Rs.1 per share),then I should list buy price as Buy 100 TCS @ 2001.Similarly Sell Price(i.e.Sell Price-Brokerage and taxes). The reports in Zerodha backoffice mention total brokerage and taxes for a day or a given period.They dont mention brokerage and taxes for Individual trades. I dont know how to file taxes for stock market returns. Since my consultant is asking for individual break up of trades(with brokerage and tax),I would like to know whether it is possible to get the details that I want.
Thanks in advance.
Vk,
There are 2 ways to file your return, one of the way is how your consultant has mentioned. But the other way to do it is, take all your gross profits/losses and reduce the expenses which include brokerage and taxes.
If your consultant insists, then you would have to manually calculate this.
Hi Nithin,
Thank you for the great effort in this crucial direction where most of the cases are of ignorance and pain in the later stages,
Well please advise if there is a TDS facility which can deduct at source on each and every trade or an advise in these lines as we can be clear from start and have no hassles of an IT personnel blocking your growth
To be precise I am gonna be into currency trade, ideally intending a high volume with low margin.
Your advise is awaited.
Regards
Selva Mohan
Hi,
First of all “Thumbs up” to zerodha team for putting up this informative forum…
Am an investor and my trades are delivery based. Am planning to get a personal loan and the entire fund would be utilised for stock market investment purpose. In that case, would I still be considered as an investor for p/l calculation?
Aravind,
Source of funds doesn’t really matter to consider if you are an investor or a trader. So as long as your activity in the market is investing, you can consider yourself the same for calculating taxes.
Cheers,
Dear Nithin,
Happy New Year in Advance.
I have one question regarding Advance Tax, is it compalsary to deposite advance tax for speculative trading also ??
Alok, as long as you are trading actively, which would mean as a business, advance tax has to be paid.
Hello,
1) Day-trading, F&O falls under business, so 30% tax is applied
2)Delivery of stock
a)holding period (0-12)-15% tax
b)(>12 months)-10% tax
Is this correct? or any modifications for tax calculations?
Tharun,
It depends on how you declare your trading activity as, if you declare it as a business i.e if you are trading actively all activity of yours in the market will be considered as a business, do read through the blog once.
Bug in gist:
1. F&O trading has to be considered as a business, so this gets added to your salary or other business, and have to pay tax according to the slab you fall in.
2. Delivery based trading, if holding for more than a year, 0% tax and if less than a year than 15% as Short term tax on the gain.
Cheers,
Thank You…………………!
My father expired recently (in June 2013) and being nominee in his individual Demat account, I have received credit (after completing DP’s requirements) of equity shares holding from my father’s demat a/c to my demat a/c. All the equity holdings in his account were for over 1 year. Now when I have received those holdings in my account on 15 Nov 2013. My queries are:
(1) Is there any tax implication of receipt of shares from my father’s a/c to me (after his death). The current market value (on 15 Nov 2013) is about 5 lakh ?.
(2) If I sell any of the shares upto 15 Nov. 2014 (less than 1 year holding in my name), will it be STCG or LTCG? Had my father sold the shares before his death, it would have been LTCG as all holdings are very old(more than 7 years). The shares are transmitted to my individual demat a/c on 15 Nov.2013.
Bhupen
1. There is no tax implication on inheritance of shares on death of parents.
2. The holding period of your father will also be considered, so it will continue to be under LTCG for you.
Hi Zerodha I have three queries. I am doing investments in the name of my father/mother joint account. I invest in equity and F&O also.
1) Can I fill ITR4 and show STCG/LTCG fot equity and business income for F&O in my father’s name?
2) If I cannot go by option 1. then what is the best way to separate Equity Trading and F&O trading, so that one can claim STCG/LTCG on equity and show F&O profits under business income.
3) I have heard that one should maintain separate trading and investment portfolio. But I am not clear what does it mean:
a) Does it mean having one savings account and two trading accounts? But even then one will have to fill ITR4. So does that mean having separate two trading account means one can fill one ITR4 but show STCG/LTCG for equity and Business income for F&O?
b) or Does it mean having two saving account (one in mother name and one in father name) and having two trading accounts. This way I can fill ITR2 for mother (equity STCG/LTCG) and ITR4 for father (Business income from F&O)?
In short what I want to know is – what is the best way of setting up saving/trading account in my parents name, and what is bets way to fill the ITR so that I can separate the STCG/LTCG from the F&O business income?
What I do not want is to pay normal slab tax rates on equity STCG/LTCG just beacuse I have income from F&O also?
so please give your best suggestion. many thanks !!!!!
Mohit.
1. It is a little tricky to keep equity and f&O separate because they are related, but you can. Speak to your CA about it.
2. Ideally if you are trading f&O, it means your activity in the markets is as a business and hence need to show the same for equity trading as well. But as I mentioned earlier, if the books can be kept separate by your CA.
3. Many people keep 2 trading accounts, one for equity long term and second for active trading be it in equity or f&O. It is not an ideal practice though. I’d probably suggest to open one trading
account in your fathers name and another in your mothers name, keep one for f&o trading and other for equity trading. The demat account can still be a joint account with your father and mother.
Cheers,
thanks Nitin.. that was the best answer I got on this issue from any source online.
I am a PSU employee. I want to gift money to my wife (housewife), son (student, age:24 yrs) and daughter (student, age:19 yrs), for trading in FnO. My queries are:
(1) Is this cash gift taxable? If yes, upto what limit it is tax-free and what is rate of tax beyond that.
(2) In addition to cash gift, can I take loan from my Office/Bank and loan it further to my wife/children for FnO trading ?
Devesh
1. The gift to your wife and kids is exempt from tax.
2. You can borrow and lend it to your wife/kids.
sir . i am a college student and i have no knowledge about taxation. I have started to invest only in equity from this month,I started with RS 10,000 n traded in intra-day n lost 3000.after that i started playing in equity cash delivery and holding total of 7000 rs delivery stock from the remaining money .after that I also transferred 9000 in my trading account n have booked profit of rs 1690 in intraday equity after paying all taxes ,stt& brokerage charges. now my question is that if i play only in intra- day equity till the financial year ending next month how will i be taxed??? and how will be the taxation system if the equity delivery i am holding i sell after the taxation last date or if i sell before taxation date??i will invest in only equity in intra day and delivery mode.
Abhinav,
everything is explained in the blog above, has detailed explanation for your query
Financial year end is 31st march 2013.
Cheers,
Hi Zerodha,
thanks for this wonderful article, helped me a lot in understanding the proper filing of taxes.
One question though, it is clear the Speculative Losses in Equities Intraday can be netted off against only speculative profits, so in our backoffice reports, can we have two distinctive sections for seeing Speculative trades and Delivery Based trades separately.
Right now, when I see the PnL Report of my Equity section, I see Delivery based PnL, Speculative PnL, but the brokerage and charges for both are combined. Isnt it essential to see the charges for both sections separately to file them under income tax properly ?
Thanks,
Shrikant
Hi
This blog is very useful to get clarified most my IT related doubts. I have one question :
My husband is a NRI and I am a resident housewife. Can i get fund transferred from my husband NRI account to my Resident SB account, which I can use it for trading?
Is the amount received from my husband NRI account taxable for me?
Could you please elaborate more on this?
Kamalam,
Yes your husband can transfer funds to your resident local bank account in India.
Yes the same funds can be used for trading or investing in the markets.
There is no restrictions both in terms of funds being transferred from an NRI to their family members and no restriction on application of funds.
When your husband is transferring funds, it is already taxed in the country where he has earned it. When he transfers it to you, it is just application of his funds and you don’t have to pay taxes as you are receiving it from your husband.
Cheers,
Thanks for the clarification and your quick support
Hi,
I don’t have any income other than profit/loss in market, which ITR form I have to submit to file my returns. Appreciate your help in this regard.
Thanks
mak3678
Mak,
ITR 4 is what you will need to use, do check this blog and queries on it, will cover most of your queries.
Cheers,
Dear Sir,
Finance Act 2005 has amended the provision to section 43(5), with effect from Assessment Year 2006-07, to provide that derivatives trading transactions would not be regarded as ‘speculative’ transactions, subject to the fulfillment of certain conditions. (The conditions are such as traded in recognized Stock exchanges etc). Hence trading in futures is not speculative but business. But I have a doubt that in view of the following provisions CA audit is not required.
Clause (d) of section 44AB, provides that in the case of an assessee carrying on a business of the nature specified in sections 44AD, tax audit will be required, if he claims his income to be lower than the presumptive income deemed under the said section and income exceeds the maximum amount not chargeable to income-tax (i.e. basic exemption limit).
Please clarify whether
i) ‘income’ and ‘profit or gains’ mentioned in the above Section. Whether both are one and the same. If a house hold lady trading in futures and no other income but only overall loss during the year, I think is covered under above provision where tax audit is not required. This may be confirmed.
ii) If she wants to carry forward the loss for previous year now can she get her ‘tax audited’ by CA and file return now prior to 30-09-2013 or whether return should have been filed prior to 31-07-2013
Chella
Chella,
1. An income is an income, doesn’t matter how you earn it unless a few which are exempt(example farming and etc) if you look at Section2(24) which defines the word income. As per our understanding of the definition, “profit and gains” is a part of “income” and are not really the same.
Income tax department doesn’t really differentiate if the person trading is a house wife or a working woman. If the housewife is trading futures, then she is partaking in a kind of business and the same rules apply to her as well.
The idea with how we do our business and the way we have mentioned on the blog is to simplify and avoid any loose ends. The best way to do that would be to have a tax audit even if you have made a loss.
2. For the financial year 2012-2013, if you intend to carry forward the losses, you need to get the audit done and in such cases the last date is 30th Sept 2013. If you don’t get an audit done and want to carry forward the losses the last date was 31st July 2013, which has already passed.
Hope this clarifies.
Cheers,
Hi,
What about NRI who trades online in F&O, the online broker will deduct TDS on the profit. I have the following questions
1) If my total income from trading is less than Rs. 2 lakh, will I still have to file income tax return ?
2) % profit is less than 8% of turnover will I have to have my books audited even after having TDS paid.
Thanks
1. Income tax returns have to be filed irrespective of how much income you make, especially when you are trading the markets. If it is less than 2lks, you would not need to pay taxes, but returns have to be filed. In your case, if income is less than 2lks after filing returns you can even get the refund of the TDS deducted.
2. Yes as per section 44AD, if your turnover is less than 8% books have to be audited. But books being audited is a very simple process, it is basically a CA certifying it.
Hi Nitin,
above blog u mentioned that – “If it is less than 2lks, you would not need to pay taxes,”
Does it mean my total profit of that year or total trading amount ?
2. Here you mentioned – “Yes as per section 44AD, if your turnover is less than 8% books have to be audited. ”
What does it mean of turnover is less than 8% ?
I wanted to know in layman language that in a year what is the limit of trading, profit, loss
to avoid paying income tax. I don’t want to be in any kind of trouble by receiving income tax notice.
Thanks..
JK, You pay taxes on all your income and not just on what you earn from trading. So the way it works is, you add all the income you earn along with your trading profit/loss. If this figure is above Rs 2.5lks(changed from 2 to 2.5 – min tax slabs), then you have to pay taxes according to the slab you fall in. Explained in this post.
Check this post to understand the implication of audit if your turnover is less than 8%.
If you are earning more than Rs 2.5lks every year, you have to pay tax irrespective of if you have earned this trading or working in a company.
sir
I have one doubt i lost 8 lac rupees in past three years………..
I didnt fill any form or any IT return till now but this year i am in profits
so ……… is there any chance to show my past losses in my returns or not?
and pls give me advice which form is correct for me………… i am a full time trader
Thank You
Mohan,
If you haven’t filed your returns on time you cannot net off the previous losses with your this year profits. But for the last finacial year you still have time to file until Sept 30th, so go ahead and file your returns for last year and the losses which you show can be net off against profits you make this year.
Check this blog on Taxation Simplifed , you will need ITR4 for this.
Cheers,
I am very thankful for your value information…………… thanks thanks
sir what documents needs for filled that ITR4 FORM and what encloused with that form….pls tell me sir
It is best to meet a CA for this, you will need bank statements, trading ledger books and any other proofs that has income.
Thank You sir
Sir..
i trade with 4 brokerage companies in last financial year …..
so any problem to showing my ledgers P/L statements to CA
and i didnt fill any ITR4 till now is there any time to show my losses of last fy…
pls rectify these doubts..
Mohan,
There is no problem showing the ledgers with 4 brokerage to your CA. Your CA is like your financial doctor, best not to avoid anything.
If you haven’t filed ITR4 till now, it is never too late, please go meet a CA and get this done immediately. As far as getting the benefit of carry forwarding the losses, you have time only till Sep 30th(this year it is extended till oct 31st) otherwise you will be letting go of any benefit of carry forwarding the losses for the last financial year.
Hi Nithin,
Thanks for a gr8 blog.
I talked to a local CA – some guys in his office – I don’t know if they are trainees or otherwise.
What they told me is
(1) It will cost around 30,000/- for Audit.
(2) still no CA will do it because it is tedious to do so in F&O etc case
(3) particularly since they can earn much more auditing a company in the same amount of time,
and hence
(4) better to forgo losses, calculate turnover and declare 8% profit and pay taxes if any! (I don’t come in tax bracket this year even after 8% profits)
(5) They claim (4) is a common practice locally (Mumbai)
yes, I am not able to carry forward losses. but I do not have to pay another 30K and pray to the almighty CA to Audit my a/cs even after paying the demanded Fees. What if I do not get a CA to Audit my a/cs at say 30K?
He has said this after consulting with the CA – owner of the firm.
Ques:
1. What all things are true among this?
2. What is Audit exactly?
3. What do I need to give to the CA and (roughly) how much are the charges?
Do the trader has to undergo one more hurdle?!
After all sorts of KYCs and what not when absolutely “anything goes” all around us??
Thanks once again,
Ah…. one last point,
If all of this was not sufficient I was told that if I was found not to have done a Audit when it was required to be done, I could be fined to the tune of 1L50K or so!!
Are these just fear mongers or how much is the truth?
How complicated/ involved is the process of Audit or accounts or “whatever is needed”?
Thanks,
Regards,
Your answers:
1. If you are just a trader, audit shouldn’t cost more than 10 to 15k. It is actually a very simple process, take your p&l statement from the broker, your bank statements and any other loan statements. It is not tedious at all for a CA.
Yes you can show a profit o 8% on turnover and pay taxes accordingly, it is a loophole in the system,but i’d advise not to because you are not showing the data correctly.
2. Audit, is basically a CA certifying what you have filed is correct.
Last year there have been 10lk notices sent by the income tax department and this will definitely go up. The penalty is 0.5% or Rs 1.5lks whichever is lower of the turnover. It is always best to avoid any such penalty however small the amount, especially in this electronic age.
Cheers
Thanks for the explanations on all my questions.
I fully agree with your view point about presenting facts. I was not comfortable taking the 8% route, at all. Last year my profits were > 8% (I calculated now!) and (perhaps) hence my ITR4 passed the test without Audit. I prepared my ITR4 this year too. Thankfully before submitting I came across this blog.
Thanks also for clarification on Penalty amount. Although our point of view is same on penalties etc. it is important to know what are we looking at, lest someone starts selling fear.
I will try to find some CA who knows what this is all about and perhaps is willing to go the extra step.
Thanks,
Warm regards,
Hi Zerodha,
What are the tax implications if an NRI residing in income tax free countries like uae, saudi arabia etc opens an account and starts trading in equity derivatives and commodity derivatives .Is he liable to be taxed other than STT ,CTT,STAMP DUTY,BROKERAGE on the profits he makes .If he is taxed, what are the rates and slabs. If he is not taxed .Is it a good option to have a friend open an account and repatriate the profits.
Thanks & Regards
Venkat
Venkat,
As an NRI you are not allowed to directly trade on equity and commodity derivatives. You need to get RBI approvals and do all your trading through a custodial account, which would make sense only if the account size is big.
You would still have to pay taxes as what is applicable in India before repatriating. You can see the tax rates in this blog.
Even if trading is done through a friend’s account, taxes will be still applicable, but the only good thing with this is that if the friend is a resident Indian he won’t require a custodian or any restrictions in terms of what he can trade.
Cheers,
Dear Sir,
I would like to fill ITR on line using web site https://incometaxindiaefiling.gov.in
Please post detail procedure to fill online, with images of all section, it would be great help.
Deductions in income details need help. Thanks in advance.
Alok,
This would be tricky as income tax filing is not really generalized and especially if someone is also trading the markets.
You can ask any queries though and we will be happy to answer,
Cheers,
I loged in web site https://incometaxindiaefiling.gov.in
I select Prepare and select online ITR, the form selected ITR-4S
Section “Income details”
B1–Income from Business –Grey Block cant enter any amount-Why ?
Please let we know also the deductions in brief each “Section” from C1 to C16 , 80C to 80U
Thanks
Alok, it would be best to consult a CA to help you file the returns.
Dear Nithin,
Its easy way to go for CA, but I dont need audit, I just want to use on line Tax filling facility.
So please if you writeup a blog on how to fill online ITR for F&O trader, it would be great help, otherwise there is no use of writing to much on tax, if we have to go to CA.
Thanks
Hi,
I downloaded Profil & Loss Statement from BO for FY 2012-13.
In some cases I am finding 0 in buy quantity or 0 in sell quantity.
Please explain.
Thanks
Sandeep
Sandeep,
Can I have your client code?
RS0708
I am finding this in currency and commodities P&L
0 will be shown if the contract has expired worthless. I guess you would see this only in case of options.
CDS futures
Hi Sir,
I am a AP state govt. employee.
Could you please let me know can a GOVT. employee trade in commodities and futures and options?
I Read some where that he cant do as per
DoPT OM No. 11013/6/91-Estt. (A) dated 8.4.92 regarding CCS [Conduct] Rules, 1964—Transactions in sale and purchase of shares and debentures etc.
In my case my brother is trading in my trading account for the past 10days in ommodities and F&O.And its turnover is (Total Value of Securities Bought and Sold) above 1 crore.(Now no loss and no profit )
Could you please suggest me What shall i do ? Shall I tell him to stop trading in my account OR let him continue trading in my account?
Also suggest whether i should maintain books and disclose this in IT Return.
Thanks And Regards,
K.A.L.Surya Kumari.
As such we are not aware of any rule that prohibits government employees to trade stocks/f&o/Commodity. Based on the organization, you might be required to declare your activity to the organization that you work in.
Do read our blog on taxation simplified and also the queries on turnover. Turnover doesn’t mean buy volume + sell volume. Turnover is sum of all your settlement profits and losses.
You want to trade or not is your call, but if you are trading make it a point to maintain your books and file your IT returns disclosing your trading business.
Is it possible to carry over losses made in derivative trades (or where shares are not taken into the demat account and settlement done intra-day). I was specially wondering what is the case when forex trading is involved as here it is impossible to take delivery.
Thanks a lot.
http://www.zerodha.com/z-connect/blog/view/taxation-simplified do read this blog.
All derivative trades are considered as a business, be it f&o, commodity or currency. In a business if you make a loss, you can carry forward this loss for 8 years and net it off against any future business profits. The above blog explains on the same… Cheers,
Hello,
I have traded in derivatives segment for turnover less than 1 crore, and incurred some 30,000 odd loss.
I dont have any source of income ,and the initial capital of 50000 for trading account was contributed by my father.
My queries: Am i supposed to get my books audited and return filed , even though my income is zero.
If yes what is the due date for this ?
Rajesh.
Yes Rajesh,
You will have file your income tax returns no matter if it is profit or loss. The benefit you get by filing even when you have made a loss is that you can carry forward the loss for next 8 years. So this 30k you have made a loss this year and if next year you make 30k profit, you can set it off and you would not need to pay taxes next year.
Also, auditing would be required because your profits is less than 8% of the turnover as per section 44AD, introduced recently. Do read the other blogs in this section.
Hi,Thanks for your reply. I have read most of the blog and your one particular reply has confused my understanding of trader taxation .
To my query you say that since trading is a business , you have to get your audit done and return filed even though your income is less than taxable limit.
ok got it. Below is a query and your reply which confuses me :
PraveenKumar_16Feb 3 2013, 3:11 pm
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?
Zerodha replyFeb 3 2013, 3:27 pm
Hi Praveen,
If you are income is less than 2lks and you trade/invest in shares
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.
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.
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.
– In this reply you say its not mandatory to file return since income is less than 2 lakhs .
So whats the difference between my case and this case.
Rajesh,
This query you have posted is from February.
What happened this year is in April, May and June was that a lot of people started getting notices under 139(9)..
When we enquired on this, we realized that these notices are because of change to Section 44AD, where the business of trading was included in the list.
What section 44AD now says is that if your turnover is less than a crore and profit less than 8%, you have to get your books audited..
See this blog for more: http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
That answer is an old answer, the scenario has changed a bit from then..
Thanks a lot , now there is no confusion . I am heading straight away to the CA office.
Please let me know , which statement should i download from your site for audit , is it just the ledger will do ?
The ledger and the Profit n Loss statements..
You would also need your bank account statements.
Hello Zerodha,
Just want some clarifications on the funds I received, some of the funds I traded are funded by my uncle from his NRI account for personal use, but they are in loss.
When I file income tax returns, do I need to show the source of funds I received?
Please help me to understand in this regards.
Thanks,
Sriny
Sriny,
Firstly it depends on if you intend to repay this money back or not .But in both the cases you have to show the source of funds received.
If the idea is to not return this money back(uncle has gifted you money), since he is your uncle who has given you money, it can be shown as a gift and this gift would be taxfree for you. (Uncle comes under the purview of a relative).
If you intend to return it back, show it as a loan on your balance sheet, which will basically be repaid back later.
Cheers,
Hello Zerodha,
Thanks for answering my previous query.
I am a salaried individual and had done F&O, Equity Short Term and Intraday trading.
From your Blog I understand that for AY2013-14, if turnover is less than 1Cr and profits are more than 8% of turnover, there is no need of auditing. I am planning to file as a trader (business), since there are F&O transactions.
I understand how Turnover and profit in case of F&O. I have a query regarding turnover calculation in my case. The purpose of calculating turnover is only to decide if auditing is required.
1. My understanding is that since I am filing as a trader, Short Term Equity trading also comes under business. Does Short Term Equity trading affect Turnover? In this case how is the turnover calculated to include Short Term Equity Tradinge?
2. How is the intraday numbers included in the turnover ? Does intraday trading affect turnover?
Thank you
Babu
Babu,
Yes short term/intraday trading will also be part of your business and will have to be part of the turnover. In your ITR 4, you will mention the combined turnover but you will need to have a separate statement showing how much of the turnover was from f&O and which from short term equity.
Turnover is basically considered as your settlement profit/losses and this will be similar for equity trading. The profits/losses you make from intraday trading or short term equity trading will be combined together to consider for turnover.
Sir
I traded In Mcx
Turnover is less than 1 crore
But I have loss of 40000 Rs
Means profit is less than 8% of turnover
Is auditing of the accounts is compulsory in this situation ?
If you have no other income, and your total income is less than Rs 2.5lks, that means there is no tax you have to pay and hence no audit. But if you have other income and you fall in a tax slab, then yes, audit is required. Check this new module we have put up on taxation.
Hi Nitin,
Are you absolutely sure about this?
My CA says no matter what if I wish to carry forward losses, I would need to do an Audit done. My income is less than 2.5 lakhs, turnover less than 1 crore and loss around 4 lakhs in f&o. Please guide
Yep, absolutely sure, do read section 44AB and 44AD.
Thank you very much Zerodha for the answer.
I am quickly summarizing your answer using examples below for better understanding for me and other readers. Sorry for the long illustration.
Total Profit in F&O Including NSEFnO, CDS, MCX = A = 23000
Total Loss in F&O Including NSEFnO, CDS, MCX = B = 10000
Total Profits from Delivery Based Trading = C = 5000
Total Loss from Delivery Based Trading = D = 6000
Total Profits from Intraday Equity = E = 2000
Total Loss from Intraday Equity = F = 4000
Total expenses including internet, etc = G = 3000
Total Cost of Unsold equity stock as on 31/03/2013 including brokerage, service tax etc.(calculated using FIFO method since some of these stocks were intraday traded) = H = 30000
Total Turnover = A+B+C+D+E+F = 50000 Is this correct? Or should I add H also here?
Total profit = A-B+C-D+E-F-G = 7000 (this is 14% and I don’t need to auditing) Is this correct?
The loss/profit and revenue of unsold stock will be accounted when it is sold (say in next AY). Is this correct?
Also the profits and losses in A, B, C, D, E, F are calculated after including the brokerage, service tax, T/O Charge, STT, Stamp charges etc. Is this correct method? or Instead I should add them together to G, so that revenue will not include brokerage etc? The reason why I am asking this is, the P&L report on Zerodha Backoffice does not account for brokerage etc.
Thanking you again for the support…
babu
Has reply to this query been sent ?
I am also keen to know .
In case of loss in FNO , the totalloss is to be shown the cost of purchase and profit is to be shown as sale value ?
OR
The the profit in FNO is to be shown as cost of of purchase and loss is to be as sale value in negative e. g.
sale value – – 10 lac
purchase value + 5 lac
Loss = 5 lacs
Is it correct ?
Yes, how you came to 5lks loss calculation is correct.
Babu,
Assume I have traded nifty in june and july. My net profit for june was 20000 an net loss in July was 10000. My turnover for nifty is 30000.
Like this when you are calculating turnover, all such profits and losses of various contracts has to be added. Our PL report does this calculation for you and at the bottom of the sheet shows Total profits and total losses. Add this number and this is your turnover on FNO.
Similarly you need to take PL reports for various segments and add them together.
One thing you have mistaken is that when doing delivery business, your entire debit and credit from the ledger is considered as turnover. So if you bought stocks for 10,000 and sold for 11000, your turnover is 21000( 10+11).
You cannot add expenses to the turnover. By turnover, it again means gross turnover as shown in PL report.
You will have 1st Total turnover: which includes turnover calculated as mentioned above.
2nd: expenses: Brokerage, STT, Internet, etc are all expenses.
Turnover – expenses = Profits.
Hopefully this clarifies.
Hi Nithin,
Firstly, Thanks for effort in this direction.
I could not find ‘Total Profits’ or ‘Total Losses’ fields in PL statement. Are these same as ‘Net Payable’ and ‘Net Recievable’?
Thanks,
Shashi
Yes
Zerodha,
Thank you again for the reply. I am very clear about the F&O, CDS and MCX revenue and P&L Calculation.
Couple of more questions though.
1. In the Jun 24 2013, 9:50 am reply you mentioned that “The profits/losses you make from intraday trading or short term equity trading will be combined together to consider for turnover. ” and on Jun 24 2013, 7:24 pm reply you mentioned that “when doing delivery business, your entire debit and credit from the ledger is considered as turnover. So if you bought stocks for 10,000 and sold for 11000, your turnover is 21000( 10+11).” I am a bit confused here – isn’t short term equity trading also a delivery business?
2. The backoffice P&L reports for F&O, CDS and MCX are really great. But I am unable to locate a P&L report for equity. Is there any way to do that, so that I can get revenue, P&L and unsold stock cost for equity from backoffice?
3. Also some confusion about a statement in last reply (Jun 24 2013, 7:24 pm). “Turnover – expenses = Profits.”. It is not at all making sense for me. Can you help?
Regards
babu
Babu,
Firstly sorry about the vague reply, it was a long monday, so my bad. 🙂
Getting back to turnover,
I didn’t realize I had posted something earlier which was misleading, will correct it. While calculating delivery based turnover, you have to consider the entire purchase value and the entire selling value. If you haven’t sold the stock, for turnover consider the purchase value and no selling value.
For equity P&L, can you shoot an email to [email protected] and also keep [email protected] in cc. We were having some issue with displaying it on BO, but we can have a pdf mailed to you immediately.
3rd point, disregard it, I don’t know how I wrote that. Sorry about that. For turnover you shouldn’t add expenses( either internet, utilities and others or brokerage, STT etc). Expenses needs to be used to determine your profitability and not turnover.
Cheers,
Babu,
More correction,
For turnover calculation while trading delivery based, you calculate only the sell side of transaction. Similar to how if we are a shopkeeper selling goods, you consider only the sales as turnover and not your buying.
Sorry about this once again.
Zerodha,
Thanks for the answers and followup correction. I have requested for equity P&L report on the email addresses you have given. I was told it will be updated tomorrow.
Will ask more questions once I get the P&L report 🙂
Regards
babu
Hello,
Thank you for the initiative.
I am a salaried person and since I traded some F&O, I will have to file ITR-4 for AY-2013/14. In the ITR-4 there is a “nature of business” that need to be filled up. Which category will I come in? There are options like Trading-Retailers (0202), Financial Service Sector-Share Brokers, Sub-brokers, etc. (0808), Financial Service Sector-Others(0809) etc. Can you kindly tell us?
Thanks
Babu,
The best option is to choose Trading – others ( 0204).
Hi,
First, I would like to apreciate zerodha”s endeviour in this direction. This will be a great help for small traders.
My query :
I am planning to invite deposits from my relative and friends in my savings a/c and invest the amt in the market(F&O intraday). On completion of one year I’ll return their principle amt. along with 15% interest return. Whatever above 15% i make is my profit.
Questions:
1) Is above legal and how i can calculate my taxable income from above?
2) Whether i can invite deposits from others who are not my relatives and friends?
Thanks….
Very tricky to answer your question as these are all grey area in terms of regulation.
Yes you can take money as a loan from anyone and do whatever you wish. Yes you can pay back the interest to the money borrowed from the person who is lending it to you.
The grey area is if you are going out there and taking money saying that you will invest it into the market, then you will have to be a registered portfolio manager with SEBI and all the regulatory requirements will make sense only if you are raising atleast 10 crores.
Thanks for a prompt reply….
So if i take them as loan, how i will be taxed on the loan amt., interest i pay and the profit i make on the loan amt which i use to trade intraday(F&O).
Trader,
You are not taxed on a loan as it is a money you are borrowing to repay back. You will have to pay taxes on the profit and because it is f&O you can reduce the profit by your business expense. Business expense would include the interest you are paying back, your utility bills, computer costs, data feed costs etc. Do read the blog on taxation simplified and the Q&A at the bottom.
Hi Nithin,
As you said, taking loan from a relative and using it in stock trading to derive income comes under ‘grey area’ as it is being done only by a registered portfolio manager.
I have done so and still doing trading on my brothers’ capital of 8 lakhs. Now if i show it as a loan and pay 8% interest to him annually and show the rest profit as my income. Will that be illegal? What will be the implications from IT dept (if any ) ?
If you are borrowing money as a loan, you can do anything you want to do with it, including trading, there is no issues. The grey area is if you go out and say that I will use this money to trade/invest in the markets and we will work on a sharing basis.
Hi Nithin,
Thanks for the reply,
I have been doing this and have made profits on money borrowed from my brother. I have following queries, please help:
If I file my income at end of this financial year & show ‘interest given’ as 8 % & rest as my trading profit, is there any heck of a chance that IT dept might question me about my source of income from trading on ‘loan’ amount?
Is there any other way i can show the amount transferred to me by my brother so that the point of registered portfolio manager simply goes out of way?
Thanks a lot for the guidance. Regards.
Do I need to do any kind of documentation (stamp paper etc.) to show the amt. taken from friends as loan or can I just mention as loan while filling income tax returns….
Thanks in advance.
No need of any documentation like stamp paper etc. On your balance sheet show the credit entries as a loan.
Dear Sir,
What is the maximum percentage of interest that can be paid on loan amount taken from family and friends ?
Hmm… there is no rule on any limit as such.
I have heard that there is a capping of 12% per annum.
No Gautam, there is no regulation on how much money you pay someone as an interest for borrowing money.
Thanks Nithin.
One more query ….. do u provide dealer terminal where in I can place basket orders for multiple ids. If yes, what all would I have to do in order to take dealer terminal.
Gautam, no we don’t allow anyone to trade on behalf of others.
Nithin, not even for family members ?
Gautam, no, we did for a bit, but we pulled it back as it was not compliant to exchange regulations.
Hi , when resident stocks are sold by an NRI , is there a tax to be paid. These stock are held in a resident trading account for more than 3 years without any activity.
Aji,
As long as these stocks are sold on the stock exchanges you don’t have to pay any taxes as long term capital gain tax(tax on any gain in stock held for more than 1 year) in India is 0 for residents and NRI’s investing in equity and MF.
Cheers,
Hi I am not tax payer I am self employee i just try share market my own risk but its not supporting my trading so I just droped trading in case I have loss near20000to30000 in overall 2 years what I do thanking u n.rajkumar
Raj, my guess is that you are filing your ITR. If you are, declare this trading loss in that .