Taxation Simplified
“Check out our detailed module on taxation while trading/investing on varsity.“
Traders,
I have been trading personally for a very long time and the tax filing times have always been the most painful part, sitting with a CA and accounting for profits, losses, expenses and others. I was in similar shoes as most of you would probably be in right now when it comes to taxation, “Confused”. There are a bunch of reasons for writing this post:
- Discussing the best practices filing returns when trading the markets, important because there are divergent views on many topics among traders and CA’s.
- Simplifying all the financial jargon CA’s use.
- Letting know the importance of filing returns on time and implications of misfiling or not declaring trading profits or losses.
Om Prakash Jain a brilliant Chartered accountant who is a Zerodha client and also runs TaxIQ will be assisting us in putting up the blog and also in answering queries. We will together try to keep the post and the answer to the queries as simple as possible. We would appreciate if the post and the queries are pertaining to Income tax and related topics while trading stocks, futures and options, currency and commodity. Do note that this is our view and recommend you to consult your CA before taking any decision.
To begin, couple of important things to know:
Due Dates for filing your returns:
Irrespective of the nature of trades you carry out your income tax returns have to be filed before July 31 for individuals and September 30 for companies. In case your turnover exceeds Rs. 1 crore in a financial year, by turnover I mean the sum of settlement profits and losses in your trading account, then the book of accounts needs to be audited or if any other reasons for having the books audited the due date is September 30 to file your returns. Under section 271 B, failure to submit the tax audit in time has a penalty of 0.5% of turnover or Rs 1.5 lakhs, whichever is lesser.
Tax Slabs:
The slabs for individuals/HUF are as mentioned below; all persons above the age of 60 are considered as senior citizens.
| Upto age 60(M/F) | Age 60-80 | Age 80 > | |||||
| Income Range(Yr) | Tax | Income Range(Yr) | Tax | Income Range(Yr) | Tax | ||
| 0-2.5lks | 0% | 0-3lks | 0 | 0-5lks | 0 | ||
| 2-5lks | 10% | 2.5-5lks | 10% | 5-10lks | 20% | ||
| 5-10lks | 20% | 5-10lks | 20% | 10lks> | 30% | ||
| 10lks> | 30% | 10lks> | 30% |
These slabs are on your total income as an individual which is the sum of all your incomes, this may include salary, rental, trading profits and etc.
An example: If I am a 35-year-old person whose net income is Rs 800,000/yr, my income tax liability would be Rs 85,000 (0-2.5lks : Rs 0, 2.5-5lk : Rs 25,000 @10% of 2.5lks, 5lks-8lks: Rs 60,000 @ 20% of 3lks).
In case of companies, income tax is a flat 30% and no tax slabs exist.
Taxation while trading Stocks/F&O/Commodities
First most important thing to do for every trader is take a stance on your trading activity because the tax liability would change based on this. Following are couple of options you have
- You are an investor, who buys/sells stocks once in a while and you typically would hold the investments you make for a longer period of time.
- You are a trader, you either actively trade stocks or f&o or currency or commodity.
It is your prerogative on if you call yourself as a trader or an investor, but if your actively trading on stocks or even if occasionally dabbling in f&o,currency or commodity my advice would be to declare yourself as a trader.
While trading equity or Stocks
Stocks that you hold as an investment for more than 1 year:
a. In Case of Profits
Investor
Any profit you make by sale of shares that you have held for more than 1 year is considered as long-term capital gain and if this transaction is done through recognized stock exchanges for which the STT (Security Transaction Tax) is already paid, is exempt from Income tax under section 10 (38).
So what this means is that if you had bought 100 Reliance shares 2 years back at Rs 700 and sell it today at Rs 1000, you don’t have to pay any tax on the profit of Rs 30,000.
Note: To prove this as long term capital gain, you can attach the contract notes for the buy/sell trades and the Demat statement which shows the credit/debit of shares, if required.
Trader
Any income from buying and selling shares even if more than a year is considered as a business income. This gets added to your income and then taxes paid according to the above mentioned slabs . But since it is a business income you can show expenses in terms of internet, advisory charges etc, any charge that you have incurred for the business of trading and reduce your income liable to be taxed.
Note: Long term capital gain tax for shares which are not trading on the exchanges is 20%.
b. In Case of Losses
Investor
long term capital loss from shares where STT is paid cannot be adjusted against any long or short term capital gain from any source.
An interesting thing to note is that if you do the same transaction without stock exchange( off the market transaction), i.e transfer of shares with demat slip, you can get your long term capital loss set off against long term capital gain of other asset. This is a loop hole that exists in the system presently.
Trader
Your long term loss is considered as a business loss and this could be set off against other business income which is explained below in the f&o section.
Stocks that you buy and sell within 1 year (after taking delivery to your demat account)
a. In case of Profits
Investor
Any gain made by sale of shares through a recognized exchange is considered as a short term capital gain if bought and sold within 1 year. Please note that it is considered short term capital gain only if you take delivery of the shares to your demat account and then sell the shares. Short term capital gain tax presently is at 15%.
Trader
As a business/active trading, any such gain is considered as a business income. This will have to be added to your other income and you will be charged taxes based on the slabs mentioned in the table above. Since it is a business income you can show business expenses to reduce the taxable income, for the business of trading some of the expenses can be broadband charges, rental charges, advisory charges, computer charges, electricity bill, professional fees and etc.
Note that as a trader you are probably paying higher taxes than an investor, but this is the right approach to take. The benefit you get as a trader or trading as a business is that you can set off your expenses from the profit and also carry forward your losses to net off against any future profits, explained in the f&o section below.
b. In case of losses
Investor
Any short term loss arising from the sale of shares can be net off against any short term capital gain or long term capital gain in the future (upto 8 years) provided you have declared the loss while filing the income tax.
Trader
If you are trading as a business/active trading, such a short term capital gain loss can be considered as a business loss and net off against any income other than salary for upto the next 8 years. What this means is that if you made a loss of Rs 100,000 doing short term trading and you made Rs 800,000 in a property transaction, your net tax liability would be only on Rs 700,000.
What this means is a trader if you make a profit, you need to pay the income tax the same year and if you make a loss you can carry forward the loss for the next 8 years and keep netting it off with any profits you make be it trading or otherwise, provided you declare the losses when filing your returns within due date.
Intraday/Day Trading Stocks (equity)
While day trading the rules stay the same if you have declared yourself as an investor or trader.
Any profits or losses from day trading is called Speculative; either Speculative Profits or Speculative Losses. A person intraday trading is automatically considered as someone who is either an active trader or trading as a business.
a. In case of Profits
Profits from intraday trading is considered as a business income, so this will have to be added to your other income and pay the tax accordingly. So if you have earned a profit of Rs 1lk from day trading and Rs 4lks from your salary and other sources, your total income would be Rs 5lks and taxes has the be paid accordingly. But you can show the expenses you incur towards trading to reduce the net tax outgo.
b. In case of Losses
Speculative losses or loss from intraday trading can be carry forwarded for the next 4 years provided you have declared the same while filing your returns within due date. Important to note with speculative losses is that it can be net off only against any other speculative profit you make within the next 4 years and not against any other profits (Section 73(1) of the Income Tax Act, 1961). So assuming while trading this year you made profit of Rs 1lk from short term trading and Rs 1lk loss from intraday trading, you cannot net off both these. You will have to pay taxes for the Rs 1lk profit and carry forward this loss of Rs 1lk for intraday and net it off against any other intraday profit you make in the next 4 years.
While Trading Derivatives or F&O – Equity, Currency and Commodity (NSE, BSE, MCX-SX, MCX)
If you are trading F&O on any recognized stock or commodity exchange, profits or losses have to be considered as business profits or business losses respectively. What this basically means is that if you trade F&O, you have to compulsorily consider yourself as a ” Trader” and not an investor.
a. In case of Profits
Any profit made from trading derivatives is considered as a business profit. You would have to add this income with all your other income and pay tax according to the slabs mentioned above. But since trading income is now considered as a business income, you can show all expenses that you incur to earn this income and reduce your net tax outgo. Expenses like computer depreciation, internet bills, advisory bill, software tool, salary you pay to people whom you have hired and more.
b. In case of Losses
Any loss is a business loss and this can be net off against any income other than salary either in the same year or if you file your losses in time anytime in the next 8 years. This loss would include the trading loss and sum of all expenses that you have incurred towards trading.
What this means is that if you have had a Rs 10lk loss trading derivatives and earned Rs 20lks in any other business (other than your salary), your taxable income would be only Rs 10lk (Rs 20lk – Rs 10lk)
Turnover Calculation
Calculation of turnover is to determine if you need your books audited or not, so audit by a CA is required if:
-
- Turnover for financial year is > ₹1 crore
- If turnover < ₹1 crore and profitability is less than 8% of turnover (Section 44 AB)
- Also note that if your total gross total income (trading + Salary or other business) is lesser than Rs 2lks, you don’t need an audit even if your profit is less than 8% of your turnover or if turnover for the year is > ₹1 crore
-
TURNOVER
Turnover is being calculated here just to determine if you need a tax audit or not. As per the guidance note from ICAI ( section 5.12, page 23).
- For Intraday equity — absolute sum of settlement profits and losses per scrip
- For Delivery equity — sell side value of the stock
- For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts
Turnover calculation is quite simple for delivery based trades and it can either be done scripwise or tradewise for intraday equity and F&O. By scripwise I mean you consider the profit or loss made on that particular scrip in the financial year as turnover, and you sum up the absolute values of individual P&L of all the scrips to have a consolidated turnover for the year. By tradewise I mean you consider the total sum of profit and loss of each trade that you have done during the financial as your turnover. Tradewise is a more compliant way, and Zerodha is the only broker to currently give both these turnover reports on your tax p&l on Q.
Brokerage, Trading Costs STT and other
Security Transaction Tax (STT)
STT is what we pay as taxes when trading stocks & derivatives on the stock exchanges to the central government. Back in 2004 Mr. P. Chidambaram our Finance Minister made the long term capital gain tax zero to attract investments in the country and to make up for this revenue loss to the exchequer STT was introduced.
Until the assessment year 2008-2009, STT was given as a rebate and was omitted from the assesment year 2009-2010. What this meant to traders like us was that until 2008-09, any STT paid could be deducted from our tax liability, but today paying STT gives us no such advantage. Hence the trading community has been pushing the finance ministry to reduce STT or atleast give a rebate like before.
Brokerage and other Trading Costs
All your trading costs including brokerage can be shown as an expense on your gross income.
Which ITR Form to use
Investor: Either ITR 1 (for individuals having income from Salary and Interest) or ITR 2 (for individuals having income from salary, Interest and Rental)
Trader: Either ITR3 (ITR 4 until 2016) or ITR4(S) (for individuals and HUF’s having income from a propreitory business or profession)
Companies: ITR 6
*There has been a sudden rush of notices that traders have received from the income tax department recently, if you are one of them do read this blog ” Notice under Section 139(9)? – Possible Reason”.
____________________________________________
I have tried my best to keep this blog simple and do away with all the financial lingo that chartered accountants use. To end this very serious topic with a little rhyme and humor:
Profits or losses, make sure you declare it every year.
Otherwise there could be implications in the very near.
If you haven’t started filing returns better late than never.
Post your questions here, Om and I will try to answer it at the earliest. Please note that the post and the answers to the queries are our personal view and advise you to consult your chartered accountant before taking any decision.
Happy Trading,
Nithin Kamath
CEO @ Zerodha and partnering startups through Rainmatter to help grow and improve the capital market ecosystem in India. Love playing poker, basketball, and guitar. @Nithin0dha on Twitter. | Personal website: https://nithinkamath.me
Hi Nithin,
Appreciate your effort and initiative in educating your investors.
I have started trading recently and would like to know what are the documents that has to be submitted with my tax return to provide the profit/loss that i am declaring.
Is there a consolidated statement for the year that i can obtain from Zerodha or should i attach my trading account statement or should i attach all the individual contract notes that i have received in that financial year (Number of contract notes in one year would be too high).
Please Advise.
Regards
Sukesh
The documents that would be required would be Account Statements( equity, f&o, Commodity), Contract notes and DP statement(in case of delivery based trades). Bank statements would anyways be required while filing your returns and this also will be used to determine the payins and payouts made from your trading account.
We provide a profit and loss statement for your trading account, but you will still need the contract notes and other statements. All the contract notes will be accessible to you on our backoffice whenever you want for as long as you want.
That said we are still improving on our reporting structure so that all your income tax needs can be pulled out from our backoffice in a click of a button.
Cheers,
Dear sir
The bank account is linked with trading account is also used for other general household expenditure on daily basis. Then how the reconciliation of bank statement and trading account p&l can be done.
Shalu sharma
RS1632
Housewife
Thanks
When you are trading, you move funds to trading account and then withdraw it back. So reconciliation is quite simple. Can you check this module http://zerodha.com/varsity/module/markets-and-taxation/
FIR for cheating against zerodha.
Initially placed request for fund withdrawal for 1.07 lacs (no F&O, equity alone, no open positions) on 25th Nov, Saturday. Called Zerodha on Monday to check funds status. They promised it will be processed by 8.30 PM, same day. Nothing happened, Called them again next day (to connect I had to hold for 12 minutes). A lady promised that it will be processed by EOD of Tuesday,28th Nov. Waited till next day morning to check the status. Nothing happened. Called them again next day (to connect the call had to hold for 18 minutes this time). More promise that it will be processed by EOD of Wednesday,29th Nov. Nothing till next morning. WTF!!!!
Due to personal situation couldnot call them to check the status till today…So today, 6th December, called them and to my surprise they told ‘no request’ for withdrawl.. F.c..u..k I waited around 7 min to connect and now Zerodha says no such request!!!!!. Placed a request again and shouted at them for 15 min, but I don’t think I will get my money back. Decided to file FIR against zerodha for fraud, as I donot think I will get my money back.
Three months back the junk ‘kite’ platform screwed me by 3 lacs. The platform didn’t allowed me to exit my position on time, instead it logged out me and waited for 5 min for re-login, which was good enough for 3 lacs loss. Moved to ICICI direct after this.
This withdrawal request should have been processed on the 27th itself. This is unusual. Can you share your client ID so we can check?
Dear Nithin,
The above case seems to be serious. Is the problem resolved to Mr.Prakash? or still he is struggling to get his money back?? We all are here in ur network because of ur innovated and simplified way of trading platform.
If customers are facing such a problem it really makes us (personally to myself) insecure in money transfers with ur platform.
And the second thing is logging off automatically, I also do intraday sometimes with some huge margins and it also happens to me that the kite used to log of automatically, but fortunately not when i do intraday.
In fact this bug happened to me today too. Please resolve the bug else I will also lose some bucks one day.
Matter very serious!
Awaiting for ur reply.
Best regards,
Rahul
Hi Rahul, this was indeed solved in December. This was an issue specific to this account and was resolved once brought to our notice. We’ve also put in place measures to ensure this isn’t repeated. Regarding the logouts, this would only happen if you log into more than one device and log out of one of them. This logout would kill all your Kite sessions.
From where i can access DP Statement ??
If IFSL , I dont know user ID and Password .
from where i can access it ??
Dear i am intraday trader in stock market. From 2009 to till i never submitted it return as i think i have each year loss. But my total TURNOVER of year is more than 2 crore each year from 2009. So is their any requirement to submit any document to Incometax dept. I have no profit any year.
Before 1 month their is notice from Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
After consultation from local consultant, I send reply of “Non taxable income for 2009-2010, 2010-2011,2011-2012.
On http://www.traderji.com website I read that for Intraday trader there is no requirement of to do Audit, which is required only for derivative trader.
From 2012 i am Senior Citizen, pensioner of state Govt having annual pension near 2 lakh each year.
Please help, any TAX AUDIT required if there is loss??
Is their penalty for 2009,2010,2011,2012?
Case 1. I calculated Turnover= total buy amount+total sell amount.
Case 2. But on some website I read that Turnover=Settlement profit+ Settlement Loss
For ex. If RIL shares [email protected] x qty 100, and sold @1010x qty 100
Trade volume= +2lakh and Turnover is just 10 x 100=1000
So which case is true???? How to really calculate turnover ,which I required for only Audit which is costly for me now , as I am in loss.
Please suggest too much confusion my mind.
URGENT
hi ganesh123,
I don’t see nitin’s reply on your query ! !
Did he reply ??
I wanted to know because i have the query.
Thanks…
JK, the reply to Ganesh was
1. If you haven’t filed taxes, it is never too late. Go and file for the last 3 years immediately if there was any income. Like I replied earlier, taxes is not just for trading, it is for all your income.
2. Intraday trading is considered as a speculative Business. Since it is a business, you have to use ITR4, and audit is applicable if either the turnover is more than 1crore or if the net profit earned is less than 8% of the total turnover. Again, audit is applicable only if your total income falls in a tax bracket. (so no audit if your total income is less than Rs 2.5lks).
3. Turnover calculation is wrong, I have explained in the post above.
Can you really file Income tax return for the previous years. My brother got similar notice for AY:2013-14(FY:2012-13) in July,2015. He tried to file the return,but was not allowed to do so as last date for filing return for FY: 2012-13 was 31st march, 2015.
is there a way out?
Sunanda
You can’t file the return for FY 2012/13 (more than 3 years old) now. You would have to go meet the ITO(income tax officer) and see how it goes. As long as you haven’t evaded taxes, should be alright.
Hi Nithin,
My father is a pensioner. His annual pension is 216000. During this year he made loss of 70000 in F&O. In intraday he made profit of 90000 and in delivery based equity he made profit of 80000. So, his total taxable income will become 316000. His total turnover is less than 1 crore.
Scenario 1: If he purchases ELSS mutual funds worth rs. 80000, then his taxable income will be 236000. In this case will he be required an audit or not?
Scenario 2: If he shows business expenses worth 70000, then his total taxable income will be 246000. In this case will he be required an audit or not?
Suggest you to go through this: http://zerodha.com/varsity/module/markets-and-taxation/
F&O loss can be setoff against Speculative (intraday) profit. Delivery based equity is best shown as capital gains if the frequency of trading is not high (tax on short term is 15% and long term 0).
Audit is required if business profit is less than 8% of turnover in case total turnover less than Rs 2 crores (limit increased from this year). You can’t mix pension/capital gains with business (intraday+F&O). Do go through the link I have provided.
Hi Sir,
Very good article and a detailed explanation. I have a question on (If turnover 1crore and profit is > 8% of turn over, what has to be done??
Can you please respond to this..
Also, If we trade through multiple brokers, how the calculation has to be done?
Thank you in advance.
Regards,
Nag
Nag, check this detailed module on taxation: http://zerodha.com/varsity/module/markets-and-taxation/.
1. What has to be done in case of audit, check the last chapter of the module. Make sure to start from the first chapter.
2. If turnover <1 crore and profit >8% of turnover, no audit required.
Audit might be required for speculation income also. There are IT officers who consider short term and long term transactions also under audit if the turnover is above 1 cr.
If you dont file returns on time you cannot file the losses to get carryforward
My wife is trading in equity (intraday) and has incurred a loss of RS. 3 lks.
Her turnover is less than Rs. 1 crore.
Her income from all other sources is less than Rs. 2 lacs ( after all eligible deductions) and not liable to pay any tax.
Is she liable for Tax Audit?
Thanks for detailed info on income tax.
But I read at maximum places that losses of business can be set off up to RS 21000 only .
So I made profit of 12lax in fno and loss of my business was 4lax but I can set off only 21000
2ndly can I show salaries to people I employed for TRADING from derivative income and upto what extent
1. There is no Rs 21000 limit. Trading is like any normal business, you can setoff any other business loss with it for any amount.
2. yes you can show salaries, similar to any other business.
for filing the details of trades in income tax return, they want it to be in prescribed format only. brokerage, STT, service tax etc , date of sale /purchase has to be mentioned for all the shares traded.
how can I tabulate details in such format
regards
I have short term gain 13000 and entrada loss 40000 . Which itr is better for me if I want to settlement loss with salary? Should I choose invested or trader.?
Hi,
You mentioned that it is also important to file losses when filing returns. Suppose one has posted net losses for the previous 5 years but didn’t file them each year. Is there a provision to accommodate them now?
Regards,
Shakeel
Shakeel, To get the benefit of carry forwarding the losses, it has to be filed before the due dates otherwise you let go of the benefit. You can however ensure that you start filing your returns from this financial year onward(2012-2013) so that you can use any losses to set off against other profits and save on your taxes.
Cheers
It’s a wonderful explanation for IT filing. Here i have few clarifications – Can we deduct total brokerage paid, other total charges like STT, stamp duty, sebi charges, turnover charges(for the particular year) from the profit to reduce the tax liability.
Yep, you can.
STT can not be included in the expenses. Can any one confirm please?
thanks
Sir. I’m new to trading started commodity intraday trading. 1. If I earn 3-5 lakhs in next 3_4 months . When I have to pay tax? Is it on July 2017 with 30% advance tax? 2. How to determine which tax slab I m into because another 6months remaining, and I may not be in profit? 3.one more thing , every quarter broker does settlement. Once money comes to bank account and again I transferred the money to trading account. How IT Dept treat this credit amount?
You can pay your taxes before 31st March. If you pay advance taxes, and make losses, you’ll have to claim refund. Quarterly Settlement is treated as normal payout of funds for the sake of filing IT returns.
Thanks for the reply.
Would it be then right to say that losses cant be carry forwarded?
Yes Shakeel, in your case because you haven’t filed your losses in the last 5 years it cannot be carry forwarded.
Only for this financial year, 2012-2013, you can file your losses before july 31st…
Hi,
Nitin – this is an excellent initiative. And taxation is apt topic. Kudos.
1 question on STT. I was under the impression that STT paid can be considered as business expense. can you pl. clarify if this is correct
Hi Mandar,
STT is part of your cost, so yes it is an expense but cannot be a tax deductible. So what this means is if you bought 100 stocks at Rs 100 and all your costs(including brokerage, STT etc) adds upto Rs 15, then your actual buying price becomes 100.15. If you sell this stock at 101, the actual cost becomes 100.85( after your costs). Hence your net profit is Rs 70 and not Rs 100.
So yes, STT and other costs becomes part of the cost(or an expense as you said).
Hi,
Great & excellent initiative….Traders had always many tax doubts in trading…Thanks for simple writeup….
This I believe what we call adding value to the customers. Such initiatives will be a distinct USP in a market where competition is cut-throat. Keep it up.
Thank you for this very informative article.
Can you please confirm how turnover is to be calculated for audit purpose. Is it the sum of total profits and losses, as stated by you or is it the total value of the contract? For eg if I buy 10 lots Nifty at say 6000 level and then sell at 6100, my profit would be 500*100 = Rs 50,000, while the total value of the contract would be (500*6000)+(500*6100)=Rs 60,50,000.
If it is sum of profit and losses, then is turnover to be calculated at say, Rs 20000 profit + Rs 10000 loss = Rs 30,000 turnover. Or is it Rs 20,000 minus 10,000 = 10,000 turnover.
Hi HBM,
By turnover we mean the settlement profits/losses. So for eg if you bought 10 lots at 6000 and sold 10 lots at 6100, your settlement profit for this is Rs 50000 ( 100 * 500(10 lots) ) .. All such settlement profits + settlement losses will add up together to form your turnover..
Hope this clarifies.
Settlement Losses would be negated from the settlement profits right?
In the above example, Rs50,000 is profit for the trade but for the next trade the guy runs a loss of Rs10,000, then what would be the turnover? Rs60,000 or Rs40,000?
You are calculating turnover, so it will be 50K+10k, together 60k turnover.
Sir, after auditing can I have to pay any amount or taxes ??
yes, you will have to pay taxes if you are in profits.
Hi Nithin
I am a salaried person and I also dabble in short & long term stock trade and also intra day trading . I had also made STCG and LTCG from MF SIP investments which i had redeemed this FY2014-15
My income is as below for FY 2014-15 —
1) Gross Salary Income before PF Deductions – 1,98,000
2) Short term MF CG – 9,950
3) Long term MF CG(absolute) – 45,000 (Indexed CG-31000)
( should one take absolute or indexed CG for filing or calculation)
4) Loss from intraday trading – 2,70,000
My Questions are –
a) Which ITR form is applicable to me?
b) Pls advise under which heads i should mention each of above income or loss in ITR form
c) If i fill my return online which documents i have to submit along with ITR ?
d) Will I get a notice from IT dept for incurring such loss which is more than my salaried income but i have used my redeemed money from MF SIP which i had invested over years and also taken personal loan (not advisable though sic. 🙁
Thanks in advance . Hope you do reply
1. Use ITR 4
2. Mutual funds in the capital gains head. Positive turnover of intraday trading in Sales and Negative turnover in Purchases.
3. Since you need an ITR4, it is best to do this through a CA.
4. As long as you haven’t deposited huge amounts of cash into your account, and you have lost more than your income, there is no need to worry. Since you have lost your MF redemption’s and on the personal loan, you don’t need to worry about this.
Can I show business expenses (Brokerage Charges, Internet Charges, Advisory Charges, Computer Charges, Electricity Bill etc.) to reduce the taxable income from Speculative Income (Intraday/Day Trading Stocks (Equity))
Yes you can…
Dear Zerodha,
I have few following questions
1 If we take position in both F&O and equity, and we keep equity for more than a year, and we lost in equity but we have profit in F&O and some time lost in F&O and profit in equity, but all in total we have profit, how we calculate long term or short term profit.
2 Can we caary forward our profit of F&O if we not withdraw our cash, and convert to equity etc.
Please reply, Thanks
Alok
1. If you carry equity for more than a year and make a loss it becomes a long term loss, this can be net off against any long term capital gain like gain in gold, real estate or any other capital asset.
All f&o losses become like your business loss and can be net off against any short term gains( equity trading where you buy/sell within a year).
2. You cannot carry forward a profit even if you keep the cash in your trading account. If you make profits you have to pay the taxes the same year, but if you make losses you can carry forward.
Thanks for reply,
If we make a loss in FO and equity short term, can we net off from other income like salary, interest etc ??
Sorry Alok, loss under any head cannot be set-off from Salary
Thanks Tushar for replying, donno how I had missed the query from Alok.. 🙂 ..
@Alok, Tushar is correct.. it cannot be set off against salary, but in the year you make a loss it can be set off against your interest income..
Wow, another feather in a cap.
Thanks Nithin for incorporating taxation part.
Team Zerodha,
Appreciate your effort in sharing this topic.
This is a very very useful information for all traders. Usually I file my returns myself thru online and last FY, I could not do so because I had to declare the losses and was not knowing where to declare… Then had to contact one of the professional who did the online return with my ID itself and asked me to courier the acknowledgement myself and he charged me a hefty fee..:)
I’m a salaried person. As I understand
1. Profits in Derivatives should be added to my salary income and will be taxed according to tax slabs.
2. Losses in Derivatives can NOT be deducted from salary income but offset against any other income in 8 next years.
Is above understanding correct?
Also, which ITR form should I use to file IT return if I have salary as primary income and profit/loss in Derivatives?
I would like to Thank Om Prakash Jain and Zerodha for this blog because I did not find this information on internet while filing last year’s IT return. I even approached a CA and he advised me not to show Derivatives income.
Really great initiative.
Thanks,
Amol
Yes Amol you are correct on points 1 and 2
ITR 4 would be the one, have updated the blog with your query.
Cheers.
Which ITR form should be used to file IT when one is doing trading in Derivative ??
I am assuming it is ITR 4
Also , if one is salaried + he is trading in derivatives then which form should be used ?
ITR 4 in both cases
Really helpful and clear info. Thank you for info about a very critically important topic. Best regards and cheers.
Dear Zerodha,
Thanks for your initiative in the taxation, in which many of us almost get confused.
I have few questions. Please help me.
1) My husband is NRI and he is sending money to my account from abroad.(I am resident, living in India) , using which , I am actively trading in Zerodha. The money sent to me by my husband is taxable? Or I have to pay tax only to the Profits in trade?
2) How to declare in taxation , about the money sent by my husband?
Looking forward,
Sivasri
Hi Sivasri,
Money sent by Husband to wife is not taxable, it is not an income but a capital receipt. Don’t worry about taxes on the money you receive from your husband. While filing your taxes, you just have to show this money as a capital receipt from your husband.
While trading if you make profits in your trading account, then you have to pay taxes on the profit, but even if you make a loss make sure you declare it. The blog above explains on the same.
Cheers..
Hi,
I have doubt on US shares allocated by my company which are listed in NASDAQ. My company allocated unvested shares last year on Feb28,2012. That shares will vest on this month. what’s the tax rate on that shares?
is shares eligible for capital gain of india tax rules? How can decrease tax on those shares? Please request to advise?
Regards,
Venki
Venki, the short term capital gain of 15% (if you are trading as an investor) or the tax exemption for long term capital gain is only if they are traded on the recognized stock exchanges in India and for which STT is already paid.
In your case it is not so as they are listed on Nasdaq. In such a case any gain will be considered as an income and should be added to your other income(salary, rent etc) and you have to pay taxes according to normal taxation as per the slab you are in.
Thanks response. This year i got 3L income from sold the Nasdaq listed shares. My company/Fidelity deducted for 33% tax on income for income tax. I have nearly 2.5L carry forward losses(Equity * F&O) from last 2 years. Can i set off this income with last 2 years losses? Can i get refund with setoff profit with this year returns.
What’s the tax on Savings bank interest?
I have Over Draft for Fixed deposti. Monthly i am getting interest. I paid interest on Overdraft. Can i OD interest setoff against FD interest?
What’s the tax on ELSS MF dividends?
Regards,
Venki
Venki,
The critical thing here is if you have filed your losses of the previous year and if you have, is it done like a trader or as an investor.
If you have filed it as a trader, yes you can setoff the 2.5lk of carry forward losses with your income from the sale of NASDAQ listed shares and you can claim for refund.
No special rates on Saving bank, but you get the benefit of deduction upto Rs 10000 on savings bank interest U/S 80TTA. So what this means is if you have 12000 as SB interest income, the first 10000 is considered as deduction and the remaining 2000 is added to your taxable income.
Yes if you can show that the overdraft on FD is for the purpose of trading, you can show the interest as a business expense for trading. This can be setoff against your other income.
Will get back to you on the query on ELSS,
Do consult your CA before you take any decision.
Cheers,
Nithin
Nithin,
I disagree with you on setting off losses from business income against gain arising from shares sold on NASDAQ.
Generally these shares are allocated to an employee under ESOP/ESO(Employee Stock Ownership Plan/ Employee Stock Option Plan) .
Any gain arising from the sale of such shares form the part of employees income under the head salary and any business loss cannot be offset against salary income.
So the gain of 3L will be added to salary and taxed according to normal slabs..it cannot be offset against carried forward loss of 2.5L .
However interest earned on FD, RD etc which is normally taxable, can be used to offset loss in business income.
Thx,
Neo
Thanks Neo, I also had the same doubt and you clarified the same.
Nithin, can you also comment so that there is a conclusion?
Dear Neo
You are confusing the grant of the stocks from company to employee’s account and the decision the employee makes after the grant to hold the stocks (or sell immediately).
For example whenever I have gotten RSU grants (multiple companies, same procedure everywhere) this is the way it works – if I’m supposed to get 100 shares (let’s say the market price is $100 each), the company sells 31 shares in the market and credits 69 to my account; the money received from the sale of 31 shares ($3100) is paid directly as TDS (and later shows in my Form 16).
the 69 shares I get – these are my shares; If I then decide to hold them for some time – I am holding capital assets for which I “paid” $6900; let’s say I do hold them for a few months (or longer) and in the meantime the price increases to $300/share; I shall be in that case making a LTCG of 69*($300-$200) = $13800 and would pay taxes accordingly.
In the overall transaction above, my income would be $10000 under the head salary and $13800 under capital gains (STCG or LTCG notwithstanding).
Accordingly set-off against the capital-gains part is possible if someone has capital losses (short term or long term).
“Business Losses” that are not capital losses will still not be eligible for set-off.
Appreciate this initiative to support members with their taxation queries 🙂
My question is related to declaring the loss in derivative trading. It is mentioned above that “Any loss is a business loss and this can be net off against any income other than salary either in the same year or if you file your losses in time anytime in the next 8 years. So if you made Rs 10,00,000 loss trading derivatives and Rs 20,00,000 in other income (excluding salary), your taxable income would be on Rs 20,00,000-Rs10,00,000 = Rs 10,00,000 only.”
– Say, I have a loss of Rs 50,000 in derivative trading. I have bank deposits which return Rs 75,000 as annual interest. So, can I declare my income from sources other than salary as Rs 25,000 (75k – 50k) now?
Hi Santosh,
Say the loss you made this financial year trading markets was 1lk and your rental income is 75k. If you are declaring trading as a business(active trader), you can net it off against the rental income this year. So you can net off 75k of your trading loss to your 75k rental income.
You are still left with a loss of 25k, which you can carry forward to the next year. Now this loss that is carry forwarded to the next year cannot be net off against your rental income, this carry forwarded loss can be net off only against any other business income of yours.
Hi team,
Could you please clarify that if an individual/ salaried person income is below the 2 lakh slab and he trades and makes some investments in shares . 1. This person doesn’t comes under taxable category. 2. Is it still mandatory to file returns because he trades in market? if he don’t what is the effect? 3. If yes which form he has to use? 4. Can he get benefit of carry forwarding the losses if his salary is the only income?
Hi Praveen,
If you are income is less than 2lks and you trade/invest in shares
1. You don’t come under taxable category and it is not required for you to file your returns. But my advise would be to still file it as it brings about a financial discipline and will help you in future when you approach a bank for a loan or other such activities.
2. It is not mandatory to file, but if you are filing you still use the same forms which I have mentioned in the article above.ITR1/ITR2/ITR4 based on how you are considering your trading.
3. Yes you can get the benefit of carry forwarding the losses even if salary is the only income. But to get benefit of carry forwarding the losses, you need to ensure that you have filed your returns before the due dates otherwise you let go of this benefit.
Thank You very much for informative article. Here are my comments/queries:
1. How and where one can declare that he is trader or investor (What I could gather is choice of ITR form says it all)?
2. What are the rules of taxation for BTST i.e. selling equity before taking delivery?
3. Is there any difference in taxation rules for intraday derivatives and derivatives trading with carryover position?
4. I have summarized the information gained through this blog for a salaried person as per my understanding:
(a) Equity Long Term – Profit: Nil Tax, Loss: Can be set against long term gains for next 8 years if declared in IT return, IT Form: ITR 1 or 2
(b) Equity Short Term – Profit: 15 %, Loss: Can be set against short term gains for next 4 years if declared in IT return, IT Form: ITR 1 or 2
(c) Equity Intraday – Profit: To be clubbed with income for calculation of tax, Loss: Can be set against speculative loss for next 4 years if declared in IT return, IT Form: ITR 4
(d) Derivatives – Profit: To be clubbed with income for calculation of tax, Loss: Can be set against Business loss for next 8 years if declared in IT return, IT Form: ITR 4
Also, In case ITR4 is being used by a salaried person because of equity intraday/ derivative trading, Short Term Equity gain/loss has to be included as business income and loss can be set up against business loss for next 8 years.
Hope my understanding is correct and would request comments from experts if I have erred.
5. I would be glad if a separate blog can cover guideline for maintaining profit/loss details for various segments (Long Term, Short Term, Intraday & derivatives) and where these entries should be added in respective ITR form.
Hi Anamika,
1. Yes the choice of your ITR forms itself tells about if you are a trader or investor.
2. A person who is doing BTST trading is not really an investor, he has to consider himself a trader. As a trader, the profits from BTST becomes business income.
3. There is no different rules for intraday f&O or overnight f&O.
4. Your assumptions are correct.
yes we are putting up a blog on book keeping and should be up soon.
Sir, How to calculate turnover and tax with regard to BTST transaction?
This is a tricky one, you can either show the profit/loss as turnover(like we do for intraday) or else show the sell value as turnover (like in delivery). I’d advise you to show the sell value as the turnover.
Thanks a lot sir !
I don’t think that is the correct advice
http://www.caalley.com/gn/30357dtc19988.pdf page 64 for speculative trade (which BTST is) only differences will be taken into account.
Thanks for pointing out Vinayak
thanks for taking it sportingly – and thanks for your earlier advice on my queries.
I came across this document only after your advice on those – was trying to calculate how much to show 🙂
Vinayak, taxation in India especially for someone trading the markets, there is nothing black and white, everything is grey… Most of the filing is done under assumptions on what makes sense logically and if you declare more turnover and actual is less there is no problem that will arise, usually the vice versa is what causes trouble..
Here is something that makes it tricky with BTST, a lot of brokerages (including some big names) when you buy shares and sell as BTST, still end up taking delivery before selling them, so they can also earn on the DP charges. So it is important to also see the DP transaction statement, because if delivery is taken then it won’t be speculative anymore.
Hi Nithin,
There is no grey here.
It is clearly a case of delivery transaction as you have paid STT which is applicable when buying and selling
The NSE records will show that it was a delivery based transaction
This my understanding of the issue
Something which is open for debate, how IT determines speculative is if a trade doesn’t result in delivery, and since the stocks never came to the demat account, it is speculative.
Dear Zerodha,
Thanks for nice initiative of z-connect.
Would like to know if we make a loss in FO short term, can we net off from salaried income in the same Financial year or we need to wait for profit next year for the setoff.
What if, in a hypothetical case, someone doesn’t make profit in next 8 years.
How to get tax benifit out of the short term losses?
Thanks.
Thanks Anirud,
The losses that you make trading f&o is considered as a business loss and can be set off against any other business income of yours other than your salary. Salary can’t be net off against f&o loss.
Yes this f&o loss can be set off against any f&O or short term gain trading markets in the next 8 years, but along with it you can net it off against your business income.
When I say business income it could mean your rental income, interest income(this can be set off only in the first year) or any other similar gain you make other than salary.
Hope this helps
Cheers,
What does the line means “difference in respect of reverse trades” for calculating turnover ?
Hello,
When u say rental or interest income can be set off only in the first year (if we make losses in F&O), does it mean in the financial year for which we are filing the return or the next year after we file the losses in return?
Thanks
The financial year for which we are filing the return.
Hi
Can I offset my gain in selling ESOPS with the losses I made in F&O. Please reply
Only if you show your equity investment as business income. Check this https://zerodha.com/varsity/module/markets-and-taxation/
Hi Zerodha,
Thanks a lot for this great initiative. I have been searching/ reading forums to understand tax implications, but only got confused after reading them. Request to keep this thread alive.
Can I request you to clarify the below query.
Assume that I fall under the 20% income tax slab (after all deductions) and have only ONE Demat account.
Suppose I made profit of:
(1) Rs. 20,000 (Short Term Capital Gain) from delivery/cash segment (NOT from Intraday).
(2) Rs. 30,000 (Business Income) from F&O (Equity) segment.
(3) Rs. 40,000 (Speculative Income) from Intraday (Equity) segment.
Q1. Kindly let me know what would be my tax liability.
(a) Will it be a total of Rs. 21,000
Calculation: 3,000 (15% of 20,000) + 6,000 (20% of 30,000) + 12,000 (30% of 40,000)
(b) Will it be a total of Rs. 27,000
Calculation: 27,000 (30% of 20,000 + 30,000 + 40,000)
Q2. If the answer to Q1 is “b”, then I guess, a flat 30% of tax (highest tax applicable to the kind of income (Business/ Speculative)) I made in that particular Demat account. In that case, will it be wise to have 2 Demat accounts, wherein one will be used exclusively for Cash/ Delivery segment (Short Term/ Long Term Capital Gains), which will be taxed at max 15% in case if I sell the stocks in less than a year…and the second Demat account will be used to make profit from F&O or Intraday, which will be taxed as per income tax slab?
Thanks in advance.
Jim.
Thanks Jim,
What I’d suggest is that it doesn’t matter if you do trading in one demat and short term investments in other, keep all your transactions in the capital markets under one category either you as a trader or you as an investor..
1. If you are trading in f&O, you automatically can consider yourself as a trader(trading as a business) so even your short term equity trading has to be considered as trading as business.
Your tax liability hence would be on 20000+30000+40000 = 90000.
On this 90000, you can set off your business expenses as internet connection, phone calls, advisory fees etc whichever applicable and then you pay 20% of that as your net taxes.
If this 90000 additional income pushes your tax slab to 30% then you will have to pay accordingly. Note that this income from markets though is business, what it means is that for a salaried person it adds to his salary income and you have to pay taxes according to the slabs..
2. As I said earlier, it is not being compliant to have 2 different demat accounts to show you as an investor in one and as a trader in another.
Cheers,
Nithin
Hi Nithin,
As per below CBDT Circular
http://www.incometaxindia.gov.in/communications/circular/910110000000000316.htm
“CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income.”
Other links
http://taxguru.in/income-tax/shares-investor-or-trader.html
http://articles.economictimes.indiatimes.com/2011-01-25/news/28427085_1_stt-long-term-gains-business-income
http://www.business-standard.com/article/pf/is-your-return-from-stocks-capital-gains-or-business-income-113081800685_1.html
Thanks for the links Ashutosh. Building a chinese wall between Investment and trading portfolio especially when someone is trading F&O actively is quite tricky. One of the reasons I was advising to show everything as trading portfolio in such a case.
Thank you so much Nithin, for this quick response and very detailed explanation.
Request you to clarify one more query, given below:
Q3. If I (salaried employee) makes profit by buying-and-selling Futures/ Options on the SAME day, would it be considered as Speculative income?
Thanks, Jim.
Jim,
If you trade f&o on the same day it is considered as business and not speculative. Only intraday trading in equity would be speculative..
Hi Zerodha,
Thanks for answering my query on this blog. Few more queries:
1. For a trader, Long Term Capital Gains (for equity held for more than an year) remains tax free or the same has to be included in business income.
2. For a trader, Can Intraday Profit/loss be treated as Busineess Income & clubbed with profit/loss from derivative/Short Term equity.
Thanks Anamika,
1.For a trader, the long term capital gain is a tricky thing, it depends on how you have treated the investment on the books. If you are trading as a business, you would have marked profits/losses on all your investments when you are filing your returns at the end of every year. In this case you have to pay a long term capital gain tax. If you haven’t taken this benefit on the stocks that is lying in your demat account, you could probably discuss it with your CA and show all these investments from before under separate book of accounts and get benefit of zero long term capital gain.
To explain you as an example. Assume you bought 100 shares of Reliance at 1000 in June 2012, you are also an f&amp;amp;amp;o trader and assume you made a profit of 1lk in 2012-2013. On 31st march, assume Reliance is at 900, so your notional loss is Rs 10000. When filing your return you can net off this notional loss on the stock with your trading gain and hence you pay tax only on Rs 90000 ( 1lk – Rs 10000 loss on reliance). You are supposed to do this as a trader and in such cases your long term capital gain tax will not be zero.
Hopefully this clarifies.. This is a pretty tricky subject..
2.Intraday equity trading is considered speculative. If you make speculative profits it is clubbed with f&amp;amp;amp;amp;amp;o/short term equity trading and taxes paid. If you make speculative losses it cannot be net off against profits in f&amp;amp;amp;o/short term equity trading.
Hope this clarifies..
Hi Zerodha,
I have a couple of queries relating to the commodities market.
1. Can u please provide me the relevant section or rule or any such circular which substantiate the fact, that the forwards commodity contracts does not come under speculative transactions. As per section 73 there is no such distinction given in respect of speculative contracts which requires actual delivery. Also from the judgement of ITAT Delhi in the case of ITO v. Ethno Financial Research Pvt. Ltd., Appeal No.: ITA No. 2743(Del) of 2008, the derivative contracts are said to be of speculative nature.
2. While preparing my P&L account for the year ending 31 March 2013, should I consider my income on cash basis or should I also consider the M2M difference of open positions.
Hi Tushar,
There are certain things which are debatable and what we are posting is our view, please ensure that you clarify with your CA before filing your returns.
1. Commodity derivatives don’t involve the purchase and sale of commodity and hence the loss cannot be speculation loss is our view. Also according to us derivative trading on commodity after 1st April 2006 would be eligible for being treated as non-speculation within exception provided u/s 43(5)(d) of the income tax act. There are many cases which you can google for where the case has gone in favor of the argument that we have mentioned.
2. It is always better to be conservative while preparing my P&L, by this what I mean is: If as on 31st March 2013 my open position is making a loss i’d consider the loss but if it is making a gain I will not consider the gain as by the time I exit the position it could be a loss making position.
Hope this clarifies..
Cheers,
Hi,
Just have a small clarification, suppose I receive 50k as rental income every year, and I have made a lost 1 lac can I set off every year against my rental income.
Please Clarify
Thanks
Yes Vent you can if it is f&o trading loss or short term equity trading loss. If the loss is intraday equity trading then it is considered as speculative loss and that cannot be set off against your rental income..
Cheers..
This blog is really very informative, thanks to Zerodha for educating your clients and also for giving such a nice brokerage services in India.
A) If we are filing IT Returns as business profession in current financial year as a professional trader and in the next year if we stop trading can we file a IT returns as salaried employee (ITR 1) or as an investor(if there is any small investment), is there any impact if we change our IT returns method year on year. How the losses of current financial year can be recovered in the future ?
B) Can we adjust our trading losses for income from dividend and bank deposit interest.
Regards,
Vinay
Thanks Vinay,
Yes you can change yourself from a trader(trading as a business) to an investor or vice versa when filing your returns from one year to another. But to do this there has to be some kind of justification, in your case if you stop trading, definitely you can say that you have gone from being a trader to an investor.. Our advise is to not do it frequently and not to do it for mere tax planning, it will show up in the future..
Since you have already filed your loss, you can keep netting it off even when you convert yourself from trader to investor.. You anyways get the benefit for the next 8 years to set off your losses.
Yes you can adjust your trading losses to dividend and interest income.
Dear sir,
i am a purely commodity trader and i trade on intrday basis only . Suppose i invest 10 lakhs to my trading a/c and i am booking 1 lakh rs as profit every month and that will work to 12 lakhs per annum.. should i file income tax . i dont have any other source of income and this is my only source of income. if i have to pay tax what is the calculation and how i can reduce the tax by showing expenses.
Yes Kanan,
Profit or losses make sure you declare it every year, do go through the blog..
If you make 12lks profit then it becomes your business income and you will have to pay taxes as per the slab provided above in the blog.. But while filing your return you can declare the various costs like internet, advisory charges, electricity etc any charge that you incur for trading in the markets..
Hi,
I am a student, hence I have no source of income. I have Rs. 10000 invested in equity. I trade (say, once a week and delivery based) to make very small profits which I can spend as pocket money. Am I liable to pay any form of tax?
Yes Abhay,
It is better to start early and be disciplined financially.
Hi Nithin Sir,
Thanks for this informative blog…
I have one query.. I am trading derivatives.. not on a daily basis but occasionally..
You have explained we can deduct our internet charges, software tool charges etc.. Is there any option to mention that while filing.. or we need to simply calculate ourselves.. I mean this is not a business firm, but I trade from my home. So can I deduct my home net charges for the whole year considering it as my loss? Do we need to submit any proof for that?
I have made some losses in previous years, but has not declared those while filing. Is it possible to do that this time?
Thanks
Any expense that is incurred for trading is a deductible. In ITR form there are specific exenditure like conveyance, telephone, internet, electricity and a complete list which is available. Even if there are expenses which are not on this list, you have a section called other expenses, mention it on them.
Whatever you mention as an expense keep the supporting document or any further reference. You can maintain an excel sheet with a simple bank/cash book which show receipts and payments done for easy reference.
If you have not declared the losses in time for previous years, nothing much can be done about it. Make sure you start following it from this year, better late than never.
Cheers,
Hi Nithin Sir,
Thanks for this informative blog..
I have few query. I’m a salaried person but my annual income from salary is around 1.5 lakh. I doing intraday in equity. Now I want to know that
1. If my total income from salary and trading cross Rs. 2 lakhs, how the tax will be calculated?
2. Which ITR to be used?
Thanks Pranab,
If your total income say goes to 2.5lks, then you would be paying 10% as taxes over 2lks .. So on 50k you will pay 10% which is Rs 5000.
But because you are doing intraday equity trading, you are doing trading as a business and hence can use business expenses to reduce your taxable income. So if you have paid 12k/year on internet, 10k in depreciation on the computer that you have, 5k as other such charges, your income drops by 12+10+5, 27k. Now your taxable income is 2.23lks and tax you have to pay is 10% on 23k which is 2.3k..
ITR4 to be used.
Even if you make a loss and not under tax brackets, make sure to file your returns..
Hello Nithin,
What kind of document should i provide for depreciation on computer?
Thanks
You don’t really have to provide a document, but it is best to keep it just in case you are asked for it tomorrow. The purchase copy/bill should be good enough.
Hi Nithin
Thanks for the informative article and especially for your answers to all the queries. I would just like to have a clarification, though it may have already been posted. I am a salaried individual and occasionally do f&o trading, some of which intraday as well as positional. For the running fY year, I have incurred losses of around 20,000/-. My queries are as follows
1. As a primarily salaried individual, with interest from bank accounts being the only “other income” which ITR form would I use for showing my losses against f&o trading
2. Say, for e.g. interest component is 5000/- only. Does it mean that I can only offset 5000/- against loss in f&o trading, or can I account for the whole 20,000 loss
3. How can a loss shown in previous years be offset against gain in subsequent years when declaring the IT returns for the current year where a gain has been made
4. How Can I get a statement of transactions for the FY from Zerodha, where the cumulative profit/loss figures are available for the purpose of Income Tax declaration
5. If F&o is traded intra-day, is it termed as speculative
Thanks
Sanjib
Sanjib,
1. As an f&o trader, you have to use ITR-4
2. Depends on interest from what, on Savings bank interest you have a deduction of upto Rs 10k under section 80 TTA, so what this means is that only interest above 10k is taxable from savings bank account. No such deductions for FD
Assuming you have a interest of Rs 5000 and loss of 20,000, you can only offset 5000 of the gain and can carry forward the remaining Rs 15000 of the loss to the next year.
3. In ITR 4 there are specific sheets for current year loss, brought forward loss and losses to be carry forwarded to next year.
4. We send you quarterly statements from Zerodha and there are reports available on the Backoffice available all the time. Will be running a blog on backoffice explaining this soon ..
5. F&O done on an intraday basis is not speculative it is still considered business income..
Hi Zerodha,
Got to say you guys are doing a fantastic job. I have been active trader on zerodha from last 6 months and my experienece is wonderful.
And this your new attempt to solve tax related queries is great and so helpful.
I have one query related to tax filling. How much maximum limit is there for advisory charges ( mean can I pay unlimited advisory charges to my family members)
Thanks Ashish,
There is no limit on any expense that you show, just that if tomorrow someone questions it has to be justified.
Cheers,
Thanks.
hi zerodha team
In past 2 month , i do intraday share trading sometimes. The total turnover in intraday is more than 2 crores of rupees. Whether I had to go for tax audit under section 44AB of Indian Income Tax? i am student ,also tell me they can imposed penlty under 271b???? any solution/advise???
i have only records in contracts notes nothing else..reply soon
thank you
Anand
Anand,
By turnover I meant as explained in the blog, the settlement profit + losses. What you are considering is turnover of traded value.. Let me explain you the difference..
If you buy 100 shares of RIL at 1000 and sell 100 shares at 1010. Your traded volume is Rs 2lk+ but your settlement turnover is just Rs 10*100= Rs 1000..
All such settlement profits and losses together if exceeds Rs 1crore, only then is the audit required..
Dear sir, very best point is targetted by you, about term “TURNOVER”.
Audit requirement = Settlement profit+settlement Loss > 1crore .
Zerodha is doing best working for trader and investor for many issue.
I am very thankfull to ZERODHA.
Hi,
I have to say this is one best thing you did as this is one confusing and tricky matter. Hats Off to Zerodha.
I am a salaried person.
I have profit of 7000 in equity short term.
Currently, I have 27000 invested in equity for more than a year and its current value stands at 17000.
Since October I have been trading in Options and have loss in that.
My queries are
1. No loss whatsoever can be netted off against my salary, am i right?
2. Since, I m trading options I’m trader not investor, am I right?
3. All the profit and loss I mentioned will be business income, am I right?
4. If its a business income, then can I add purchase of laptop, internet device etc in expenses?
5. Is there any difference between intraday and positional Option trading?
6. Is there any loss i can net off against salary?
Thanks
Thanks Amit for the words, for your queries now:
1. Yes no loss can be netted off against salary income.
2. Yes you are trading options, so you need to consider yourself as a trader.
3. Yes all profit/loss will be business income.
4. As a business when you buy laptop, internet device etc ,it is an asset for you and not expense. On an asset you can claim depreciation, for computer/other similar products the depreciation that can be used is 60%. so if you bought a laptop for 30k, you can show 18k as depreciation in the first year which can be added as expense.
5. No difference between intraday and positional option trading.
6. No loss can be net off against salary, it can be net off against income other salary..
Hi
One more query i have. My friend bought shares and took delivery from my demat account. He made profit in that as short term capital gain. I am an active trader. I would not like to pay tax on his behalf. So what procedure can i follow in this scenario?
Thanks
Amit, this is a tricky situation and upto you on how you would want to take it forward.
The profit in any case can be net off against your trading losses, so shouldn’t be any issues to show it on your books…
Exchanges/regulators, consider it as a money laundering, if someone gives you cash and you buy stocks on the exchanges on his behalf. In your case if the other guy transferred money to you which was invested into stocks then it is alright, but in any case try to refrain from such activity. Best thing would be to tell your friend about Zerodha and get him to open an account with us, which we will in a jiffy.. :)..
Cheers
Thanks. It was quick reply. 🙂
He does have account with Zerodha now. 🙂
@zerodha
thank you very much its really helpfull..
Hi Zerodha,
I have incurred loss of more than Rs.20,000/- in equity trading in which I held all shares for more than 1 year. I am a salaried employee. I have not done any other trading like intraday, short term trading, f&o, etc. I have only done long term equity trading (shares held for more than 1 year).
I am a PSU/Govt. employee. I am in 20% income tax slab.
My doubts are
(1) Since I am a central govt./PSU employee, whether I am eligible to declare myself as trader?
(2) In case, if I declare myself as a trader, whether I can get the benefit of carrying over of losses and whether it can be adjusted in interest income of fixed deposits, long term capital gain of next year, short term capital gain of next year, intraday trading gain of next year, etc. ?
(3) In case, if I delcare myself as Investor, whether I can avail the benefit of carrying over of losses?
Kindly clarify my doubts.
Hi Venky,
Firstly, if you are working in central Govt/PSU, you need to first check if your allowed to trade in the stock markets. Certain govt organizations don’t allow you to.
The thing to remember is you cannot declare yourself as a trader/investor just to plan your taxes. If you have been investing into the markets ( long term, holding for more than 1 year) you ideally should not suddenly declare yourself as a trader just because there was a loss that you want to adjust with your other income.
Yes you can declare yourself as a trader with the above condition in mind.
As a trader you can set off the losses against interest income, but as an investor if this is your long term loss you cannot set it off against anything else.
Long term losses cannot be carry forwarded as well.
Hi Zerodha,
Thanks a lot for this extremely useful blog regarding taxation. I truly appreciate your efforts for traders. I am an options trader. My queries are as follows;
1] Do I need to file ITR 4 or 4S ?
2] I trade from home. Can I show my home use as business premise expense and how much?
3] You have mentioned that electricity, internet & mobile telephone
charges can be claimed as business expense. Is there a limit to these expenses?
4] For depreciation of asset like laptop you have mentioned 60% for 1st year, how about subsequent years like 2nd 3rd onwards? I had purchased a laptop 3 years ago for rs. 90k for trading. I did not knew this rule then.
5] Can technical analysis software price and fees paid for technical analysis workshops be calculated as business expense?
Thanks.
Pro, For your queries:
1. ITR 4 is what you need to use. ITR 4S is what is introduced this year for preemptive taxation for people who don’t come under audit and from the following sectors: Transport, construction contractors, small retail shops. You as a trader still need to use ITR4.
2. Yes you can show whatever is the cost for your trading as a business expense. If you are using an entire room for trading, there is a cost for keeping that room, so yes that much of the rent could be an expense.
3. There is no limit to the expense, as long as it is related to your business of trading you can claim as an expense.
4. Typically how depreciation for computers is calculated is this. Assume you spend Rs 90k on a laptop, the first year you can claim 60% of this as depreciation that is 54k. 2nd year, you can claim depreciation 60% of (90k – 54k) which is 21600 , 3rd year you can claim depreciation 60% of ( 90k -( 54 + 21.6)) = Rs 8600.. You cannot go back and claim for the first 2 years now..
5. Yes of course you show the cost of technical software and workshops as a business expense..
Hope this clarifies
Cheers,
Hi Team,
Excelent initiative from your side…
I am a full time trader with no other source of income. I have 2 queries:
1. I trade derivatives. I am a bit confused as on one side u say that derivative trading is considered as business income while on the other hand u also refer to the tax slab… For an individual trader like me, do i pay flat 30% tax or i pay as per slab structure?
2. Can i deduct EMI on home loan as an expense for calculating taxable income?
Thanks.
Akash, You are a full time trader,
But you are an individual right?? As an individual the slabs will still apply, it is a flat 30% only if you are trading as a company. So you get the benefit of tax slabs as an individual conducting trading business.
You can use the home loan to deduct your taxable income as per section 24 and section 80-C.
Your home loan EMI will have 2 components to it,
a. the principal you are paying back.
b. the interest you are paying.
Every year you can show upto Rs 1.5lks which you pay as interest as a loss on your books to reduce your taxable income under section 24.
Every year you can show upto Rs 1lks which you pay as principal as a deduction to reduce your taxable income under section 80C
If you want to know how much of your EMI is going for principal and how much as an interest, ask your bank for the home loan statement..
So you can take benefit of upto Rs 2.5lks of the EMI you have paid to reduce your taxable income.
Hopefully this clarifies..
Cheers..
Thanks for the prompt reply. Kudos to Zerodha team 🙂
Dear Nitin,
You guys are doing the best work. You have really made it very simple for taxation. The related tax consultants costs too much for the points you have discussed here. I appreciate your efforts and hope that you would continue this blog.
Keep going.
i had bought some stocks in form of delivery 4 years back, money invested was 2 lakh & if i sell those shares now ,i will suffer 1 lakh loss.myself having small business & i have income from my business, interest income & dividend.my question is if i sell those shares now , can i deduct loss from stocks from my business income this financial year for computing income tax? if not,which type of gain in coming years i can net off loss ?
Sonia,
Unfortunately you cannot net off long term losses against any income/gain of yours.
Dear Nithin,
This is a wonderful initiative from your end to educate investors on Tax Matters. Thanks a lot and keep up the great work.
Dear Om Prakash Jain,
Thanks a lot for the informative article and your patient responses. I have some questions for you as well on full time trading. I am planning to take up full time trading (as a Business) from Apr 1, 2013. I would not be earning a Salary on the side.
1) Does it make sense to register my trading as a Business or is it not needed? Are there any benefits to registering as a business in terms of tax rates? If I trade in my own house on an already available laptop can I still claim deductions towards expenses (depreciation on comp, trading software, rent etc)?
2) I know this is a real basic one but just to clarify to myself – When taking the P/L for income do I take the Net Profits (Gross Profits – Brokerages – Other Taxes/Cesses) or Gross Profits.
3) Can subscription charges to Advisory Firms and for Magazines also be treated as Expenses?
4) Can you suggest an easy to use and relatively cheaper book keeping application to manage the expenses and trades (executed trades) ?
5) Is there a need for retail traders to pay Advance Taxes or can I manage the same before the end of the Financial Year?
6) If I trade in Forex in Overseas Accounts, do I have any tax obligations in India?
Sorry for asking too many questions and thanks a lot for all the information.
Kind Regards,
Madhavan
Madhavan,
Here you go:
1. You can consider you trading as an individual or as a business. As an individual you get tax slabs upto Rs 10lks income per year and only over that have to pay 30%, as a business you don’t get such tax slabs.
Yes you can claim deductions like what you have mentioned as an expense as long as there is a logic behind it if tomorrow questioned.
2. When taking P/L for income you can either do it based on gross or net profits. It is upto you. You can take the gross profits and show expenses like brokerage, turnover charges, other expenses and then deduct it from your gross profits or just take the net profit and deduct your other expenses.
3. Yes subscription charges are a definite expense you incur while trading. So all charges like data feed charges, subscription, advisory etc can be used as expenses.
4. Our Backoffice itself has comprehensive reports which can be exported to excel and analysed. If you are looking at outside vendors, Direct shares , Mprofit etc are the options available.
5. Advance tax is payable by all individual/firms/companies as per law, and there is no such exception for traders. If you are doing trading for a living and in profits, it is best to start paying advance taxes.
6. Forex transactions by an Indian individual is not permitted as per FEMA guidelines. You are allowed to trade currency pairs that trade on recognized Indian exchanges. Do consult your CA on this, because this is not allowed legally.
Hopefully this answers your queries,
Cheers
TURNOVER FOR THE PURPOSE OF TAX AUDIT U/s 44AB AS PER CLAUSE 5.11 OF GUIDANCE NOTE ON TAX AUDIT BY ICAI.
As per guidance note by ICAI all CAs calculate turnover as below for FNO:
Point 1) The total of positive and negative differences , plus
Point 2) Premium received on sale of options is also to be included in turnover ,plus
Point 3) In respect of any reverse trades entered, the difference thereon.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Confusion in calculating Turnover for Options:
Option shorted at Rs.10 , lot 100 premium received = 1000
Option covered at Rs.6 premium paid = 600
Profit = 400
Turnover = 400 + 1000 = 1400
Should it be 400 ???
Hi,
Premium received on sale of option (Point 2): 1000
Option paid on account of having to cover the short option position (Point 3) : 600
Positive Difference (Point 1): 400
Total Turnover effected: 1400
Hope this clarifies.
What will be the options turnover if we first buy Nifty PE @10, 100 lots and sell the PE afterwards @ 20, 100 lots,
will it be a) 2000-1000 = 1000
or b) 2000+1000 = 3000?
@ abrar, option b
Sorry abrar about the previous answer, the turnover on that particular trade would be just your settlement profit which is Rs 1000. It has been answered wrong on this question..
@ethanhunt, it has been answered wrong earlier, the turnover would be 400 in the example you have given.
say, my taxable earnings from Salary is: 4,80,000
Bank Interest earned: 5,000
& Profit from F&O is: 1,50,000
then how much Tax i have to pay (Kindly illustrate)?
can I fill ITR-1 or I must fill ITR-4?
Last date for tax payment online?
Chalan no for online tax payment ?
Though I m a Trader, but can I show as investor while filling Returns ?
Regrads,
Sourav
Client: RS0813
Sourav,
Your income tax will be on your total income , 635000.
A very interesting tool to calculate taxes on income tax website: http://law.incometaxindia.gov.in/DIT/Xtras/taxcalc.aspx
You need to file ITR4 as you have a trading business(f&o) business and if you are a trader, you can’t file your returns as an investor.
last date for payment of taxes online: 31st March, Even if delayed, you can pay with an interest @1% per month.
Chalan numnber for online tax payment: Use challan 280 for your tax payment and make sure to select the right asessment year. https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp
Hope this clarifies,
I am a salarised person & My wife is a Housewife. She want to trade in F&O & She has around 1 Lac cash in her Bank Savings a/c.
say,
she makes profit of 4 Lac
& she invest 1 Lac in PPF
& She get Bank FD interest of 0.5 Lac
then what will be her income tax?
on that occasion she has to fill ITR-4 or I have to add her income in my ITR-1 ?
Regards,
Sourav
You have made profits of Rs 4lks in trading and 50k in FD interest so total Rs 4.5lks
Your investment of Rs 1lk in PPF will reduce the taxable income to Rs 3.5lks.
On Rs 3.5lks the tax payable would be: Rs 15450
She has to file ITR 4 as Trading F&O is Business Income
You should not add her income in your income tax returns. Keep it separate.
Hi,
I’m a intraday/positional trader of futures and options.
in the time of income tax filling, i should show only the profits.
Did my profits come under short term capital gains(covered under section 111A) Ex:my net profit is 10lac
if then how much % tax should i pay?
Thank You.
Tharun,
Guess you didn’t read the blog.
If you are trading f&O, it is considered as business income and not short term capital gains. All profits that you make is added to any other income of yours and then you have to pay according to the slabs as mentioned in the blog.
So if 10lk profit, then first 2lks 0% , 2 to 5lks 10% which is 50k, 5 to 10lks 20% which is 1lk, so together is 1.5lk..
Make sure you declare your losses also and not just profits. Why? Do read the above blog once.
Hi,
I want to trade in F&O segment from my mother’s or sister’s trading a/c and I will file ITR-4 in name of my mother or sister separately.
Is it ok or any illegal issue?
Rahul
As long as trading is happening in your mothers or sisters trading a/c and they are filing for the ITR4, there is no issues as such.
murugesan.k
Hi,
i am trading from jan 15 2013, so i should file my tax this year 31st july,
regards,
murugesan.k
Yes you should.
I have a query. My total turnover from F&O is 3.8 Lacs. I made a loss of 45k in FNO trading in FY12-13.
Do I need to get my account audited?
Books of accounts need to be audited only if turnover crosses Rs 1 croreSo audit is not required in your case.
But do make to file your returns on time and declare these losses so that you can set off against any future profits.
Cheers,
Hi, There is some confusion in this comment from Zerodha on Anjani’s query. As per your blog above no matter what size(small or big) everybody should get accounts audited. Correct me if I am wrong
Girish,
The answer to this question was given before adding the new changes on the blog. This year between June to now, many people received notices from the IT department and we found that this is because of change in section 44AD. So presently, if your turnover is less than 1crore and profit less than 8%, even then you need an audit.
You can read this blog for more.
Nithin – you are maintaining a very good blog. We find it very informative and useful. Please keep up the good work. I have a couple of questions as below:
1. I am trading in options. My turnover is below Rs.1 crore (approx Rs.30 lacs turnover). Can I file ITR4-S (SUGAM) to declare presumtive business income at 8% of turnover/gross receipts? Or am I required to maintain books of account, calculate actual business income and file ITR4? I also have pension income and bank FD interest.
2. For ITR4-S (SUGAM) how does one calculate Gross Receipts? Do we have to put Gross Receipts or Turnover for calculating Business Income at 8%?
Would appreciate if you could kindly answer.
Cheers,
Vinny
Vinny,
It is not a common practice in the business of trading to declare presumptive business income at 8% of turnover/gross receipts. I will have to take a further opinion on this.
The best option would be to calculate actual business income and file ITR4. Also add your other income and get benefit of respective deductions.
Cheers,
Dear Sir,
I would like further clarification regarding options turnover:
I have read the previous comment regarding the turnover for shorting (and covering) option.
My query is regarding turnover for going long on options (3 cases)
1) If suppose I BUY one rcom 100 ce (lot size 4000) at 3.00 and SELL it a week later at 4.00, then
I RECIEVE premium on sale worth 4*4000 = 16k and the difference (profit) is 1*4000= 4k.
Hence turnover is 20k … am I right?
2) Also in that case, if I buy it at 3.00 and sell it for 2.00 then the turnover is lesser than the above case, since then,
Premium received on sale of option is 2*4000 = 8k and the difference (loss) is 1 *4000= 4k
hence, turnover in this case is only 12k?
3) if I buy one lot of rcom 100 ce at 3 and it expires worthless (no sale after buying it)
then, is the turnover ZERO? (because no sale of option was done, and since no sale was done, there is no profit or loss)…
Sir can you please answer each of these 3 cases for going long on options separately and clarify what the turnover in each case would be?
Thanks a lot for the great help…
Sharan
Sharan,
I guess your query on option turnover is for knowing whether you will have to audit the books or not.
All settlement profits + losses together is considered as turnover.
1. In this case your settlement profit is Rs 4000 and that is your turnover.
2. Your settlement loss is Rs 4000 and that is your turnover.
3. If your option expires at 0, then you have made a loss of Rs 12000 and this would be considered as turnover.
Hope this helps,
Cheers,
For the same query, if we had sold the option in first place, then covered it by buying, what would be the turnover, because in one earlier reply you said that sale premium received plus difference between sale and buy.
For the same query, if we had sold the option in first place, then covered it by buying, what would be the turnover, because in one earlier reply you said that sale premium received plus difference between sale and buy.
There are different ways to calculate turnover,but the best way is to look at settlement profits + settlement losses. The settlement profit/loss you made on the short option position..
1) So if I sell Nifty PE first @ 20, 100 lots (20*100=2000) and buy it subsequently @ 10 (10*100lots=1000) my profit is Rs 1000, so will that be the turnover?
Or
2) Turnover = sell of rs 2000 + profit of rs 1000 = 3000?
Yes the Rs 1000 will be your turnover.
Cheers,
Now this is really confusing, to my same question in another reply you have mentioned turnover as 3000, (just an hour ago) Now here you are replying as 1000. Which one is true
Abrar,
Had replied back to the earlier post also saying it is Rs 1000 and was answered wrong earlier(search for ethan hunt, it is in the thread to his query). 1000 is the correct one,
Hi,
I was going to fill ITR online but got confused. ITR 1 is for income and interest earning people. ITR 4 is for individuals and HUF’s having income from a propreitory business or profession. I have regular income from job and interest and i m active trader in equity and options. Which form will i fill?
Is saving bank interest taxable?
Are dividedns taxable?
Thanks,
Amit,
Because you are actively trading equity and options, you have to use the ITR4.
Saving bank interest is taxable but you get the benefit of deduction of upto Rs 10000 on Saving bank interest under section 80TTA. So technically you would have to pay taxes only if your SB interest is above 10000.
Dividends are tax free.
hi,
I was trying to fill ITR 4 excel sheet(for online application). It is very confusing. Is it possible for you to provide me sample excel sheet for a salaried person who is active trader in equity and options and has investments held for more than a year?
Thanks
Let me check this out and let you know..
Cheers,
I found the details for filling up ITR4 form for futures and options trade on a website and have posted the same. Can zerodha confirm if it is the right way of filling up the form, where books of accounts have been maintained. Here the gross receipts mean the net profit.
Thanking you
hi,
I do trading in F&O and incurred a loss during AY201213 which I declared as business loss. I filed my return in itr4 and in P&L filled 51(a), 51 (b) and 51(c) (No account case). My gross receipts (absolute value of total profit plus total loss) was about 2,50,000 only and so audit is not required. Now I have received notice u/s 139(9) from cpc, bangalore saying that my return is defective for following reasons and that I should file rectification.
1. Error 14: Assessee is entering -ve amount in gross profit or net profit without giving details in part B of P&L In SL 51(b) and 51 (d).
2. Error 23: Where assessee furnish total of amount deducted in SL 2, 3, 4, &5 of schedule BP should be consistent with total credits in P&L SL no 5
3. Error 32: assessee has claimed loss under head “profit and gain of business or profession”. However, he has not filed balance sheet and profit &loss account.
Is it possible for you to kindly send or upload a sample excel sheet (for schema itr4) with specific example of loss in F&O trading. This will be a great help to small part time occasional traders like me. Thanks Sir and hope to get some positive response.
Let me see what can be done about this, it is pretty tricky though to put this up. We will try what can be done on this and post on Zconnect in the next couple of days.
@KRS/Skann/Raj195, Looks like a tricky situation, especially since ITR4 is completely online and all the notices being received are also automated for the first time.
Guess CBDT didn’t think about this situation especially with lower volume f&o traders.
I am trying to get more clarity on it from my CA friends, but the reason why the automated notice received seems like because of section 44AD.
As per this section, if a person is doing business(we’d have to assume including share trading business) and if the turnover is less than 1crore and if your profit is lesser than 8% of turnover, you will have to get your books audited.So this would mean that if you have a loss than you will have to compulsorily have your books audited.
My advise would be to consult your CA on this and I will try to find out from officials at CBDT if we can get any clarity on this.
Posted a small update of this on the blog:
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
Dear Zerodha,
Is it possible to upload or send me a sample ITR 4s with details filled in. Thanks in advance.
Let me see what can be done about this, it is pretty tricky though to put this up. We will try what can be done on this and post on Zconnect in the next couple of days.
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
Dear Nithin,
Thank you for writing a very informative artcile on taxation for stock market transactions. Perhaps, it would be very useful if you could share you views on audit requirement for F & O transactions especially when there’s loss to be filed in ITR 4 under business income.
I’ve received the exact same notice as mentioned by raj195 above, and I know multiple people have received the same notice from CPC, Bengaluru.
According to section 44 AB, audit is mandatory when turnover/receipts exceed the limit of 100 lakhs. However, when there are F&O losses to be filed in ITR under business income, there are some people who say that audit becomes mandatory under section 44AD even though the turnover is less than the prescribed limit as it meets the criteria of section 44AD which states that audit is mandatory if at least 8% of turnover is not shown as profit. Their argument is since it’s a loss declared, it will definitely be less than 8% of turnover and hence it meets audit criteria under secrion 44AD.
Please share your views on this thought as it would help many people get their confusion clarified.
Thanks
KRS
@KRS/Skann/Raj195, Looks like a tricky situation, especially since ITR4 is completely online and all the notices being received are also automated for the first time.
Guess CBDT didn’t think about this situation especially with lower volume f&o traders.
I am trying to get more clarity on it from my CA friends, but the reason why the automated notice received seems like because of section 44AD.
As per this section, if a person is doing business(we’d have to assume including share trading business) and if the turnover is less than 1crore and if your profit is lesser than 8% of turnover, you will have to get your books audited.So this would mean that if you have a loss than you will have to compulsorily have your books audited.
My advise would be to consult your CA on this and I will try to find out from officials at CBDT if we can get any clarity on this.
ERROR CODE: 30 In schedule BP, assessee claiming expenses equal to the business income.
The Issue is:
I contacted 2-3 CA guys. They have absolutely no clue why this notice is for!!!
I called to cutomer care of Income tax office CVC Bengaluru. Even they were clueless. They too have no answer for the reason of the notice. They do not offer any solution and just told me to revised the return in 15days.
I do not know what to do now…Pathetic…
Dear Nitin- Please try to get some answer from IT official and a way out for this…I think there must be many persons who would have received these notices…
Thanks in advance for your effort…
Anjani
Have updated this info on the blog on why the error is showing up
Dear Zerodha Team,
Thank you for checking on checking on applicability of section 44AD for small traders. While it does make sense that audit could be mandatory under section 44AD if the assesse if declaring less that 8% of turnover (which includes loss), I just chanced upon a small information that could saves some of us small traders from the hassle of audit even if a trading loss(F&O) is declared as long as they also have salaried income and have shown deductions under Chapter VIA . As per the definition of eligibile assesse below, some of traders who have both salary income and F&O trading income(profit or loss) wouldn’t meet the criteria since they usually have deductions in their salary under Chapter VIA like section 80C, 80CCC,80CCD,etc. Could you please comment on my observation above so that many small traders having both salary and trading income can avoid an unnecessary audit?
Explanation.—For the purposes of this section 44AD,—
(a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A,10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. – Deductions in respect of certain incomes” in the relevant assessment year;
Deduction under provision of chapter VIA under heading C starts from Sec 80H to 80U. These sections except 80U are for export promotion business and 80U is for physically handicapped people. So I would say that this will be not applicable for individuals like me and you, but you could consult a CA to double check this.
Cheers..
Dear Sir,
I read the latest update regarding section 44AD. I am an engineer and have no accounting knowledge. I would like to know what are all included in the “books of accounts”. As per your post I understand books of accounts include contract notes, bank statements and DP statements.
Are only these 3 things enough (I assume these are electronically generated and I can get this through back office). Also could you specify more precisely what all DP statements are required (is it only PL statement and ledger or are any other statements required).
Could you kindly LIST ALL the things (SPECIFICALLY) included in maintaining “books of accounts”.
Also as per 44D calculating turnover has basically become mandatory for everyone. So with respect to turnover calculation, do I have to painstakingly calculate (by hand) the gross profits and gross losses?
If that is the case it is a nightmare because I may have averaged or added to positions and exited them in 2 or 3 parts and traded the same share many times a day… but the average price and quantity of buy and sell for the day are only given (which does not constitute turnover).
So how do I go about calculating my turnover in such daytrading of a single share?
Thanks for this support on taxation. This article and thread is the best resource available online for taxation on trading yet!
Sharan.
Sharan,
Do check this out..
http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
Zerodha team,
Thank you very much for clarifying the provisions of Chapter VIA applicable for 44AD. So, now there’s no option but to get the books of accounts audited and file ITR4 as you’ve mentioned. But, what about the return filed for last year AY2012-13 for which we’ve received the notice? Would it become invalid and losses carried forward over the previous years lost because of this audit issue? Also, even if we get the audit done now, would our revised return be acceptable since audit report date would’ve passed the due date?
And finally, would you like to provide any opinion on error 32 mentioned above? Many traders are puzzled with the statement “Where assessee furnish total of amount deducted in SL 2, 3, 4, &5 of schedule BP should be consistent with total credits in P&L SL no 5”
Since, we just use “NO ACCOUNT CASE” section in P&L section (Sl no. 51 only) to provide details on turnover and profit, not sure how can sl. 2,3,4 & 5 in BP can be consistent with P&L Sl. no. 5 when Sl. no. 5 is not filled up with any details in P&L section.
KRS,
The notice that you have received right now is for defective return and yes you can file a revised return. Yes the audit report date will be a present date which will mean a delayed penalty of 0.5% or 1.5lks whichever is lesser of the turnover under section 271(B). But this way you will atleast be able to carry forward your loss and also not worry about any other penalty from the Income tax department.
The reason I am saying this is because it is quite possible that you might get a demand notice to pay taxes considering 8% of your total turnover as profits tomorrow.
About the last 2 points, they seem to be errors made while filling up the ITR4 forms. I’d suggest you to meet a CA and get this done through him. To save a penny we shoudn’t be risking a dollar, a good CA will help to keep your books clean and be at peace.
Cheers,
Why isn’t ITR-4 form (excel workbook) available online on Income Tax website?
https://incometaxindiaefiling.gov.in/ only shows ITR1,2,3 & 4S.
Any idea why is it so?
Can you point me to the excel form of ITR-4 please?
Thanks in advance,
Santosh
Only pdf form is available at http://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/PDF/Ay-2013-2014/Form_ITR_4_2013-14.pdf
It is still not up on the website, should be available there in the next couple of weeks…
Hello Team,
I have a query. I trade in Options and as on 31st March 2013, I have open positions of Sell on Nifty options. This means that I have premium present in my account for selling that option. Now, while calculation Profit and Loss, should I deduct that premium amount for that open position from my profit/loss or should I report that premium in my profi/loss? And if the answer is to deduct the premium amount from my P/L, the what price should I consider while deducting (Purchase price or present price)?
@rogue,
Let me answer your query in 2 parts,
1. While considering P&L, yes you deduct the premium received from the open position.
2. As we have mentioned on the blog, if your open position is making a loss as on 31st march it is better to consider the loss as on that date and if your position is in profit you could show that the position is still open and you don’t consider the profit.
Going per that logic, based on the short nifty option being in profit or loss you can deduct the premium. If it is in loss then deduct as per the purchase price and if in profit then as per present price.
Hope this clarifies..
You said fno trading is considered as business income and i can include the rent i pay for my house as a business expense(as i trade from there),but can i get exemption even if the rent agreement is not in my name but i pay it from my bank account and have proof of address(that i’m staying there)?
Vivek,
Considering the entire rent of the house as your business expense, especially if you are living in the same place is not really playing by the books. You could firstly put part of this rent, which you consider is what you are using up for your business of trading as a business expense.
Yes even though the rental agreement is not in your name, you could show this as an expense when you are paying it.
Hi,
I am a salaried person and had incurred losses from F&O trading in last financial year 2011-12. On wrongful advice of my CA, I filed the returns using ITR-1 and showed the loss as short-term capital loss and also offset it against other short-term gains. After reading this blog, it seems I should file a revised return using ITR-4.
a) Please confirm that I can file a revised return now for 2011-12. Any information online where I can get help on filing ITR-4 for a salaried person + F&O income?
b) Also, if someone can share details of a good CA based in Noida who has expert understanding of F&O taxation and can help with this tax computation and revised returns filing.
Thanks,
Nitin
Nitin,
Firstly, it is not correct to show f&O loss as a short term capital loss, so it would be best to file the revised returns using ITR4.
For financial year 2011-12, you will have time till 31st March 2014 to file revised returns. You need to choose revised return under section 139(5).
Presently there is no guide as such online, but you can ask us any queries and will be able to help you out.
Don’t really know any CA from Noida.
Cheers,
Hi,
Loss under Options and equity(delivery) comes under business income or capital gains?
For declaring loss, i would need consolidated statement of FY 2012-13. where can i get it on Zerodha?
Thanks,
Amit
If you have traded options, then it is a business income/loss and you will have to use the ITR4.
In our backoffice, you will see a PL statement which will carry all the details.
Cheers,
Hello Zerodha,
Thank you very much for explaining everything in simple and clear language.
But I have one area of concern: the ambiguity and mixing about the idea of investment and trading.
As in my personal case,
I have bought and held shares for more than three years. I sold them last month and got a capital gain of 6 lacs.
But I opened zerodha recently and traded for couple of months heavily. In that process I have netted 50,000 loss.
Now, Ideally I should be treated as investor for the 6 lacs profit I got from the shares, right? (I have been holding that for much longer than a year) If that is the case, then the tax will be zero for that share sale. (Long term capital gain)
But because, I traded recently, why should I file ITR4 and show the 6 lacs (from sale of shares) as profit in business?
Then I have to pay 30% tax on the sale of shares as well because there is no long term capital gain concept for businesses.
Is there any solution for this?
1)can I treat the share sale as long term gain and trading loss as speculative business loss? (this would be the most advantageous for me)
2)Can I forget the short term trading loss and just file as an investor to get long term capital gain advantage on share of sales. (This will be the second best)
3)Should I file as business and show both trading loss and sale of shares as business income, effectively paying 30% tax on share sale ? (This is very disadvantageous.)
Can you please clarify this?
Thanks
Was waiting for someone to ask this question,
If your delivery based is not active and is just like an investment(like in your case), you can have 2 portfolios at a same time, one as a trader and one as an investor.
The reason for using ITR4 is because you get different heads to declare your income from.
So in your case, you can show your investment from before as long term holding of equity, hence long term capital gain and claim complete exemption.
The short term trading loss can be shown as a business loss in ITR4 and if you have any other business gain you can set it off against it either this year or in the future( anytime in the next 8 years).
But do make sure to not forget anything, the times are changing, the IT department is going online and getting more teeth.
You might need your books to be audited as well by a CA, read this Blog.
Hi,
If i do intraday trading on F&O and make overall profit(entire year) of 50000 and overall loss of 20000, then i have to pay tax only for Rs 30000 (50000 profit – 20000 loss) right?
Sach,
Yes firstly your net profit for the year is Rs 30000 as per your calculation. But since f&o is a business, you can show the costs you have incurred to do these f&O trades, it could be computer depreciation, broadband charges, advisory fees etc.
You can add all of these expenses and reduce it from the net profit and pay tax only on that.
Do read the Q&A above, a lot of queries answered which should help you out.
Cheers,
my ca say this, what to do
“As your Turnover is less than Rs. 1 crore and you have F&O Loss you are not required to get your Books of account audited by CA if you file your return in ITR – 4 which is for Business income.”
Alok,
This is how all of us had considered until now. Do read this blog and you could probably get your CA to read it as well. There has been a change made to Section 44AD and you will see a few people who have received notices because of this also in the same blog.
Hi
I traded in equities, FNO and commodities in last FY, incurred losses. How do I declare all the three segments in ITR 4 ? I do trading full time from home. Can I add my house rent, electricity expenses, broadband charges, advisory charges etc to my loss while filing the returns ? Also, I work from home and is it possible to take the full value of electricity charges and rent for adding the loss or I have to work out some pro rata value for it ?
Could you please explain what is actual turnover, how one can calculate it ?
Thanks in advance.
Lala,
You look like an active trader, so you need to consider delivery based equity, fno and commodities as a business income/loss. Intraday equity trading needs to be considered as a speculative income/loss. I’d advise you to consult a CA to file your returns, but go to him after reading the blog and the Q&A, so you know what exactly the CA has to do.
Also read this blog .
About your expenses, as long as you can justify that it was used for business it should be alright. But i’d personally say, don’t show the whole thing as your business expense, because you are also living there.
Can you look at a few queries above, have explained clearly how to calculate turnover.
Cheers,
lala33Jun 27 2013, 4:30 pm
Hi
Turnover of 1 crore is to be taken only for FNO segment or will it be applicable to all segments ? Should the turnover be calculated on all segments like the FNO segment example given above, club them all together to arrive at actual turnover for all segments put together ?
Since I have made only losses in all segments last year, is it really necessary to show the loss in the returns ? It would be very hectic to find out the P/L and settlement turnover at this point of time, just one month before the last date for filing of returns.
I have accounts with more than 5 brokers for various segments and most of them do not even have the basic financial reports in their back office, I will have to compile everything from the contract notes which will take a lot of time.
[ Click to thank ]
Combined turnover of all segments together for turnover.
I know it might be trouble, but it is best to do this and show it, the reason I am saying this is because with inclusion of trading into Section 44AD, you risk a chance of getting a notice from the exchange asking you to pay taxes considering 8% of turnover as profits. Read this blog for more.
An added benefit is that if you declare this loss, which will add up if you are considering the expenses that you have incurred, it will be a sizable amount that you can carry forward for the next 8 years and net off against any future business profit( not just trading) and avoid paying taxes then.
Hi,
I need to file ITR-4 with salary, trading loss in F& 0 , FD interests , Tax FD interests, SB interests and Dividends.
Can you give sample ITR-4 form? which site is gud to file returns?
Regards,
venki
It is best to consult a CA for this, especially also because you will need your books to be audited by a CA and this can’t be done online. Read this on why: http://www.zerodha.com/z-connect/blog/view/notice-under-section-139-9-possible-reason
Since you have made a loss and hence your profit would be less than 8% of your turnover. In such a case, the books has to be audited by a CA. There were notices received this year for people who hadn’t got their books audited last assessment year.
Cheers..
What will be the code for nature of Business for F&O trading? This is to be filled in ITR4 under “Nature of Business” sheet. Please suggest?
Thanks,
Anjani
Hi,
In ITR4 I was filling “PART BS” sheet for my FNO trading. For No account case I have to fill these details:
1. Amount of total sundry debtors
2. Amount of total sundry creditors
3. Amount of total stock- in-trade
4. Amount of the cash balance
Scenario1:
Suppose I have 90K in my trading account as on 31st march 2013.
And I have 1 lakh cash in my saving account as on 31st march 2013.
I have no open position in FNO as on 31st march 2013.
I assume:
1. will be 90K
2. will be 0
3. will be 0
4. will be 1 lakh
Please correct me if I am wrong?
Scenario2:
Suppose I have 90K in my trading account as on 31st march 2013.
And I have 1 lakh cash in my saving account as on 31st march 2013.
I have sold an option contract on 29th March 2013 and collected a premium of 5k. This position is still open as on 31 march 2013.
I assume:
1. will be 90K
2. will be 0
3. will be 5k
4. will be 1 lakh
Please correct me if I am wrong?
I think reply for these 2 cases will be also helpful for others who trades in FNO.
Thanks in Advance.
Regards,
Anjani
Code you can use is 0204 which is others for nature of business.
For the 2nd query, I’d suggest you to create a full balance sheet and use ” Account case” instead of no account.
The reason is, the money in your trading account, can’t really be categorized in any of the options that you have mentioned there. 1 to 4.
So I’d suggest you to get a CA do this, he would not charge you much, better get it done the right way.
Cheers,
Hi,
I use my computer for trading purpose. Its hard disk got crashed and I had to replace the hard disk and reinstalled all the software again. Can I claim the repair/maintainance bill amount (which is around Rs. 3000/-) under my business expenses for trading in FNO?
Yes you could, as long as you can justify that the computer is being used for your business of trading.
Hi,
I am a salaried person and regularly filling my income tax through SARAL form. I have two demat account and one is not operated since it is opened. and using other I am trading in F & O since 5 years but always made loss, which I never showned to income tax. You are requested to guide me, how to show these losses. and is it compulsary to show even if the losses made in F & O derivative trading?
Thanks in Advance.
Omp,
If you are trading on f&o, your activity is considered as a business and hence you need to use the ITR4 forms which gives you the facility to declare any trading profit/losses.
You cannot go back and file for all the years from before now, it is too late. But what you can do is to ensure that you start following it from now. For the last financial year 2012-13, ensure that you start showing the trading profit/loss. The reason you need to show is 1. IT department is going online and they can track all your activities linked to your PAN very easily. Their powers are increasing. Not showing a particular activity could lead to penalty. 2. There was a small change made to section 44AD, which now says that if your profit is less than 8% of your turnover, you need to have your books audited by a CA. If you don’t declare this as a loss, tomorrow the IT department might come back to you and ask you to pay taxes considering 8% of your turnover as profits. 3. If you declare you trading losses, you can set it off to any business profit you make in the next 8 years and eventually save taxes because of that.
Most of your queries are probably answered on this blog, if there is something which is not, ask me for it.
Thanks a lot Zerodha for this excellent article.
I have 1 query:
If I file long term loss as a trader, can I net it off only against long term capital gain OR can I net it off against any profit/income?
When filing long term loss as a trader, can I net it off for the next 8 years?
Anish,
If you declare yourself as a trader, then long term gains and loss will be both be business profit/loss respectively. So yes, if you categorize yourself as a trader(ITR4, trading as abusiness), you can set off your long term loss against your long term gain or any other business income/gain.
If you are showing yourself as an investor and claim long term gain exemption, in that case your long term loss cannot be net off against anything else..
Hi Zerodha,
Please provide me a sample filled ITR4 form . I want to learn from it .
This is first time of filing . I am a full time trader.
1) I started trading in ICICI Direct from Feb-2012 to June-2012
Should have to declare the P/L in FY 2012-2013? Is the AY is 2013-2014?
2) I stopped in ICICI Direct on June – 2012 and started trading in Zerodha sunce June-2012 till now.
Should have to declare the P/L in FY 2012-2013? Is the AY is 2013-2014?
Thanks
Siva Sri
Siva,
You will need to show from April1st 2012 to Jun 2012 in Icici and Jun2012 till April 2013 in Zerodha as one P/L. Yes this would be Financial year 2012-13 or AY 2013-14.
Hope this helps..
Hi Zerodha,
First of all I would like to thank you people for providing such trading platform and also this blog relating to taxation.
Now, I have few questions,
I have opened trading account in my wife name and trading behalf of her (she is a house wife and no source of income) So, I transfer the fund to her account and start trading..
Mainly I trade in F&O segment and and it is considered as Business Income. (as you mentioned before)
1)How to declare the Profit/losses in ITR-4
2) Can the expenses also be carry forwarded(added to P/L)
3) Do you have a voice support in case if I want to reach out you for further clarifications?
Regards,
Nagaraj
Nagaraj,
Your wife can show her trading activity as a business. In a business whatever is the related expense that you incur for trading can be shown as an expense like your internet cost, system depreciation and etc. If you have made profits, the expenses would reduce your profitability and hence the taxes, if you have made a loss the losses get increased because of the expense. Yes this increased loss can be carry forwarded for 8 years and net off against any other business income/gain.
IIt is best to consult a CA to help you out in filling up ITR4.
This initiative is to educate our clients and we are providing only online support. You can ask us any question here and we will answer it for you.
Cheers,
Hi,
As many people mentioned earlier, I too have (in my wife’s name) 3 broking accounts opened and having traded in equity(intraday & delivery), f&o, few stocks/ETFs holding more than a year…so in this scienario how do we declare ourself as trader, speculator or business P/L in ITR-4. please clarify.
In the past also I have made major loss in my trading in F&O but never declared and never filed IT returns in her name. what is your suggestion?
Do I need to consult CA even if I had made losses in F&O(net) and it is total less than 1cr?
by the way what and documents do I need to carry or keep it with me for filing this ITR. please clarify.
If you are actively trading in your wife’s account it will be very tough to keep your long term investments and f&o separate. Both would ideally have to be considered as a business.
Some people like to in such cases keep all investments from one demat account and show it as separate, but since you have not done it i’d say, show all the trading in your wife’s account as a business and use ITR-4.
You can’t really change the past, so forget about it, but make sure to start filing returns from this year.
Yes, you need to consult a CA even if turnover is less than 1crore since you have made a loss( profit less than 8% of turnover).
When you go to a CA, you would need the P&L statement and your bank statement. It is also best to be ready with a bank book explaining if any expense on your bank account is for the business of trading. If it is then your net loss would increase and you can use this to net off any other future business income(when I say business income, it is not just trading profits, it could be any profit she makes in future doing any business)
After reading Anamika’s comment [Feb 3 2013, 9:44 pm], thought of making a table for quick ref.
If you find any mistake, comment. I’ll modify the table.
If the words are not clear, right click and open the image in a new tab.
It is all correct, small addition is that as a trader in the current year the loss can be adjusted against any income other than salary. However the losses brought forward from the previous year can be net off only against business income.
Cheers,
hi nithin,
A great help from this site.
have one query …SEC 44AD tells abt going by sec 44AB …
now sec 44AB tells :
(d) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and
Rajesh,
Section 44AB says:
carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD
AND
he has claimed such income to be lower than the profits and gains so deemed to be the profits
AND
gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
Do note that there is an AND in between all the clauses. Also when you file ITR online it doesn’t consider any taxes of the past. So tomorrow you might get a notice and then you can clarify saying section 44AB as you have mentioned above.
Best thing in the life is to avoid getting the notice rather than getting and then explaining.
Hopefully you get my point,
Cheers,
i agree to you that one should avoid getting the notice… but getting audit done is a tedious process so if i am eligible to file without audit shouldnt I file that way. audit will cost 4-5k minimum.
this is my 2nd year of filing and last year i wrongly filed and showed business loss as speculative loss. can anything be done now? kindly help
Rajesh,
The trick to making money in the markets is predict what can cause you a big loss and take that small one to be safe than sorry.
What I mean to say is it is much better to take the 4 to 5k audit today rather than risk the notice which can cause you potentially a lot more in terms of time and money.
About your returns from the last year, this can be rectified if you had filed last year in time.
I have a follow-up question to my last query. Is it possible to show the profit/loss in F&O trading as speculative income using ITR-2 or is it mandatory to be filed as business income only using ITR-4? My CA told me that it should be okay to consider yourself (a salaried person) as an investor even though dealing with F&O trading and file returns using ITR-2 only, showing F&O income as speculative income (and follow the condition that s
Nitin,
F&O has to be considered as a business income/loss and hence has to be shown using ITR4.
Hi,
i am a salaried person. I trade in F&O also .Please let me know which ITR form is applicable to be filled. ITR IV doesnt have provision to show salary income.
How much (in %) tax to be paid on the net profit?
please guide.
thanks
Shailesh
Shailesh,
ITR4 is pretty exhaustive and you can use this to show your salary and f&O trading business. You can also show all your business expense and hence reduce your net tax outgo.
How much % depends on what bracket you fall in, do read the blog above, mentioned on it.
Cheers,
Hi,
Since I incurred only losses, I have not filed for any of the year, which I am planning to do now.
Can you suggest any CA in Bangalore or Hosur to assist in filing the returns.
I trade only in F & O
Thanks in Advance
Gnanamoorthi
It is advisable to not ignore this as it can have implications in the future. You could use any CA, we have practically covered everything in this blog. If you are looking at someone in Bangalore you can look at http://www.taxiq.in, they help us in maintaining this blog on taxation.
Dear sir,
I am a housewife and my husband is a government salaried employee. I am using his fund for trading in future and option, equity, commodity and get loss 1.5 lakhs in commodity future in silver . Income tax is charged on his salary. my husband can use this loss to file income tax refund or not. what will be our income tax slab. i have joint saving account for this purpose in sbi.
Another question is this, if i get benifit 2 lakh on my trading and his savings are 1.5 lakh than it will become 3.5 lakh than there will be any income tax charge on this amount.
How much amount can be used as tax free from my husband and my profit for FY 2012-13.
please give me detail about this..
Regards,
Reena sharma
Client id :- DR0555
Reena,
Firstly, I need to know if you are trading in your account or your husband’s account?
Assuming you are trading in your husband’s account,
Firstly, if you make a loss trading, this cannot be used to set off against salary income of your husband. If your husband tomorrow makes any business/trading profit at that time you can set this off. But to do this in the future, you need to declare your trading losses while filing your returns this year
Secondly, if tomorrow you make profit of 2lks after showing all expenses that you incurred for trading and if your husbands taxable income is 1.5lks, then he will have to pay taxes on the 3.5lks.
Nothin can be used as tax free, because your husband is on salary.
Cheers,
Sir,
I am trading in my account using my husband’s money. i am a housewife, no other income on my account. i lossed 1.5 lakh in my account using his money, can he setoff this money for his tax rebate.
Regards,
Reena Sharma
Reena,
Ideally your husband cannot setoff losses made on your account to his trading profits.
Cheers,
regarding f&o
http://money.outlookindia.com/article.aspx?286519
@Anish, on your post of 10th July, i have another view – it is of intent backed by proportional claim on expenses.
1. If you are doing F&O, its always business income and added to income.
2. If you are doing short term equity (<1 year), you can club any profit/losses under short term capital gains, but you cannot claim expenses against this. Also, ensure that the turnover of short term equity <x% of F&O turnonver to justify intent. My x always <10%. Basically, If you are doing F&O and want to take short term capital gains too, short term equity should be a minor portion of your total turnover. Obviously, that all your expenses should also be proportioned in the same ratio.
3.Equity > 1 year is always tax free (under current laws), irrespective of your status on 1 and 2.
> For financial year 2011-12, you will have time till 31st March 2014 to file revised returns. You need to choose revised return under section 139(5).
I contacted another CA who told me that last date for filing revised returns for FY 2011-12 was 31-03-2013 and it is late for any corrections. I had incorrectly shown F&O trading losses under STCG in ITR-1 and now want to file revised returns using ITR-4 for FY 2011-12. Please clarify.
Thanks,
Nitin
Hi Nitin,
If you have filed your returns in time for FY 2011-12, they you get time till 31/03/2014 to file your revised return..
Dear Nitin,
I have got few questions on tax filing.
I Do FNO trading regularly.
I got the ZERODHA FNO Profit loss report from zerodha support team. Is this report correct one to find out the turnover or any other facility available @ zerodha?
In this report it have following components.
Net Receivable : x
Net Payable : y
Brokerage : a
Turnover Charges : b
Securities Transactions Tax : c
Stamp Charges : d
Service Tax : e
SEBI Charges :f
So turnover = x + y – a – b – c – d – e – f . is it correct or turn over includes all a, b, c, d , e, f???
And, I bought few FNO contracts in earlier financial year before 1st april 2012 and sold in the april 2012.
I sold some contracts in this year before march 31, 2013 and bought back in the april 2013. so how do i adjust these contracts into 2012-13 financial year filing >???
And, I have deleted some of the contract notes got through mail. Is there any place to download these contract notes in the zerodha.
Please Clarify…
Best Regards,
Srinivas
seenu.ii Jul 23 2013, 9:10 pm
Dear Nitin,
And also, i have a confusion, at one point.
My turnover is less than 1 crore. and my profit is more than 8%.
So, Still Do i need to get my books audited by CA for 2012-2013 returns???
Best regards,
Srinivas
Srinivas,
Firstly your turnover would be your total net receivable and total net payable. Basically X+Y
Turnover is mainly used for knowing if you need audit or not, if it is less than 1crore and because your profit is more than 8%, you would not need a CA audit.
For the open positions coming into a financial year, consider the opening price as on 1st April 2012 as the opening price of the contract for calculating taxes for this year.
Similarly if you have not closed a position, consider the closing price of 31st march 2013 as the closing position.
In the gross profit you can deduct a+b+c+d+e+f and also all other expenses that you had made towards your business of trading…
Thanks a lot…
Can you advise me where can i find opening price of the contracts for the old contracts,
I searched in the zerodha but did not found any where.
Best Regards,
Srinivas
You will not find it on Zerodha, You could look at the closing price as on that particular day by visiting NSE website and looking at the bhav copy there. Vist this link: http://www.nseindia.com/archives/archives.htm click on derivatives and mention the date at the bottom. You will get the price of that contract as on that day.
Cheers,
seenu.ii Jul 24 2013, 4:42 pm
Dear Nitin,
As you said,
Turnover would be your total net receivable and total net payable. Basically X+Y
CA audit not required if: Turnover is less than 1crore and profit is more than 8% of turnover
Here, Profit means,
is it just X-Y or X-Y-a-b-c-d-e-f
if it is just X-Y, my profit is more than 8% or
if it is X-Y-a-b-c-d-e-f : my profit is slightly less than required. Exact figure is 7.73%
where,
Net Receivable : x
Net Payable : y
Brokerage : a
Turnover Charges : b
Securities Transactions Tax : c
Stamp Charges : d
Service Tax : e
SEBI Charges : f
Now:
I am in big confusion on whether i should go ahead for CA audit or not required?
Please Advice..
Best regards,
Srinivas
[ Click to thank ]Reply
Srinivas,
It is best to keep all related questions in one query, I have deleted your separate post and made it part of this thread.
Your profit would be the gross profit – all expenses.
expenses would be a+b+c+d+e+f+ any other charges which you have incurred for trading business..
It will be best to consult your CA about this.
Dear Nithin,
As I said, my net profit is just 15k is less to make 8% of turnover.
When I consult some CA, they are saying their professional charges for auditing is 10k.
Can you tell me tentative auditing cost for the traders?
is this ok if I show my net profict as more (to make it more than 8%) and pay tax accordingly?
Some CA’s are asking, last year ITR reports for this year AUDIT. but last year i did not file ITR, i was in loss by some margin.
Best regards,
Srinivas
Srinivas,
Professional charges for CA can vary quite a bit, but 10k is a pretty decent prize.
If you show your profit over 8% of the turnover, yes you can pay taxes and get away without an audit, this is a loophole in the system for now. But the thing is, you would have declared wrong information and there are chances of this coming back to you, very little but definitely a small chance which is best avoided.
If you have not filed for last year, you can still file it now, but you will not get the benefit of the losses being carry forwarded. But you will find CA’s who will do without this as well..
Cheers,
Nitin,
I have another question, regarding my personal ITR.
1)Assume i only have salary income
2) I have own house which i have given for rent and i am paying homeloan interest
3) I my self staying in a rented house and company considers my HRA claim.
Which ITR form should i use to file such thngs. (ITR-1 or ITR-2)
In the online filing of ITR1 there is a section Income from house property, can i put my (Rental income-Interest) as loss?
Thanks in advance
Seenu,
ITR1 is for only Salary and interest income.
ITR 2 if you also have a rental income along with the above.
So you need to use ITR2
Dear Nithin,
I met 2 CA guys to get my tax filing done. What they are saying is, for the trading F & O trading,
ITR 4 should be used for the cases whose profits are less than 8% or turn over more than 1 crore and whose books must needs to be audited.
ITR4-S should be used for the people whose books need not be audited(i.e turnover < 1crore and profit is more than 8%)
I have bit confused now as u said, for trading f & o business ITR 4 only to be used.
Please Clarify..
Best Regards,
Srinivas
ans also, as per https://incometaxindiaefiling.gov.in/, forms usage explanation, ITR4-S seems applicable for trading..
If you feel the ITR4-S is not applicable, can you please give some CA people contacts?
Seenu,
Both ITR 4 and ITR 4S can be used, but it will be easier to use ITR 4s if there is no tax audit since lesser options to worry about while filling the ITR form. So yes it will make sense to go for ITR-4S if you don’t have an audit..
ITR 4 and ITR 4S is the same, ITR 4 S(saral) is a easier to fill version of ITR 4..
Thanks a lot..
Dear Nithin,
What is the code we have to select for the nature of business?
0204 is the code
Hi Nithin,
How are settlement profits/losses calculated ?
For instance if i trade DecNifty futures 5 times, making a profit of Rs 1000 each in the first 3 trades and a loss of Rs 500 in the last 2 trades, will the turn over be Rs 4000 (1000+1000+1000+500+500) or Rs 2000 (1000+1000+1000-500-500).
In the Zerodha P&L statement, I see an accumulated P&L for all transactions done related to NIFTY12DECFUT futures in the financial year and it reflects Rs 2000 as the settlement profit and loss.
Regards,
Poonam
In that PNL report that you are looking at, the bottom of the page you will see net payable or net receivable, sum it up and that will be your net turnover for the year.
Q1) The above article says:
“As long as the trading in derivatives is carried out on a recognized exchange, it is not considered as a speculative transaction like in intraday stock trading. A person trading derivatives is automatically considered as a person who is an active trader or trading as a business. In such a case any profit or loss from derivative trading is considered as “Profits and Losses of business or profession.”
Any profit would be a business profit and you would have to pay taxes after adding it to your other income and according to the slabs mentioned on the table above.”
if other business activities generated an income of 3 lakhs and NSE futures trading resulted in a loss of 2 lakhs, can this futures loss not be carried forward since it should be calculated with the other business income ?
Q2) The article also states..
“Section 44AD until AY 2011-2012 was meant only for businesses in civil construction. From AY 2011-2012, this was made to include all businesses including the business of trading. What this section states is that even if your turnover is less than 1 crore, if your profit is less than 8% (if you made a loss also), you will still need to have your books audited by a CA.”
In the above case, only futures trading with a loss of 2 lakhs would have required an audit by CA.
But since the income from other business is 3 lakhs (a net profit of 1 lakhs), will it still need audit by CA (the net profit is greater than 8% of turnover).
Nithin, Thanks for this initiative to simplify taxation issues. It is a very helpful blog.
Regards,
Poonam
Poonam
1. If your other business makes a profit of Rs 3lks and trading a Rs 2lk Loss, your net income for the year is only Rs 1lk, you can set it off in the same year and can’t carry forward the loss.
2. Basically when you get your books audited, you cannot keep trading and other income as separate. Everything gets combined and you need to have this audited.
Cheers,
Dear Nitin,
Could you explain, based on which report (from zerodha) total turnover will be computed? because when i compute from Profit Loss Report, turn-over value is huge than from Trading account analysis report( also called Client account analysis).
In Profit Loss report, each contract profit loss is listed monthly. but in Trading account analysis, profit loss is listed script basis yearly.
Best Regards,
Srinivas
Srinivas,
You will need to use the profit and loss report for this.
Dear team,
Kindly suggest the right way of filling the P&L in ‘no account case’ with:
Two F&O trades: Profit of 60000 in one and loss of 80000 in the other
Understand that the turnover becomes 140000, and loss of 20000
Can you please guide me in filling 51a, 51b and 51c i.e. Gross receipts, gross profit and expense? Understand that 51b doesnt take negative values, and 51c would include brokerages.
Nishant,
Firstly, i’d suggest you to consult a CA before going ahead with this,
Coming to your query,
Do read this blog first, there has been a change in section 44AD which has brought a lot of businesses under its umbrella including trading the markets.
What this says is that if your turnover is less 1crore and your profits less than 8% of the turnover you have to get your books audited. In your case since it is a loss you fall under this category.
51 a is gross turnover which is 1,40,000 in your case
51 b is profits and you cannot mention negative number here, this has to be 8% of the gross turnover atleast.
51 c is combined expenses.
You basically have 2 options now, show profit as 8% of your gross turnover or else have your books audited by a CA as prescribed by 44AD. When you have your books audited by CA, it won’t be a no account case, it will be a normal case. You can show your losses and carry forward this loss to set off against any business profit in the future.
As I mentioned earlier, do consult your CA..
Dear Zerodha Team,
I would like to know what is the tax percentage for commodity intraday / carry forward.
Commodity trading be it intraday or carry forward similar to equity futures is considered as a business income. So you need to add profits to your other business income or debit losses from other business income. You can also debit all expenses incurred towards commodity trading, after all of this you have to pay tax according to the slab you are in as mentioned on the blog.
Cheers,
Zerodha ,
as I have understood for calculating turnover of future and options procedure is absolutely same i.e. settlement profits+ settlement losses and there is no difference in turnover calculation of both.
Yes Dinesh,
But do consult with your CA
Hi Nithin, Om and team,
The P&L report which is generated gives total CONTRACT wise details. And this is what you said should be used to calculate the Turnover i.e. net profit + net loss of the TOTAL profit or loss of a particular contract. But I checked with my CA and he told me that the net profit or net loss is to be calculated per round trade basis on FIFO basis. So for an intraday trader it has to be calculated on daily basis and not on the CONTRACT total basis as what is showing in your P&L.
Kindly clarify who is right in this case.
Also he is asking for all contract notes from which he will copy the tradewise data to arrive at dialy turnover on Fifo basis
LTC,
Different CA’s have different opinion on this and what makes matter worse is that there is no guideline from CBDT on how to calculate turnover when trading the markets.
Our opinion is that settlement profits+ losses for every contract should add up to turnover. Turnover is a criterion to have your books audited or not, since there is a confusion, it is best to always have your books audited by a CA if you are trading f&O.
2nd : You could give him all the contract notes and let him calculate turnover that way, but our opinion is that it is not required.
Cheers,
Hi
The P&L Report for Fin Year 2012-13 includes April 2012 contracts which wer bought in March 2012 but sold in April 2012
The P&L report for the year 2012-13 shows only the sale value and treats this as gross receipt and gives an incorrect figure of turnover.
How do we treat this in our returns. Ideally we should be treating the purchases of March 2012 as our cost and reduce it from the sale value to get gross receipts / turnover.
Please comment
Shiva,
For these cases where you were holding contract before APR2012, you can use the opening price of the contract on April 1st 2012 to be your purchase price.
Hi,
I have trade in equities where I have mad intraday loss so I have to show it and what is the last date to file itr with showing it, and also having query for cash transaction, as I have did this loss for my friend, he was played in my account and incurred loss for that he gives cash which i deposit in bank and transfer to company. it is almost upto 5 lakh cash transaction, so in future IT dept can ask for the same .
Divyesh,
Last date is 31th July for those without audits and 30th Sept for with audits. In your case since you have done active equity trading and also made a loss, according to section 44AD you will have to get your books audited, so you will get time until Sep 30th.
Even if you deposit cash, you are accountable for the source.
Hi,
I am student trading in F&O with less capital of 10000 and having some loss. Also I dont have any other source of income, is it mandatory to e-file and if I dont what is going to happen.
Thank You.
Chan,
If you are trading in f&O it is best to file your returns and since you have a loss you would need the books to be audited by a CA.
You are a student and it might seem not required, but there is a small risk of you getting a notice if you don’t do this from the IT department tomorrow and it is best to avoid such a situation. IT department won’t know if you are a student or not while sending that notice.
All you need is the P&L statement from Zerodha, your bank statement and go to a CA, your job will be done in no time at all..
What is consequence if I get notice from the IT department. I am a student and dont have income over 2lk. What is going to happen if I neglect the notice in case I receive the notice, is any thing serious.
Can you see the last query on the blog just put up, gb333. Guess he has just received notice for not declaring. IT department in India is going online and all transactions are linked to your PAN and to your bank accounts. Advise would be to file your returns.
Cheers,
Thank you but sorry to say it was not my question.
Chan,
What I meant to say was that the consequence could be anything, you might get a notice or may not get notice tomorrow. If you get notice, then IT department can block your bank accounts very easily if you don’t pay the penalty..
Chan Aug 5 2013, 11:40 am
If I show F&O profit is more than 8% CA audit is not required am I correct.
[ Click to thank ]Reply
Chan,
This is a loophole that exists in the system presently that if your turnover is less than 1crore, you can get away showing 8% of this turnover as profits and not go through the audit. But this is not something which is advisable.
Hi,
I do have the following sources of income.
1. Salary from Job
2. Interest income from Fixed Deposits
3. Loss from Futures & Options
Q1 : Does the loss from Futures & Options can be set off against Interest Income from Fixed Deposits.
Q2 : I have filed my return through a tax consultant. He does say the loss from Futures & Options is Speculative loss and cant be set off against Interest Income. Is this correct ?
Thank You
Satya,
If you make a loss in f&O it is not a speculative loss but a business loss. You need to use ITR 4 or ITR4S for this.
Since it is a business loss, you can set off the loss from any gain other than your salary. So yes it can be set off against interest from FD’s.
Hi,
Could you please help me if you know any tax consultant for my case.
Thanks.
Satya,
You can check out http://www.taxiq.in
Cheers,
Hi,
I went back and asked my tax consultant to file for a revised return show it as business loss to get a refund.
His response was “please ask your broker to give me the notification of IT dept for the same”. Is there anything that you can help me with the details.
thank you.
Section 43(5) of Income tax act. It is very clearly mentioned if trades on recognized exchanges derivatives are traded, it is treated as a business income/loss. This year FM also calrified about commodity exchanges also, saying trading in commodity futures won’t be considered speculative.
I have received a letter from IT department. I have not filled the IT return from 2010 onwards. They give me 10 days time to proceed with the details for FY 2010-11, 2011-12, 2012-13.
I have no taxable income, I only do trading , but still now no profit made in yearly basic.
Please help me out. How can I proceed with that?
Regards
Gautam
Gautam,
This is the message that we are trying to tell fellow traders today, IT department is going online and these kind of notices will only go up in the future.
As far as your notice goes, meet a CA and firstly ask for extension in time, because 10 days may not be enough time for you to get 3 years details.
Doesn’t matter if you make a profit/loss trading f&O, you are supposed to declare the same. Your CA can file for your 3 years as delayed returns. If you have taxable income during this period, then there could be a penalty in terms of interest on taxes you are due.
Hope this helps
my turnover is below 1 crore and I also made loss during 2010 to 2012 , is it mean I should audit all my FYs before filing return ? How much it will cost for consecutive 3 audits.
44 AD is applicable from 2010, so yes it will be applicable. You would anyways need help of a CA because you are filing delayed returns. Around 10k should be a decent price per audit, but since you have 3 years, you might be able to push for a better price..
I have contact taxiq.in and sent the details ..lets see how much they will cost for the same
I am a salaried employee and also an active trader in F&O. I have incurrred losses in F&O of around 1Lakh, so I shall be filling the ITR4 form, is that right?
What is the last date for filing ITR4? Is it 5th Aug or 30 Sept?
Yes Girish, you can use the ITR4 and since you have made a loss, you will need the books to be audited by a CA as well, in which case the last date is 30th Sept..
Dear Sir, In case of a house-wife who has been frequently trading in F&O making profit in certain transactions & losses in others but cumulatively only loss in each year and having no other income, whether she is required to file Income tax return? Assuming that she has no income and the margin requirement for the transactions are with money given to her by her son and her husband and she has only overall loss in each year whether she it is still mandatory to file the return? If no return is filed for the earlier years whether can it be done now? What are the legal implications involved?
What is the last date for filing the return for the assessment year 2013-2014? whether Section 44AD is applicable for the AY 2013 -14 or for previous years also?
Chella,
Firstly the biggest mistake people do is to assume that no profits means no need of filing your income tax returns. It is mandatory to file your returns even if you are making losses year on year.
There are 2 things which can happen when you haven’t filed:
1. You get a notice tomorrow asking you for the returns based on the turnover you have done on the exchange. If you haven’t filed, the risk is that as per 44AD, the IT department may ask you to pay taxes with penalty considering 8% of your turnover as profits.
2. If tomorrow you make profits from trading or any other business, you will have to pay taxes on the entire gain and can’t use these losses to set it off.
Yes 44AD is applicable from AY2011-12
Last day for 13-14 is 31st Sept with audit.
You can file belated returns for AY 12-13 even now.
Hope this helps
Hi, I had two suggestions for this Blog:
1) Please mention at end of Blog that Queries have been updated as per the latest Jun8 articles so view queries after this date to avoid confusion.
2) Rearrange the page so that latest Queries are seen first and the last ones, or remove irrelevant queries which got affected because of Section 44AD Jun 8 additions to this blog.
Its very beneficial article and lets make it more apt 🙂
Girish,
We will be moving the blog into a completely new format very soon, zconnect was initially setup to train people within Zerodha and had not anticipated the popularity.
Thanks for the input.
Cheers,
Dear Zerodha,
The Equity Account Analysis gives ALL buys during the financial year and ALL sells for the deliveries, however it doesn’t give the loss / profit for the sell transactions. For example :
i) I sold 5 Reliance shares during 2012-13 which I had purchased during 2011-12, the account analysis for 2012-13 does not give me the profit / loss incurred over the above mentioned sell transaction, it just shows the net sale price from the sale of 5 shares and 0 purchases (since it was purchased in previous year)
ii) Bought 10 Reliance shares in 2010-11, 5 in 2011-12, 15 in 2012-13. And Sold 5 in 2012-13. The Account Analysis for 2012-13 would show me 15 in buy side and 5 in sell side, so you simply get a net value from 15 shares bought and 5 shares sold in the report and not a profit or loss for the 5 sold shares and also as per FIFO, the profit/loss (which the report does not calculate) should be calculated from the purchase price from the 15 shares purchased in 2010-11.
So I had to calculate the profit/loss of ALL such transactions manually. Can you please let me know if such a P/L report is possible on Equity Delivery Sell transactions where full or part of the concerned purchase is in 1 or more previous financial years ?
Thanks and Regards,
Bhavesh
Bhavesh,
Usually the P&L used for taxation will only give you for all transactions for that year. But I get the point you are mentioning, if you are holding shares from before. In such a case you would have to manually do this, atleast for now.
Let me speak to the CA and find out if there is anyway to provide more than 1 years in one statement, I doubt it though.
Cheers,
Dear Zerodha,
Thank you for your quick response.
1. A query on F&O MIS transactions which are objectively meant for intraday, so even this is not considered speculative, am I right or only NRML type order is considered as business income ?
2. It will be highly appreciated if such a report that actually gives the net profit / loss statement inclusive of the related purchase transactions from previous financial years as currently the Equity Account Analysis only gives the net purchases which could be same, less or 0 for the corresponding sold shares in the current year, for example if I bought 10 and sold 5 in the same financial year then too it wont give the net profit from the sale of 5 shares but instead it gives the net profit / loss plus the net value of the remaining 5 shares in the account.
3. Saw in this blog where it has been mentioned that you need to take the opening price of the current financial year in case of open positions from previous fiscal years, but I have found a different view that you need to take the original purchase price of the share and that too in FIFO fashion, so now I am confused with what purchase price should we arrive at the net profit for transactions spanning several years as you realize that if the net profit / loss is calculated incorrectly then the tax liability too can change significantly. For example with opening price as purchase price I may have 0 profit whereas with original purchase price I may have 1000 Rs. profit which should be taxed (if falling in tax slab), so is it possible for you to check and confirm this as its very important ? Since we need to know what thumb rule income tax department is following and we need to adhere to the same else there could be a tax default.
Thanks and Regards,
Bhavesh
Bko,
1. Irrespective of if you use MIS or NRML, trade intraday or overnight, f&O trading is considered as not a speculative but a business income
2. About hte P&L, it will be very tricky to show a previous financial year position in this years. But I have initiated the process to find out if it is allowed to do so, if we you are holding an open position.
3. Bhavesh, this can be done both the ways, considering original purchase price or you can take the value of all your holdings as per 31st March and then for the present year see your profitability based on that of 31st March. The reason we have mentioned this way is because it is the easiest way to file.
we have seen clients, if they are making loss as on 31st march on their open positions then they use our method and if the position is making profits as of 31st march they use the method you have mentioned which considers the original price. Both the methods are alright, remember there is no guidelines from CBDT on all of this, we have to use a method which we find it easy and be consistent to it.
Thank you Zerodha, this blog is invaluable and has been of immense help to us, really appreciate this effort !!
Dear Sir,
I think that a number of traders doing f&o may not be aware of Sec 44AD. Whether ‘Trading’ is not a profession? I think professionals are exempted from newly introduced Sec 44AD. Whether a person doing few transactions in F&O where the turnover may not exceed even two lakhs and having net loss, whether required to maintain books of accounts and got it audited?
Chella,
F&O is considered as a business, so like in any other business doesn’t matter how much your business is you have to file your returns using an ITR4 or ITR4S. The new ITR4 when you are using to file, if you try to enter a turnover and resulting profit/loss less than 8%, it will immediately show up an error if you are doing this with the no audit option.
Dear Zerodha,
I have filed using the ‘No Account’ case and of course ‘No Audit’ too and my profit is in minus (net loss) so it is less than 8% of turnover, but I did not get any audit error as you have mentioned or was it because i used “No Account’ case ? Meaning I would have got an error had I filed with ‘Accounts to be maintained’ right ? I realize I will get a notice since I have carried forward the losses using ‘No Account’ case and will need to do the necessary rectifications.
Thanks and Regards,
Bhavesh
Bhavesh,
The thing about notice again is that it is not a guarantee, last year apparently 10lk notices were sent and this year it should be higher. So you getting or not getting a notice is again a chance.
Hi,
I had very tough time in e-filing tax this year so I herewith request you guys to give step by step procedure in e-filing that helps in filing independently for those who have turnover less than 1crore and also dont need CA Audit (Please post in perspective of whose income is less than 2lakhs).
Thank you.
Chan,
During the course of this year, we intend to introduce a tool to help benefit all of you in terms of filing returns.
Cheers,
i have commodity loss of 10 lacs in year 2011-2012, i have carried forward so can i use it as adjustment against any other income (other than salary)in this assessment year?
Also i have 2 lacs equity derivatives loss this year so can i adjust it against commission income this year?
Yes to both your questions chica
chica Sep 25 2013, 9:14 am
thanks a lot but are u sure 2011-2012 commodity loss can be considered for adjustment this year?
[ Click to thank ]Reply
Losses once you have declared while filing the returns can be carry forwarded for 8 years and can be net off during this period.
oh ok thanks a lot
If i have purchased property in 2006-2007 for 25 lacs agreement & if i sell it in 2013-2014 for 1.75 cr agreement what will be the tax if i want to own another property against that same amount?. Also to let you know that i bought another property for 35 lacs agreement in joint with my wife with half of proceedings coming from her account, so can i buy another property against sale of the 1st property?
Chica,
As long as you sell the property after 3 years from purchase it will be considered as a long term asset. You firstly get the indexation benefit which in your case is (25lks/519)*939 around 45lks, the number 519,939 for calculating indexation is available on this link.
Out of this 1.75 cr – 45lks = 1.3cr can be invested into any other property and will be exempt as per time limit.
Yes you can buy multiple residential properties from the sale of your 1st property.
It is best to go visit a CA on this aspect and the above is just our view on it.
I AM A STOCK BROKER . MY INCOME FROM STOCK BROKERAGE COMMISSION IS RS 525000 FOR THE YEAR 2012-2013. MY GAINS & LOSSES ARE AS – SHORT TERM GAIN FROM EQUITY RS 27500 , INTRADAY TRADE LOSS FROM EQUITY IS RS 15500 LOSS FROM DERIVATIES IS RS 75500 . CAN I DEDUCT LOSS FROM DERIVATIES AND INTRADAY LOSS FROM MY MAIN COMMISSION INOCME .
Dinesh,
Derivatives trading is considered as a business profit/loss, so if you have made a loss trading it can be net off against your brokerage commission while calculation your returns.
Intraday equity trading loss is considered as speculative loss and can be set off against only speculative gains(intraday trading). So this loss you can carry forward by declaring and set it off in the future years whenever you make a profit..
MY TURNOVER IN DERIVATIVES INCLUDING OPTIONS EXCEED 1.5 CRORE . IS AUDIT IS COMPULSORY . IN P&L SHALL I COMPUTE MY DERIVATIES LOSS BY SHOWING SALES – PURCHASE TURNOVER
yes Dinesh, you will need to get your books audited.
I have been investor( buying equity shares only from public issue) for last 30 years.Since last June I started delivery trading from some other broker(Religare) and since 17 th July I started Intraday trading.From 16th Sept.I started trading from Zerodha. In june 2013 I sold 300 shares of Suzlon @Rs.9.5.These share were purchased 2 years back @ Rs 50. Now suppose I want sell ITC shares (purchased in year 1980 at face value).So please let me know how the loss in case of Suzlon and the profit in case of ITC (340 times of face value before indexing) will be treated for income tax purpose. After reading your blog I thought I should stop trading as a trader to get the benefit of long term capital gains.Please advise.
Viju,
This could be still kept separate, just make sure to clearly mention what is your long term portfolio and what are your short term and keep all contract notes etc handy to prove this if required in the future.
ITC will still be a long term gain which is waived off capital gains tax.
If you are actively trading, you can keep a short term trading portfolio, so this loss on suzlon can be showed as a loss on your short term portfolio and net if off against any gain you make which is short term.
Hope this clarifies..
Don’t you think that your 1st and 2nd paras contradicts your introduction of your blog.
“
Viju,
Keeping your long term trades and short term trades separate is very tricky and if tomorrow the taxman calls you for an audit, might be very tough to explain. A lot of traders keep separate trading accounts one for long term investments and one for short term trades to keep both the accounts separate.
This is a very tricky subject and since there are no hard and fast rules given by the IT department, tough to explain.
But do ask your CA an opinion on this.
Cheers,
Thanks,
I already have two seperate accounts.I should use only one account (Zerodha) for intraday trading
Many traders follow the practice of keeping delivery based and intraday/short term/f&o in 2 separate trading accounts. I’d say best to ask your CA on how to go about this.
Dear i am intraday trader in stock market. From 2009 to till i never submitted it return as i think i have each year loss. But my total TURNOVER of year is more than 2 crore each year from 2009. So is their any requirement to submit any document to Incometax dept. I have no profit any year.
Before 1 month their is notice from Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
After consultation from local consultant, I send reply of “Non taxable income for 2009-2010, 2010-2011,2011-2012.
On http://www.traderji.com website I read that for Intraday trader there is no requirement of to do Audit, which is required only for derivative trader.
From 2012 i am Senior Citizen.
Please help, any TAX AUDIT required if there is loss??
Is their penalty for 2009,2010,2011,2012?
please i am under very big tension …pl guide me, what to do next procedure???
URGENT
Answer to your queries:
1. Tax audit required if there is a loss?
Intraday trading is considered as speculative business and comes under the head of business and profession only. If you are doing this as a regular activity, you need to get your books audited.
Audit is based on your turnover and not based on whether you have made a profit/loss.
2. Is there any penalty?
By not declaring loss, you have forego the benefit of carry forwarding the loss and netting it off against future profits. File the returns now and whether penalty or not will be dependent on the Income tax officer, but as long as you have not tried to hide anything in terms of profits, you should not have a penalty.
Don’t be worried about it, the notice you have received is a generic common notice sent to many people who have purchased securities for more than Rs 20,000.
File all the returns from previous years(from 2009) right now and since there is a loss you will not have any tax as such to pay.
Also for the previous years, if your profit is less than 8% of your turnover or if your turnover is more than 1 crore, you will have to get your books audited as per section 44AD.
hopefully clears your queries..
what happens on profit of sale on 2nd residential property before 3 years as well as after 3 years.
The property is in joint name (both giving 50 %) So do both have tax benefit or both can deposit 50 lacs each in Capital gains account or bonds to save tax? please let me know
Thanks in advance
If you sell the 2nd property before 3 years, the gain exempted earlier will be taxed.
Each person is an individual assessee and he can get benefit of upto the extend of investment. So yes if both have invested 50%, both can get benefit upto that extent.
Cheers,
Is there different criterion for audit and mandatory keeping of books like cash book and ledger? I mean when is keeping of books mandatory?
1) Speculative losses can be carried for 4 years?
2) speculative losses can only be set off against speculative losses and not any other head, even in current year
3) a) Business Losses (F & O) can be set off against any loss (including FD interest) other than salary in current fiscal (same fiscal)
3 b) including speculative profits?
4) Business Loss can be carried for 8 years, and can be set off only against business income in those 8 years and not against FD interest etc?
Is my understanding correct
For turnover calculations long term delivery buys (which will not be sold) which will be kept for more than one year is not considered?
Or
We have to take the rate as on closing of 31 Mar to calculate the profit and loss? If that is the case how can we claim benefit of 0 tax under Long term cap gains?
Abrar,
The turnover calculation comes into play only for deciding if your books need to be audited or not. Since there is no clear rule on how to calculate turnover, my advise would be to keep your books and have it audited to avoid getting blanket notices that IT department has started sending from this year, especially if you are an active trader.
Yes you can keep your long term buys in a separate ledger and not consider that for turnover calculations for your active trading portfolio. So you need to clearly demarcate between the trading and investment portfolio.
1. Yes speculative losses can be carried for 4 years.
2. Yes.
3. a. yes.
b. No, you can’t set off the business loss against speculative profits.
4. Yes, the FD interest also can be set off, only the salary income is what can’t be set off.
Under what conditions book keeping (ledger and cash book) is mandatory for a trader of F&O and intraday equity whose turnover is less than 1 crore and profits >8% of turnover?
If turnover is less than 1cr and profits more than 8% of turnover then audit is not mandatory. But if profit is less than 8% of turnover, audit becomes compulsory.
Cheers,
Suppose I trade in Oct nifty futures 2013 contract, say I have traded 4 times in it on different dates
trade 1 profit 1000 (1 oct 2013)
trade 2 profit 500 (3 oct 2013)
trade 3 loss 500 (4 oct 2013)
trade 4 loss 500 (4 oct 2013)
So my turnover is a) 1000+500+500+500
or b) net settlement of the contract which is 500?
As I had mentioned earlier Abrar, this entire calculation of turnover is pretty tricky as there is no guideline from the IT officials, my advise would be to consult a CA, but in the example I’d consider the net settlement profit of the contract which is Rs 500 as the turnover.
Cheers,
Thank you for the prompt reply. In your back office report the net receivables and payable the amount is as per settlement profit/loss of one contract as in the example above, or it includes the profit and loss of each trade?
It is as per the settlement profit/loss as per the above example
Hi OP/TAXIQ, A case of property, please reply as per the facts given below
FACTS:
1) Original Buyer (husband of present owner) bought 4 Katha 10 Lecha land on 04 Sept 1981 for a consideration Amount : Rs 4000
2) On death of original buyer land transferred to his legal heirs-wife (X) & son (Y) on 21.5.2011
3) Sold part of transferred land measuring 1 Katha 5 Lecha on 1 Oct 2013 for an amount Rs 10,00000. This amount paid by cash.
QUERIES:
A) What will be the capital gain tax on this amount (10,00000). Whether it will be short term or long term capital gain tax? How is it calculated? Please give the breakup. Please note both wife (senior citizen) and son annual income is 1,50,000 each.
B) Will wife and son have to share the tax equally, as both are now joint holders of the land.
C) Can they save the tax by constructing a new house on the vacant area of existing plot of land. If yes, during construction where should the money be kept (I mean any special account or just normal savings account)? What documents are to be kept as a proof of construction of house? What is the time limit for construction of the house?
Thanx in Advance
There you go:
1) Original Buyer (husband of present owner) bought 4 Katha 10 Lecha land on 04 Sept 1981 for a consideration Amount : Rs 4000
In case the Property is purchased on or before 01.04.1981 the cost of the property or fair value which ever is higher should be taken as cost of the property. In your case the Property is purchased after 01.04.1981 then its Rs 4000
2) On death of original buyer land transferred to his legal heirs-wife (X) & son (Y) on 21.5.2011
On the death of original buyer its inherited to his legal heirs 21.05.2011. In that case though the asset remains long term the indexation will be from 2011-12 financial year only.
3) Sold part of transferred land measuring 1 Katha 5 Lecha on 1 Oct 2013 for an amount Rs 10,00000. This amount paid by cash.
You can apportion the total cost to cost of land sold, The amount received is sale consideration for the purpose of capital Gain. It doesn’t make differentiate whether its received cash or cheque.
4. What will be the capital gain tax on this amount (10,00000). Whether it will be short term or long term capital gain tax? How is it calculated? Please
It will be long term gain … For Calculation do visit Some Consultant who can help you with the same.
5. Will wife and son have to share the tax equally, as both are now joint holders of the land.
As per Income and slab, taxes will have to be calculated.
6. Can they save the tax by constructing a new house on the vacant area of existing plot of land. If yes, during construction where should the money be kept (I mean any special account or just normal savings account)? What documents are to be kept as a proof of construction of house? What is the time limit for construction of the house?
There are various capital gain Schemes, one of them is opening a Capital gain Special account and is not your normal saving account. The Time limit is 3 years to Construct.
@ zerodha,
1) In your equity reports (back office) for intraday the net receivables and net payable are not settlement profit and loss, they are value of buy and sell. That way if we add the net payable + net receivable the turnover is huge. But in the taxation blog you have always said that turnover means settlement profit + settlement loss, please explain how to get the settlement profit and settlement loss for intraday equity? In commodity MCX and currency I do get the settlement profit + settlement loss as net receivable + net payable but not in Equity report, so kindly clarify
2) Does TOTAL TURNOVER mean settlement profit + settlement loss of (a) eq intraday + (b) short term trading + (c) fno + (d) currency + (e) commodity Or, eq intraday is to be excluded
Smart,
1. Presently the equity reports won’t differentiate between delivery and intraday, we are working on this. You would have to presently manually show which is intraday and which is delivery.
While trading delivery , the credit and debit adds upto turnover and not the settlement profit and loss and hence the equity report shows that as turnover.
2. As mentioned above, in case of equity delivery based trades the money gets debited from your trading account and then gets credited, so you need to consider this as turnover. In all the other cases, money stays in your account and margin blocked and hence only settlement profit+settlement loss adds to turnover.
Cheers,
please clear the doubts.
case 1: a 30 year old man with annual work income of 4 lakh(gross) and net pay of 3.8 lakhs.
net profit from sale of shares within 1 year is (say) 20 lakhs.
case 2: a 30 year old man with annual work income of 4 lakh(gross) and net pay of 3.8 lakhs.
net profit from sale of shares greater than 1 year is (say) 20 lakhs.
case 3: a 81 year old man with no annual work income.
net profit from sale of shares within 1 year is (say) 20 lakhs.
please tell the tax to be paid in all the cases and how u calculate it…..thanks
Tax calculator is available on the income tax site: http://law.incometaxindia.gov.in/DIT/Xtras/taxcalc.aspxIn
Case1: You have capital gain of 4lks and Short term capital gains of Rs 20lks. Short term capital gains are taxed @15% and the 4lks will be taxed as per normal tax calculation. So net tax will be around 3lks.
Case 2: Since your profit of 20lks is on shares held for more than 1 year, it becomes long term capital gain, this is exempt from taxes. You will have to pay tax only on your 4lks salary, which based on the calculator will be around 20k.
Case 3: Since there is no other income, you have to pay short term capital gain on 20lks
Hello,
15% tax for short term capital gain tax under section 111A
what does that mean?
Tharun,
Short term capital gain is basically the profit you make from short term trading in equities. By short term in India means equity position you take and sell anytime before 1 year(even intraday trading), if you hold it for more than 1 year it is called long term capital gain for which there are no taxes.
It’s confusing here please clear
I have bought Ibreal in futures about 10lots and got profit of 6lakhs in carrying forward the position for 3 months and in the same year I have bought equity share and kept it hold for 4 months and got profit of 4 lakhs..
What is my tax liability?
Should I show myself as trader or an investor for two different trades…
Over all I have profit of 10 lakhs for which tax slab my case fall Short term capital gain or business income..
I don’t have any source of income and this is my only source of income
Aijaz, in the case you have mentioned, since you trade f&o you will need to consider your trading as a business. So this profit of 10lks should be added to your all other income, since you have no other income, your total gross profits is 10lks. In this 10lks you can reduce all the expenses you have incurred towards trading, internet, brokerage, phone, computer depreication, or anything else (assume this is 1lk). Now your net income is Rs 9lks, 0 – 2 lks 0%, 2-5lks 10% so 30k, 5lks – 9lks 20% so 80k, your total tax liability would be 1.1lks. This could be planned much better, so do speak to a CA.
Hi,
Thanks for creating this blog and answering queries.
Hi
I am a student(age-18+) in college, my only source of income is by Teaching tuitions, whatever money i earn part time i invest in F&O(derivatives) and commodities and try to earn whatever possible.
From above reading i inferred that i belong to trader category and not an investor.
Am i supposed to file ITR-4 form?
I have started trading since Oct, 2013,
How should I file my ITR for March, 2014?
Please help me out.
Thanks in advance
Regards
Yes 47,
Once you start trading actively, you are like a businessman no matter what your age or what you do.
Since you have just started trading, the returns for 2013-2014 has to be file by next year september, you have to file them only once the closing of financial year which is 31st march 2014.
Until then there is nothing you have to do, but make sure to keep a tab on all expenses you incur towards the business of trading, it can be shown as a business expense and would bring down your taxable income.
Best of luck,
I have started trading this year in June (2013) and this will be the first time I will have to take the help of a Chartered Accountant to file returns (I have been filing myself so far). I am not sure which Chartered Accountant to go to . I live in Chennai. Would you be able to point to someone/some firm? I understand that I will engage their services at my risk and responsibility, but I need some contact.
You can ask the CA who has helped us put up the blog : http://www.taxiq.in , they should be able to help you out.
I have understood all these matters which u have considered in your blog …..it is a ultimate blog for gaining knowledge of the taxation of derivatives.
I am also a CA student ….almost 90% of CA’s does not know about the proper treatment of derivatives.
i have 2 queries which is quite common ..but i m not getting the proper reply for that from any CA :-
1) what is the purchase & sale value to be disclosed in ITR 4 (Loss amount as purchase & profit as sale OR total of all sales contract as sales & purchase contract as purchase …as per you gross receipts means total of profit & Loss then how we will adjust to come to actual profit ) in case we are getting it audited under section 44 AD .????
2) Can i take depreciation of car as expense because we have to go brokers & bank for the purpose of submitting papers ?
and one more thing you have told code for derivatives other’s- 0204 …it may be of other’s – 0809 because it is below share brokers , banks & financial institutions ????
Gupta,
Most of the traders I know use the code 0204, because it is for trading generally and easier to categorize trading the markets in this code.
0808 and 0809 according to me seems more like for stock brokers and financial services business, not for a retail trader but for someone like Zerodha(stock broker) to file returns.
Gupta,
The tricky thing about calculating turnover is that there is no said guideline from the IT department especially while trading the markets. So if you are calculating for f&o or equity intraday, one of the ways to do it would be by summing up the settlement profits or settlement losses for every contract or stock. In case of equity delivery based trading, calculating turnover is simpler, basically sum of all debits or credits because of your purchases and sales of shares.
To come to your actual profits, you could take the PNL report from the broker and then substract all the expenses to get to your actual profit, the simplest way to do so.
Yes, you can depreciation of car as long as you think it is being used for the business of trading the markets. The idea is to be consistent with your expenses year on year and not to randomly add or remove expenses.
Cheers,
Hi i trade only in mcx commodities i have incurred losses for last 4 years. I have been filing returns thru CA every year. I want to know for mcx how many years i can fle losses 4 years or 8 years
?
Trading on derivatives on either of the exchanges can be considered as a business income, so you can ideally carry forward these losses for upto 8 years.
Dear Nithin,
Filing the capital gains every year is a big head-ache. If you could add a software integrated with back office for capital gains, then u will be having a great product at hand and it will differentiate u from the crowd. give a serious business thought here…….
Makes sense Francis, we are working on our new backoffice, and we will have a full fledged capital gain report for you on that.
Dear Nithin,
Is your back office ready now with capital gain/loss report?
yes, can you login to bo2.zerodha.com, we have another report along with the P&L just for taxation that will be released within this week.
what should the returns be filed under, my CA is filing it under the heading Loss from speculation business, is that correct?
Until now what head to file returns while trading commodities has been ambiguous, the Fin act 2013 has clarified it saying it will be a business loss/gain and not speculative loss/gain. How you declare your previous years, hmmm I’d personally consider it as a business loss, but it is best to follow what your CA says.
Dear team,
I wanna book a LTCL from sales of stocks. I understand from your article that this can only be done if the stocks are sold in an off market transaction. In this context could you please clarify the following:
1. May I sell to my spouse and book the capital loss?
2. May I sell to my son and book the capital loss?
3. At what price should I sell the stock – market, lower/higher so that the transaction is not considered shady?
4. With respect to the off market transaction, is it as simple as handing over a DI slip marked “off market” to the DP with proper instructions at the sellers end and a receipt instruction to the DP at the buyers end with matched details and a cheque to the seller for the appropriate consideration?
5. What must be shown as the purpose of the sale?
6. Are there any specifics which I must be careful about so that the loss is not disallowed?
Regards
Arpit
Hey guys, anyone care to help me out here, Nitin?
sorry Arpit, had missed this one.
yes you can sell it to your spouse/son and book capital loss. It is best to have this transaction at around the market price of the stock, to avoid any issues in the future.
Yes all you have to do is use the DL slip and transfer it to the other account, and get the cheque for the amount in return. Make sure to document all these transactions properly.
Purpose of the sale could be the need of capital for whatever purpose you have. You could speak to your CA about this.
As long as you document this entire transaction properly, there should not be any issue. It is best to double check with your CA on this.
Cheers,
Hi,
I am a real estate broker and wanted to know how much Tax I would be required to pay if I earn a Brokerage between 1 to 2 Cr. Please do reply
buddy first of all tell me how can i make that kind of money 🙂 .
Hi Ashvin
well real Estate has all the benefits of a lottery but its very hard to crack these deals…I am still trying.
Monty, We are keeping this post for discussion on taxes while trading the stock/commodity markets. But if you look at the post above, the tax slabs are mentioned, you will have to pay taxes according to those slabs.
Okay Thanks a lot I will try and find the above post ….TC
Nithin , I think you are making a big mistake – For those who are in the business of futures and options and are declaring profits(or losses ) less than 8% of turnover(as defined ie absolutes of profits + absolutes of losses) you have been mentioning that they too need to get their accounts audited even if their turnover is below the 44AB limit of 1 Crores.But I urge you to please see the guidance note issued by the CA institute on 44AB page 30 which mentions that this will not apply to a person carrying on profession as referred to in sub-section (1) of section 44AA;Now if you see this 44AA(page 33) you will find “(vi) Stock and share broking and dealing in shares and securities – CIT v.Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom)” . I suggest you please clarify this so that those who are below 1 Crs to limit but whose profits are <8% need not get their accounts audited at all (not just tax audit but no need of any audit ) .
Hi Common,
Have been advising everyone, that they need to consult their CA before taking any decision on this. Multiple people I have spoken to have different views on this. Last year many traders received notice for defective returns, and it was mainly because of the applicability of Section 44AD. That is when we ran another post, saying that if you have received a notice, it could be the reason.
The reason for us to take the view was because, trading is not really mentioned as a profession anywhere. As per 44A profession defined are legal, medical, engineering, or architectural profession or profession of accountancy or technical consultancy or interior design or any other as is notified.
The case study you are referring to I guess is relevant to a stock broker, and not a trader. But as I said, it is our view, and as a trader when we already live in a stressful environment, it is always better to be safe than be hassled later.
Cheers,
Nithin
I do not deny that in its zest the IT dept is sending out 139(9) notices to even those below the 1 crore limit if their profits are below 8% (i am one of the recipients) .This however does not lend sanctity and is not legally tenable.
I repeat that there can be only 1 truth and not multiple versions of the same truth.Many CAs can have many opinions but that’s a derivative of their stage of learning and their stage of evolution.I am not faulting your advise that everyone consult their own CAs but when you post for Zerodha you need to stand by your advise .Now you raise a question on whether trading is a profession . I urge you (and I have done the same and I am also a trader) to read the guidance note prepared by the CA institute on 44AB and I urge you to ponder a bit on the exclusions in Sec 44AA (I have given page nos in my prior post) and its clear that trading is as much a profession as is architecture or accountancy or painting or technical consultancy.
Now I come to the actionable – yes consult your own ca is a good advise but in that case there is no need at all to give prior pointers.I think what you may wish to do is to look up the ca institute note on sec 44ab(google it and u will find this)and make a professional decision.Else get the view of one respected ca firm from the top 10 and let them give it to you in writing and you can publish it with their name and view.
Cheers from the common man.
Hi Nithin,
So thoughtful of u to post on one of the confusing topics.Keep up the impressive work.
My query:
the post clearly says that I have to take a stance either as an investor or trader, before looking at the taxes I should pay.
1)What is the thumb rule that distinguishes a trader from an investor?
2)I am a beginner.So , my capital,profits,losses,turnover, everything is less than 2lacs. I buy equities only and hold some stocks for more than a year…while some stocks i sell off within a year….Now, case1:I am an investor.So i need to pay 15% taxes.
case2:I am a trader.So My total income is less than 2lacs…so i am exempted from taxes.
which of the above two cases is apt?
1. There is no thumb rule as such when trading equity, but if you are trading futures and options, currency or commodity, you have to declare it as trader. But if your activity is the way you have described, you definitely look like an investor to me. 🙂
2.
a. Since you are an investor, for all long term profits(stocks that you held and sold after 1 year) the taxes are 0, and Short term capital gain tax is 15%( bought and sold before 1 year).
b. If you declare the same as a trader, you need to add any income from trading with any other income of yours including salary, and pay tax according to the slab you fall in as per IT department. But yes, if trading is your only income and if it is below Rs 2lks, there will be no taxes.
Hopefully this clarifies,
Hi Nithin,
Thanks for the superb explanation. I am happy and greatful.
Ofcourse clarifies! 🙂
Taxation Simplified indeed.
Keep up the good work. 🙂
I have no other income except F&O
I have 5 lakhs of Gross Profit and 2.50 lakhs of losses
Nett profit 2.50 lakhs
In which columns of ITR 4 would the 2 entries be reflected while filing my returns ?
Thanks for advising
Shravan, The ITR 4 is not designed specifically for F&O trading, it is used generally by all businesses. Your gross profit, show under Sales and Gross loss as purchases. Brokerage, taxes, and other charges has to be shown separately on the ITR.
Hi Nithin
Logically what you are saying makes sense but technically speaking, there is no actual purchase or sale.of any goods.
In view of this are you still sure that returns should be filled as advised above
Thanks for advising
No ITR has anything specific to trading the markets, so while filing returns, everything has to be done using logic only 🙂 , But you can should have a word with your CA once..
Cheers,
Hi Nithin thanks for the reply.
In fact I would request that the moderators or anyone having a personal link with a senior IITO, to ask them for clarifications on the same to settle the issue once and for all.
I had approached the helpdesk in ITO office at Bangalore, but they were unable to give me the reply as I had approached them as an individual.
I had discussed 2-3 CA whom I knew personally, and all 3 gave 3 different views ranging from what you suggested to showing it as other income to showing just the profit as the sales when I filed my returns last year
I trade actively on stock market,both in intraday and short term . I am also a salaried individual and as part of income tax filing my company has asked me to submit form c before mid feb 2014 ,which will have details of all investments made for last year. They would need this to deduct appropriate tax from my salary for month of feb and march.
In this regards, I had the following questions:
1)Do i need to submit details of my share market trading to my company as part of form C? Or i will have to declare this while filing of Tax returns?
2) I trade only in stocks and not in F&O. Please advise which ITR form I should use?
I have not yet approached a CA for this and want to understand if Zerodha provides assistance in tax filing ? If yes please let me know where i can get additional details.
27 Jan 2014 at 05:26 PM
shravank30
Form C I am presuming is details of your investments under Section 80C so that they can give you the rebate to the extent of your investment from your taxable salary income.
1. Your share market transactions details need not be given to your employer. You can calculate the profit and pay taxes accordingly when filing the return.
2. As you have intraday trades, the same falls under speculative income and as such you will have to file using ITR 4 form
The above answer was from Shravan, and he is absolutely right.
@Shravan, make sure to click on reply rather than typing as a new comment, the other person wont’ get to know.
Hey thanks a lot for the prompt reply.. Very much appreciated..
hii,
As i am beginner , i tried everything i.e. Equity, F & O, Currency (futures n options). My loss from sharekhan trading account is around 50,000.(which i opened in june 13) and i have profit from Zerodha account around 10,000 (which i opened in nov 13). My total loss in F & O is more than 8%. Being a PSU employee my tax is already start deducting by my employer for FY 2013-14 . Now my question is
1. Should I have to show this loss to my employer , if no then when and how I have to fill Income tax. what is the date of filling ITR. Can loss and profit of two Demat account will be clubbed?
2. Is Book Audit required in my case because F & O loss is more than 8%. If yes how and through whom can i done audit. What will be the procedure of Book audit.
3. Which IT from is right for me as i m a PSU employee and salary is the only source of my income .
Thanks in advance.
Hi AKS,
1. Ideally you should tell your employer that you will file your own returns, no need of disclosing to them your profit/loss from trading.
2. Yes losses and profits from multiple accounts can be clubbed.
3. What I’d suggest in your case is, since your turnover seems very low even though you have made a loss, declare 8% of the turnover as a profit. So if you have done 1lk turnover, declare 8% which is Rs8000 as profit, this gets added to your other income, and your tax liability might be as little as Rs 1000. If you get the books audited, the cost might be much higher.
4. You need to use ITR 4, even though you are an employee, because you are trading on f&O
Hopefully this clarifies.
hiii
Is it true about the section 44ad that account needs to be audited if turnover is less than 1 crore and if there is only losses….It looks sumthing wrong with the system.
Could you pls. clarify?
Mahadish,
Yes, if turnover less than 1crore and profits less than 8%. Do check this blog and a bunch of queries posted with people who have received notice for this.
Ya…i read the blog completely….I think there is sumthng wrong in the taxation system…
Is it normal people who hav received it who does not trade with turnover of mr than 1 crore….or might be its only people who has more than 1 crore turover received it….
No Mahadish, many people with turnover less than Rs 1crore have received it, check out the last person who is a CA student in the Q&A. There is something seriously wrong, and we have already represented this to the IT department.
OK buddy…Thanks…
Is the notice received to people who only are in share market?
Or are they working proffesional too who do part time in stock market…
Everyone, notices are going to all kinds of people, I guess all these are auto generated notices.
Sir I got notice for It Tax dept for “Non filing of Income tax return” from 2009.(Information code :- CIB-321, Description :-Share transaction 20000 or more)
I am share trader from 2008.I invest in market 50000 rs. in 2008.My total turnover is 1crore in 2009-10 and 2011-12.I am private tuition teacher my income is 10000rs per month so not file itr for 2009-10 and 2010-11 and 2011-12. when i go to it dept. they say u got penalty on r ur turnover.
pls give advice.
Priya,
Firstly you need to check if your turnover is actually above 1 crore. The blog explains how to calculate the turnover, do that first to check what your turnover is for those years, and let me know.
Whether the turnover is above 1 Crore or below 1 Crore is secondary.
The cardinal error he has done is not filing returns at all even when he has done stock market transactions during all these years.
sir if i have not filed my returns, can i simply start afresh from this year? i’ve been into trading for 3 years, but all 3 years in losses.
second, can i show brokerage paid to Zerodha as expense?
Kumar,
Firstly make sure that you are filing from this year on time, about your previous years can you tell me your approximate yearly turnover. Yes brokerage, software fees, tips, etc etc, all can be shown as an expense…
turnover for sure greater than 1cr. and i’ve traded only in futures.
could u pls tell me what to do if turnover is less than 1cr. since the 1st 2 years my turnover is less than 1cr.
Kumar, you can even now file delayed returns for year 2012 and 2013 if your turnover was less than 1crore(audit not required case). As I have mentioned above make sure you are calculating turnover the correct way, trading volume is not turnover. If your turnover is more than 1 crore for these 2 years(audit required case), the only way you will be able to file now would be if in case you receive a notice from the IT department.
Kumar, Turnover is not the contract turnover, it is the settlement turnover, you need to calculate it the way it is explained on the blog.
i’ve purchased metastock software directly from thomson reuters for around INR 85000. can i claim depn on this or should it be treated as business expense?
Kumar,
If you have purchased this, you can claim 60% of this Rs 85k as depreciation in the 1st year, if you have rented it then the entire 85k can be treated as a business expense.
Hi…
I am basically a long term investor, holding stocks from 90’s. I have sold few stocks this year (worth 12.5 lac) which I was holding for more than 20yrs. I might sell few stocks holding from long term in the coming years also. This year I just tried trading in derivatives. I bought 2 lots of dr reddys and made a profit of 25k. Please tell me how the taxation be. This is the first time I am trading in futures, I normally dont trade in futures. I have gone through the blog above and got a fair idea on the same.
But I want to have a concrete idea on taxation part for the case that I will sell the long term holdings in the coming years and want to frequently trade in the futures segment … How should I file the returns. What should be my status trader/investor. For example say I sold 10 lc worth shares(long term holdings with profit of 9.5lac) and made a profit of 5lac in Futures…
Regards
Dil Mohan
Mohan, you can actually consider yourself as an investor cum trader, investor because you are holding long term investments. Show 2 portfolios, 1 as long term and one as trading. Show all your trading activity in futures in the trading portfolio, one of those things that you can do to be safe is do all your intraday equity trading in a different demat&trading account.
This way you can claim all the benefits of exemption on all your long term gain, and still do futures trading. Hope this clarifies, do consult your CA about this.
Cheers,
Hi Nithin,
I have started trading only from May 2013 in futures segment and little in cash segment(intraday). So I understand that I come under trading business. My turnover is more than one crore definitely, but I do not have a record of what I did all this while. No journal, no cumulative P/L, nothing whatsoever .. How do I determine my taxable income?
Just to confirm, I have time till September 2014 to file returns, right?
Thank you.
Vijay,
If you have started trading from May 2013, the financial year end is March 31st 2014, you have to file all your returns only after Mar 31st. Turnover is not your contract turnover, it is settlement turnover, so ensure that you understand that correctly. The only need of turnover is to determine if you need an audit or not.
P/L statement will be available from whichever broker you are trading with, and shouldn’t take you more than 10 mins to determine profitability for taxation.
Most of what you need to do is already explained in the blog above, and yes you have time till Sep 2014 in case your books have to be audited (turnover more than 1 cr).
Cheers,
with regard to showing business expenses, brokerage can showed as business expense. but what about the other charges such as-
turnover charges
stamp charges
service tax
STT
SEBI charges
can these also be claimed as business expense?
fyi, i am a futures trader. ty
Everything other than STT can be shown as an expense.
to ensure smooth calculation of taxes hereafter, what details do u require us to maintain? ty
You will have a PL statement from the broker, so you just have to follow book keeping, which is basically make a note of credits/debits on your bank statements and for what purpose it is, if it is for the purpose of trading, make sure you keep a receipt of it, so that you can claim them as an expense and have it as a proof if questioned tomorrow.
It is actually a very simple process.
sir my primary source of income is through futures, so my income is treated as business income. so if i buy a car in my name, can i claim depn on the car? secondly, can i claim interest incase the car is bought on loan?
Yes to both your questions Vishal.
Dear Sir,
Can you help me understand the meaning of audit? You have mentioned that if turnover is greater than Rs.1 crore, an audit is required? What exactly does it mean?
Jayesh
Audit basically means, that whatever you are filing is confirmed & signed by an auditor(CA)
sir u have mentioned that broadband internet expenses can be showed as business expense. but the bill that i receive includes telephone calls also. can i show telephone calls also as expense or strictly only broadband expense? thanks
Vishal,
As long as you can prove tomorrow that those calls were for business purpose, you can show that as an expense.
can business expenses be carry forwarded? if yes, for how many years?
Vishal, Business expenses are as good as losses, and if filed on time can be carry forwarded for 8 years.
in the blog u have mentioned – “Under section 271 B, failure to submit the tax audit in time has a penalty of 0.5% of turnover or Rs 1.5 lakhs, whichever is lesser.”
my question is, incase i am NOT under audit case, but filing after due date, what is the penalty?
thanks,
hemal
Hemal,
If a return is submitted after the due date, the following consequences could be applicable:
1. The assessee will be liable for penal interest under section 234A.
2. A penalty of Rs 5,000 may be imposed under section 271 F if belated return is submitted after the end of the assessment year.
3. If the return of loss is submitted after the due date, a few losses cannot be carried forward.
4. If the return is submitted belated, deductions allowable under certain sections will not be available.
thanks sir, just 1 last thing. penal interest under 234A will be calculated on what? turnover or taxable income?
All penal interest will be calculated based on the income tax payable.
Sir how to calculate turnover in share market.
Priya, it is explained in the post above, also answered in detail on multiple queries in the Q&A section above.
I do on and off trades in futures buying stock and sells them when they are in profit or sometimes loss and or carry forwarding them also and simultaneously in same account I keep the delivery of equity of stock for 2-3 months ….
I’m in profit from stock futures and I have earned from deliveries of equities.
Should Gains of stock future fall in general tax slab? And gains from equity stock which I keep for 2-4 months fall in short term capital gain slab? or both fall in same slab ?..what should I show myself while filing it returns trader or investor…
You are doing a wonderful job by helping newbie like me who doesn’t know anything about taxes please clear this confusion also
Yes Hafiz, you need to consider yourself as a trader, so any income made from trading should be added to your any other income, and tax paid according to the slab you fall in.
Equity short term, if you are an active trader you have to show it as a business and hence it will also fall in the general tax slab. But if your short term trading is small, you can maintain a separate portfolio, and pay according short term capital gain.
I’d advise you to show all trading activity under the head of business, add it to your other income and pay accordingly. Make sure to show all your trading expenses as well..
Thanks sir for your immediate reply..
Please make it more clear
I have done 3 trades of delivery based in equities in full year and their volume turnover was 1 crore in fy13/14 and futures stocks I have done 11 trades in fy13/14 and the volume turnover was 6.5 crores..
In future stocks I have earned 3lakhs and in delivery I have earned 8 lakhs..
So have revealed every trade above
Please tell me should I file returns and show myself as trader for all trades and fall in normal tax slab or I have file different for delivery based trades whose delivery time was 1-3 months..
Sir you didn’t reply this please clear this situation
Hafiz, you are an active trader, so it is best you show both the activity of trading stocks and F&O as a business. So add this to other income, reduce all the expenses incurred for trading, and pay tax as per normal slab.
Cheers,
Thanks sir in this case my turnover settlement profits + settlement losses for individual contracts of f&o is 30 lakhs but I’m confused about equity here now !
Do I have to calculate equity turnover same as I did in f&o then it’s 10lakhs…
If not then purchase value + purchase sale= 90 lakhs
1) if I show myself as trader then my turnover would be 1.2 crore(equity 90lakhs +f&o 30lakhs) or 40 lakhs(30fno +10 stcg)?
2) if I show this as individual stcg 8lakhs x15%=90k tax
Then what be the tax for my f&o profit if it’s say for example 5 lakhs?
Can u calculate for me please and clear the stcg clubbing issue also..
Thanks a ton in advance
In case of equity, the turnover will be purchase value + Selling value = 90lks
But here is the thing though:
If you are choosing to show equity trading (short term and long term) under capital gains head and not as a business income, you will have to pay 15% as STCG and this turnover won’t add to your business turnover(F&O turnover).
If you are choosing to show equity trading also as your trading business, then you will need to add 90 lks to 30lks, so 1.2 crores, and pay taxes according to the slabs. But the good thing here is that you can claim on all your expenses.
Whatever stance you take, it is best to stick to it for long term and not keep changing it based on your convenience.
Cheers,
Hi, Regarding the expenditures to be offset against business gains, how can we determine and declare the depreciation of laptop? Which document is required?
The maximum depreciation that you can claim on a computer is 60% per year, so if you have bought it at 30k 1st year you can claim depreciation of 18k, 2nd year 60% of this 18k, and so on. Keeping an invoice/purchase bill of the computer would be good if tomorrow you are questioned about this.
Cheers,
can i incorporate a private limited company to trade futures? or does it need to be done only as an individual?
You can have a private limited trade the markets (stocks, futures, options, commodities, currency), but you need to include a line in your MOA and AOA saying that you intend to do so while forming the company, and if you have already have a company, your CA can include this onto the MOA and AOA
Hi,
Thanks for your earlier reply. I need to file my income tax return for AY 2013-14. I’m a salaried person and my employer has deducted tax at source and produced the Form 16. I engaged in cash, 3 instance of FnO and commodity trading(no-agricultural) and had losses of around 28K (10k for Cash, 500 for FnO and 18k for Commodity) in FY 2012-13. I understand that I cannot carry forward the losses now as I’ve missed the deadline. I contacted several CAs and Tax consultants but got such contradictory responses that I’m a totally confused now. My net transaction in derivatives section(from the ledger) is around 2.2 lacs as credit and 2.5 lacs as debit. I believe my turnover is much less than 5 lacs. So in this case do I need to go for tax audit? Some tax consultants have told me that doing tax audit now and submission will attract penalty. If you please advise what documents need to be prepared as “books of accounts” , who can do that(CAs or Tax consultants) and whether they need to be submitted to IT dept or can be kept for future reference. I’ve been quoted ~Rs 8000 for tax audits by CAs and around Rs. 4000 for preparation of books of a/cs and filing of ITR>. Are these reasonable rates?
Thanks
Hi S,
Yes the time has passed to have filed your returns to get the benefit of carry forwarding your losses.
You can file delayed returns, and if your turnover is what you are mentioning, what I would suggest is that instead of showing loss show gross profits for 2012-13 of 8% of your turnover. So if 5lks is your turnover, show that you made 40k profit in 2012-13. This way you will not need an audit from a CA, and tax outgo on 40k will be maximum of 12k( if u r in the 30% bracket), even this could be reduced further by showing expenses to reduce your gross profit and hence the net tax outgo.
Book of accounts needs just your bank statement,your trading ledger & PNL, and keeping a book with all expenses you have incurred towards trading as a business, charting software cost, internet, tips etc etc.
The prices you have mentioned are pretty reasonable, do bounce the idea that I suggested with your CA.
Cheers,
Many Thanks for your quick reply.
Hi, A quick question, if I do not show it as a profit and my turnoevr is much less than the required limit (1 crore I believe) after which the audit is required, can a simple ITR 4 submission with no loss carry-over help me? Needless to say all the necessary books of documents will be prepared along with it.
S,
Until a couple of years back, audit was required only if turnover was more than 1crore, but there was a small change in section 44AD, because of which many people have been receiving notices. What this says is that if turnover is less than 1 crore and gross profit less than 8% of turnover, you will need to have the books audited. Hence I suggested you to declare a profit of 8% and file, that way you will not need an audit.
Yes I forgot this aspect. Really appreciate your quick responses.
Can we draw 10 lakh expense on trading …’
Does we need audit for those expenses
Aijaz,
As long as expense is something that you are incurring towards trading, there is no limit on how much expense. But the issue is if you show 10lk expense and tomorrow for any reason Income tax officer rejects it, it can be an issue then. So it is best to not over inflate any expense, and best to keep a proof of any such expense and document the reason behind it, this is good enough, your CA will also need only this while filing your returns.
Cheers,
Did these expenses are checked by state income tax deptt. or national level?
Today most of the notices are automated, which means a centralized computer sends out notices from the Income tax department, they might have set rules which determine whom to send notices. But once someone gets a notice, after that all interaction would be with the local Income tax officer.
You have recommended in several posts that even if the profit is less then 8% of the turnover, to avoid audit hassles, we should show the profit as 8%
My question is if we show the excess profit, how do we adjust the same in the balance sheet ?
Shravan,
Section 44AD is presumptive taxation, so if you declare using this there is no audit required. As I have mentioned earlier, this is just my suggestion, and do consult your CA on this.
Cheers,
Dear Nithin,
..Back with few querries on this topic again.
Is there any way to save tax from the profits we make?
My wife is a homemaker, trading is the only source where she has been earning.
At the moment, for 1st 2lakh income only we are not paying tax.. remaining amount is taxable as per taxation.
For employees, we can get tax benefits for
1. upto 1 lakh under 80cc
2. House rent or hosing loan etc..
Is it possible getting these benefits on trading income ???
Income from trading is just like any other income, you can get all the benefits and also you can reduce all expenses that you have incurred towards trading.
What is the tax for female f&o trader whose settlement turnover is 4636150 according to 44ad..if we calculate on 8%
My CA told me 8k..
I didn’t understand his calculations..
8% of 43 lks is around 3.2lks profit. First 2 lks there is no tax, and 2 to 5lks is 10 %, so on 1.2lks 10% is 12k, so around 8K should be ok.
Im trader in f&O and doing and have no other bussiness..
My mtm ledger shows profit of 10lakhs and my CA told me we can settle this profit under 44ad..
that is my settlement profit + loss turnover =48lakhs that means roughly have to pay around 19k tax..
Is this genuine or he is misleading?
(48 lks, 8% of this as profit will be around 4lks, so 12 to 20k in taxes should be ok according to me.).. Aijaz, my bad, I thought you had mentioned a trading loss and hence I said you can show the 8% as profit to avoid audit.
Thanks for the reply I’m highly obliged..
So I have to pay taxes on turnover 8% I.e according to you 20k approximately.. Not on 8lakh which my broker p/l ledger shows 10lakh..?So my CA is correct?or I will be under scrutiny for 8 lakhs profit..
If 44ad says this then please guide there is short time to file returns
Example
X is carrying on small business . The Turnover is Rs. 50 lakh. The profit as per his books or calculation is Rs. 8 Lakhs. However, he opts to return the income under section 44AD @ 8% i.e Rs. 4 Lakh. The proceeds of business are deposited in a bank account.
Can the AO assess the difference amount as undisclosed income?
No, The Answer is No due to following reasons:
– The section has been amended for the benefit of the assessee.
– The word Claim signifies the right of assessee, and it is not an obligation of the assessee.
The distinction between Right and obligation is very necesrary here.
The language of section of section 44AD(1) requires claims to have been made by an assessee for returning higher income.
If there is no claim made by assessee in return for higher income, there is no higher income.
JUDICIAL DECISIONS
• The following judicial decisions support this view:
– Samta construction Co V. Pawan Kumar sharma(2000) 244 ITR 845 (MP)
– CIT V. ARVIND MIILS LTD(1992) 193 ITR 255(SC)
-AC,BANGLORE VELLIAPA TEXTILES LIMITED AND ANOTHER (2003) ITR 560(SC)
Aijaz,
I have corrected my earlier comment, I had thought you had mentioned a trading loss and hence suggested you show 8% of turnover as profit to avoid audits. In your case, since profit is more than 8% of your turnover, you anyways don’t come under audit. It is kind of a loophole in the system, but I’d advise not to take it, add this 10lks of profit to all your other income, reduce the expenses and then pay tax according to the normal slabs. ITO will have no problem if you have paid more taxes, but if you have paid less it can always cause some trouble in the future.
The method of calculating turnover in F&O of adding all profits and losses, is based on what circular or section of the IT department. ?
Is the same formula valid for return filed under Section 44AD also ?
Thanks for helping
Shravan,
The problem is that there is no such circular, it is a common practice being followed. Hence it is always best to consult a CA, Section 44AD is presumptive taxation and turnover will still be calculated the same way.
If i Have invested 1lac and after 1 financial year i make 1 lac profit.
But of the profit share i pay 20% that is 20,000 for the tips i take from some people from stock market.
Can i show this for tax benefit along with the internet bill, depriciation of Laptop etc?
Yes you can show what is paid to the tipster as an expense along with all your other expenses.
Or can i show tht my net profit is 80,000 instead of 1lac?
You will have to show gross profits, and show expenses, and then reduce expenses from gross profits. You cannot directly show as 80k instead of 1lk
THanks
Are there any other tax benefits apart from 80c, Hra, house rent, medical fuel bills which are for working proffesional and telephone internet bills, depriciation of PC for a working proffesional into stock market.
Are there any other tax savings schemes?
There are numerous deduction available U/s 80-C ( Investments) to 80U . The List of all deduction can be retrieved from by using this link
I’m full time trader in futures and options and doing few delivery based trades in a year ..
I have gone through blog and want to clear my confusions..
My profit and loss ledger shows profit of 8 lakhs
As I have gone through blog have calculated my turnover I.e settlement profits + settlement losses =55 lakhs
So the 8% would be 4,40000
If I calculate this under sec 44ad then it would be 4,40000-200000(exemption)=2,40000 then the tax would be 24k
Or I have pay the tax of 8 lakhs -2L= 6 lakhs
If I’m saving my taxes under 44ad should I be under security or they don’t open the file who files tax under 44ad have gone through few CA websites in which they say whosoever will file under 44ad their books won’t be open.
Suggest the favourable..
Besides that you are doing an excellent job to make us aware..
Hats off to you sir for this support..
Can the Assessing Officer add the Difference between actual income and disclosed income in the assessment proceedings?
{Let us assume that the Turnover of the assessee is Rs. 50 Lakhs and all the receipts are by cheque and the same is deposited in the only Bank account maintained by the assessee. There are no outstanding receipts at year end.
All the payments for expenses on revenue account are through cheques debited to the same account and there are no outstanding expenses at year end. The total expenses are Rs. 25 Lakhs.
Thus the balance of Rs. 25 Lakhs as per his bank account is the income as per the records of assessee.
He filed Return u/s 44AD declaring of Rs. 4 Lakhs @ 8% of Turnover.
Can the AO add the difference of Rs. 21 Lakhs to the income of assessee?}
◊First of all the assessee, being covered by section 44AD, is under no obligation to maintain books of accounts u/s 44AA.
Secondly, the turnover being less than Rs. 1 Crore and declared income not being less than 8% of Turnover, Section 44AB is not applicable to the assessee.
◊ Further the assessee is given the option u/s 44AD (1) to declare higher income. The word used is 8% OR higher income.
Thus, the option is with the assessee to disclose higher income OR to file Return disclosing the income @ of 8% of Turnover.
Here the assessee is free to exercise any option at his will. He may morally show actual income and pay tax on it as an Honest citizen of the country, but such Honesty is not digressed even if he files return @ 8% as he is legally correct. (Here the decision of Honourable Supreme Court in case of Dr. Qureshi can be recalled where the apex court, condemning the High Court, held that “cases have to be decided on merits and legality instead of morality”.)
Legally he is given the option by the statute and such an option cannot be equated with obligation cast upon the assessee. There is a definite difference between OPTION and OBLIGATION and an Option granted to the assessee cannot be construed to be his obligation when his actual income is more than 8% of Turnover.
◊ Also, the AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition.
◊ Further, the words used are “higher income claimed to have been earned by the assessee”.
Here if the assessee has not made a claim in the Return of Income regarding any higher income, it implies there is no claim for Higher Income made by assessee. AO cannot claim that the assessee has earned higher income, because under the statue, he is not entitled to do so.
Here is the link sir
http://taxguru.in/income-tax/provisions-section-44ad-amended-finance-act-2012.html
Ajay,
Like I just mentioned to Aijaz, the idea of declaring 8% as profit on the turnover is in case the turnover is less and there is a loss, and this is just to avoid audit. As you know, no one has a problem if you pay more taxes, but in a case like yours, where for a 55lk turnover you have a profit of 8lks, you anyway don’t need an audit. What you should ideally do is, add this 8lks to all your other income, reduce all expenses and then pay taxes according to the slabs.
Cheers,
I don’t have expenses receipt but I file tax under sugam..So upto 90% I can assume my expenses since I don’t have to maintain the books else I will loose the substantial benefits of 44ad..Correct me if I’m wrong.
Yes you can assume your expenses, but make sure it is in line with what you have actually spent.
Benefits of 44AD
Sir have taken this material from CA blog..
If my income from fno is above 8% say for e.g, 15% higher % of turnover and I only show 8%
This CA blog purely shows in point have 7.ITO has not any power to assess anything excess of it.Will it still be scrutinised?IF i will take opt 44ad and file 8% of turnover then I cant claim expenses ..If I claim higher profits than Im loosing substantial benefits of 44ad..
Please clear this scenario
1. Assessee has not required to maintain books of accounts of the eligible business .
2. The income from the eligible Business is estimated @8% of the gross receipt or total turn over.
3. Assessee can voluntarily declare higher income than 8% of the total turn over or gross receipt.
4. All deduction under section 30 to 38 including depreciation and unabsorbed depreciation are deemed to have been allowed
5. Moreover, it will be assumed that dis-allowance, if any, under section 40, 40A, 43B have been considered while calculating the deemed income.
6. Assessee shall also be exempted from the payment of Advance Tax.
7. If returned income of the assessee is 8% or more of the total receipt/ turn over, the assessing officer dose not have any power to assess any thing excess of it.
8.Assessee opting for the above scheme shall also be exempted from the maintaining books of account and assessee is not under any obligation to explain individual Entry of cash deposit in the bank unless such entry has no nexus with Gross receipt. (CIT V SURINDER PAL (P&h))
Dear Rajat I think Nitin is wrong here and he can correct me also
But the point that you have raised and the facts given by you are highly appreciable. Please go through the following: Can the Assessing Officer add the Difference between actual income and disclosed income in the assessment proceedings? {Let us assume that the Turnover of the assessee is Rs. 50 Lakhs and all the receipts are by cheque and the same is deposited in the only Bank account maintained by the assessee. There are no outstanding receipts at year end. All the payments for expenses on revenue account are through cheques debited to the same account and there are no outstanding expenses at year end. The total expenses are Rs. 25 Lakhs. Thus the balance of Rs. 25 Lakhs as per his bank account is the income as per the records of assessee. He filed Return u/s 44AD declaring of Rs. 4 Lakhs @ 8% of Turnover. Can the AO add the difference of Rs. 21 Lakhs to the income of assessee?} ◊First of all the assessee, being covered by section 44AD, is under no obligation to maintain books of accounts u/s 44AA. Secondly, the turnover being less than Rs. 1 Crore and declared income not being less than 8% of Turnover, Section 44AB is not applicable to the assessee. ◊ Further the assessee is given the option u/s 44AD (1) to declare higher income. The word used is 8% OR higher income. Thus, the option is with the assessee to disclose higher income OR to file Return disclosing the income @ of 8% of Turnover. Here the assessee is free to exercise any option at his will. He may morally show actual income and pay tax on it as an Honest citizen of the country, but such Honesty is not digressed even if he files return @ 8% as he is legally correct. (Here the decision of Honourable Supreme Court in case of Dr. Qureshi can be recalled where the apex court, condemning the High Court, held that “cases have to be decided on merits and legality instead of morality”.) Legally he is given the option by the statute and such an option cannot be equated with obligation cast upon the assessee. There is a definite difference between OPTION and OBLIGATION and an Option granted to the assessee cannot be construed to be his obligation when his actual income is more than 8% of Turnover. ◊ Also, the AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition. ◊ Further, the words used are “higher income claimed to have been earned by the assessee”. Here if the assessee has not made a claim in the Return of Income regarding any higher income, it implies there is no claim for Higher Income made by assessee. AO cannot claim that the assessee has earned higher income, because under the statue, he is not entitled to do so.
Read more at: http://www.caclubindia.com/forum/applicability-of-sec-69-in-case-of-44ad-242697.asp#.UxgjAD-SxsM
I have 12 lakhs profit in short term delivery of equities and in F&O I have 4 laks..
If i don’t opt for 44ad then how I have to show my turnover in FNO..
Can I file different IT return form for short term capital gains which I have total 3 trades in a year and another for F&O ..Because if i file itr4 then maybe IT deptt. will scrutinise short term capital gains
Suggest how to settle this scenario and I don’t want to take any chance of scrutiny
Bhavesh, you cannot file 2 IT returns, you will have to file using one ITR4 and show your short term gain and FNO (business income) separately. Note that the short term equity trading turnover is not part of your business turnover.
hi sir
i do trade in share market in f&O and cash segment.i have rs.50000.per year tuition income ..
i give loss of rs. 4lac in f&o segment and i made long term capital gain of rs 4.10lac.
what my tax liability.
Jiny,
Your long term capital gain is exempted, so Zero tax on Rs 4.1lks.
Your F&O loss + Rs 50000 your other income + all your expenses = Net loss of more than Rs 3.5lks. File your return before due dates, and you can carry forward this loss for the next 8 years, you can set it off against any future business income.
Im gazetted govt. employ and having gross salary of 5,80,126
2lakh is exempted + 1,00000(PLI+PF) +6000 insurance=3,06000
Please calculate exact tax figure
Income Tax Rs 25413 and Education Cess 762 Total Rs 26175
thanks sir
no tax liability for me.
sir when no tax liability if dont file itr then any problem for me.
Jiny, you have to file ITR even if there is no liability.
Do we need to pay advance taxes in case of short term capital gains and futures profit..I didn’t paid because the position is fluctuating and its very difficult to assume that what will the year end profit
I have profits and didn’t pay what will be the repercussions
In case of Short term capital gains advance tax if you have booked profits then you have to pay advance tax, and if the gain is notional(your still holding the stock), there is no need of advance tax.
In case of Futures, since it is considered as a business, you will have to pay advance tax. Yeah it is kinda tricky, but even if you pay advance tax and assuming you end the year in a loss, you can get the refund of the advance tax paid already.
Cheers,
Tilak
Trading is my only job nothing else
Assume I have profit of 12 lakhs in delivery based shares (delivery time 2-3 months)
And profit of 5 lakhs from stock future
1.Going through this whole blog if I show myself as trader can their be query by ITO for a short term capital gains which are 11 lakhs..?
2.Since I have profits can I still opt for 44ad if not then which ITR should be opted and do I need any documents to attach while filing returns?
3.Why are you suggesting to file return as trader not investor what are the benefits?
This was nice to see that you help people in this busy world
Thanks in advance bro..
1. Yes you need to show yourself as a trader(business), hence use the ITR 4 form, but you can show your short term capital gains and your future profits (business profits) as separately. What i’d advise is if your short term trading is very active, then show the short term gain under business profits as well. But if your short term equity trading, is just a few, show it in a separate head.
2. ITR4, 44AD is for if you require an audit or not, if the turnover is less than 1 crore and profit more than 8% of turnover you don’t need an audit. If your turnover is over 1 crore, you need an audit. If your profit is less than 8% of turnover, and your turnover is less than 1 crore, you need an audit, and my advise is only in the last case if your profit is less than 8%, you can show a higher profit of 8% to avoid audit fees.
3. F&O trading is considered as a business income, so if you are trading F&O you have to file as a trader using ITR4 as per regulation. There are also benefits in the sense that, you can claim on all expenses you have incurred while trading, and also you can carry forward the losses for 8 years if any.
Hope this clarifies,
Cheers,
Thanks
1. But you didn’t replied whether short term capital gain can be query tomorrow by ITO if I show it in business income?
2. Since the profit is 12 lakhs in stcg and trades are only 2 do I still show in business income?
3.Please calculate liability in both scenarios I.e stcg 12 lakhs + 5 future stock(business income)?
4.Or 17 lakhs (business income)= tax liability?
Thanks for outstanding support…
1. Query can come on anything Tilak, but what I have explained is the usual practice followed by most traders
2. If there are only 2 trades, you can show STCG under the capital gain head and Futures profits under business income.
3. STCG: 15% of 12lks, 5lks of future is added to any other income and after deducting expenses tax is paid according to the slab you fall in.
4. In case you show it together, 17lks is added to your other income, reduce your expenses and tax paid according to the slab you fall in. Slabs mentioned in the first part of the blog.
Cheers,
I have start trading in futures last year..
I have position in reliance stock futstk 4 lots , and have Sbin 2lots stock future
Does stock future gains comes in stcg or business income
Dinesh,
Business income, all details on the blog and a lot of questions on the same above
Ex has income of 20 lakhs under bussiness income expense 6 lakh what will be my tax liability
Farhan, discussed multiple times above already, you pay taxes on 14lks as per the slab you fall in, exact tax liability will be based on if you have made investments into some tax saving instruments or not.
Cheers,
Sir, I trade heavily in Commodity (MCX & NCDEX) Segments. Please give an example “How is Turnover calculated” & Tax implication on the same.
Ravindra,
In terms of taxation, trading in commodity is exactly like trading in futures. Multiple posts above have explanation on the same. Press ctrl+F and search for turnover.
Cheers,
Hi Nithin,
Thanks for your early reply.
Trading in Commodities done between 01-04-12 to 31-03-13 :
MCX Segment :
1) Total Buy Value : 2471792243.00
2) Total Sell Value : 2473101093.00
3) Net Value : 1308850.00 (Dif. of 1&2 above & this is also Gross Profit)
4) Net Profit : 1255325.95 (after deducting other statutory expenses)
NCDEX Segment :
1) Total Buy Value : 2221241217.00
2) Total Sell Value : 2221522759.00
3) Net Value : 281542.00 (Dif. of 1&2 above & this is also Gross Profit)
4) Net Profit : 240449.12 (after deducting other statutory expenses)
Total Net Profit = 12,55,325.95 + 2,40,449.12 = 14,95,775.07
Plz. clarify the following :
1) What is the Turnover for the said period ?
2) Plz. explain me the T.O. part & that 8% profit part & audit by CA part. in this case.
3) After deducting expenditure under various heads, I want to declare around Rs.8.00 lakhs Net Profit. I am 24 yrs old & I do not have other Income. What will be my tax liability for 2012-13, including penalty for delayed filing, Interest on delayed payment & any other charges (I have not yet filed IT Returns) ?
Plz. do reply.
Ravindra
Ravindra,
We have had discussion on this multiple times above, turnover is calculated by adding all settlement profits and losses for all contracts that you have traded during the year. You look like an active trader, so it is best to get yourself audited (the only reason for calculating turnover is for knowing if you have to be audited or not).
2. In case your turnover is less than 1 crore, note that by turnover I don’t mean contract turnover but settlement turnover .Sum of all profits and losses for every contract, explained in the blog above as well. So if your turnover is less than 1 crore and profit less than 8% of turnover you need the books to be audited.
3. Ravindra, it will be best to go meet a CA to plan this properly and file your returns as soon as possible. It will be very tough to answer this query, without having no background on your accounts, and I am not really qualified for doing that as well.
Cheers,
If i am a day trader, Can i claim depreciation on car i use?
Sharath, As long as you can prove that you are using car in some way for your business if asked anytime in the future, it shouldn’t be an issue.
Hi sir,
I have done equity delivery based trades .i want to file returns and will show my income as stcg
My profit is 8 lakhs below are details
Trade 1 bought at 30 lakhs and sold at 33lakhs=3 lakhs profit and turnover 66 lakhs
Trade 2 bought at 33 lakhs sold at 35 lakhs=3 lakhs= 68 lakhs turnover
Trade 3 bought at 10 lakhs sold at 12 lakhs=2 lakhs =22 lakhs turnover
If I calculate this way 3+3+2=8 lakhs turnover
Or 1.53 crore turnover
Which calculation is right under stcg ..
Do I come under audit in this above example?
Eric, settlement profits and losses are calculated as turnover only in case of derivatives trading. When you do short term equity trading, when you buy stocks for 30lks it actually gets debited from ledger and gets credited when you sell (in F&O only margin gets blocked), and hence your turnover in the above case is 1.53 crores, and yes you come under audit since your turnover is more than 1 crore.
Cheers,
In Eric case if he considers himself as trader than what will be the turnover 1.53cr or 8lakhs?
Does he need still audit if he declare himself as trader?
Aijaz/Eric, if you consider yourself as a trader the turnover will be 1.53 crores (all credits + debits) on your ledger. Yes if he declares himself as a trader, he will need an audit, but if you are showing this under capital gains head, no need.
Can I consider myself as trader while filing returns in the above case ?
What will be then my turnover
A. 1,53crores
B. 8lakhs
What u suggest?
Eric, If you have done only equity delivery based trades, you don’t need to show this as a business turnover, just show it under Capital Gains in which case you don’t have to worry about turnover. In case of STCG and LTCG, there is no need of turnover or worry about audits, even if your turnover is more than 1 crore. So if you are doing only delivery equity trades, that is the best way to file.
Hi Nithin,
This is a very helpful blog! I got most of the answers to my doubts and am left with only two doubts:
1> For calculating the turnover, do we need to treat each trade seperately or do we need to club together all the trades of one contract?
e.g. Suppose I did 2 trades on NIFTY-Jun series contract. One profit of 1000/- another loss of 1000/-. Since its on same contract, is the turnover zero or is it 2000/- ?
2> Suppose my final figures for the year are:
Profits: 1,00,000, Losses: 40,000, Turnover: 1,40,000
STT: 4,000 Stamp charges: 1,000 turnover charges: 1,000 servicetax: 1,000 commisions: 2,000
Total_expenses: 9,000
Net_Profit = 51,000
Then in ITR4, where do I put these numbers in the P&L section?
Option 1:
3.f. Profit on sale of investment being chargeable to STT: 60,000
8. Duties, taxes, Cess, in respect of services purchased
e. Service tax: 1,000
g. Any other tax: 6,000
23. Commisions: 2,000
Above method computes correct tax but turnover of 1.4 lakh doesn’t appear anywhere because profits and losses are netted and put in 3.f.
Option 2:
1. Sales/Gross reciepts of business: 1,00,000
36. Other expenses: 40,000
8. Duties, taxes, Cess, in respect of services purchased
e. Service tax: 1,000
g. Any other tax: 6,000
23. Commisions: 2,000
This method too calculates same tax. Only purpuse of using the “Sales” and “Other expenses” fields is to be able to show the turnover somewhere. But looks such mapping from profits and losses seems meaningless.
Please advise if any of the above two classifications seems okay or if there is a better way?
Thanks,
Makarand.
All settlement profits and losses, in this example, Rs 2000.
All Credits(profits) under Sales and all debits(or losses) under Purchases, in the ITR4. Taxes can be shown separately. This should help, try and let us know.
Cheers,
Thanks a lot Nithin for your reply!
Now everything falls in place.
————————————–
* Below I’m detailing the fields to populate in ITR 4 as that might benefit some reader.
* I need to use ITR 4 (and cannot use ITR 4S) because I have STCG from debt funds.
* ITR 4 excel is of AY 2013-14. Same needs to be tried out later when one for 14-15 is available.
————————————–
Part A: P&L: 1. Sales: 1,00,000
Part A: P&L: 6. Purchases: 40,000
Part A: P&L: 8.e. Service tax: 1000
Part A: P&L: 8.g. Any other taxes: 6000
Part A: P&L: 23. Commissions: 2000
Schedule BP: A.1. PBT: 51,000 (Auto-populated)
Schedule BP: A.4. Sub-amount of BP.1 under 44AD: 51,000
Schedule BP: A.33.1. section 44AD: 51,000
Schedule BP: D. Profits & Gains: 51,000 (Auto-computed)
————————————–
Thanks Makarand
I have stock cash market transactions also which are against my investment portfolio. In addition to F&O
Will the value of those trades also be added to the derivative turnover figures to arrive at the total turnover, or I can pay STCG or LTCG on them separately as is the case without clubbing them
Shravan, It is upto you on how you want to show this, but yeah you can show STCG and LTCG separately and include all F&O as business. But make sure you stay consistent with the practice whenever you file your returns. Many people keep changing this position based on what benefits them, best not to do that.
I have 5 trades in delivery base equity which yield me profit of 3 lakhs but turnover is 1cr(Purchase value + sale value)
and in future stock reliance I have done 20trades which yields me 4 lakh profits
Going in confusion if i declare myself as trader do I have to consider 1cr turnover for equity trades or I have to calculate
1. 3lakhs +4lakhs=7lakh as TO
or
2.1crore + 4lakhs as turnover
Please clear this confusion
Madhav,
My advice would be that since you have done only 5 trades in the year in equity, show that under STCG (Short term capital gain) and LTCG (Long term capital gain), turnover won’t really matter in this case. Your futures trading, show it under business income, if you have done 20 trades, your turnover will definitely be under 50lks and since you have a profit of 4lks, which is more than 8% of your turnover, you would not even need an audit.
For the 20 trades to calculate turnover, see the total settlement profit, and settlement losses for every contract you have traded (Reliance oct is separate, Reliance Nov is separate) the sum of this is the turnover.
Cheers,
Dear Nithin,
I met one CA. He says that in my case, the turnover is Rs.14,95,775.07 ie, the Net Profit I earned in both segments, for the entire year. Whether this correct or not ? I am bit confused about ‘difference of total buy value & sell value) and ‘sum of settlement profit & settlement losses’. Please clarify.
hmmm.. What if your net profit was 0, then would your turnover have been 0? Personally, I don’t think showing only your profit as turnover is correct. Turnover should ideally be the sum of total buy value and sell value (not the difference) in case of equity or/and sum of settlement profits and losses in case of F&O
I request u to please calculate tax for me that will be your kindness
Stcg gain 12,00000 and f&o gain 8 lakhs
Expenses under f&o 5 lakhs including 2lakhs of exemption
Will declare myself as trader and show equity stcg under capital gains
Please please calculate tax for me
You are doing a tremendous job by producing a helping hand to people who doesn’t know xyz about taxes
Hats off sir..
Karan,
The Income Tax on STCG is Rs. 1.8 Lacs and Balance Income ie on 5 Lacs ( 8 Lacs – 3 Lac Exp) is Rs 30k total Tax Liability Rs 2.1 Lacs + Edu CEss 6.3k . Tax Liability is Rs 216300.
I’m short term investor for equities say 2-4months
Simultaneously I’m doing trade in f&o
I have never filed returns and want to do it this year
My query is can I show my stcg as separate in itr-4
And f&o trades in itr4 also..
I can’t call my self as trader because in this uncertain market I prefer to keep position in equity market and got benefited from that only and if anytime I found the opportunity in f&o i do the trades for short term sometimes carry forwarding them but they are very few say less than 10 in a year..
Please reply as favourable in my case
Yes Sanjeev,
Yes you can show STCG under capital gains head and F&O under business in the ITR 4.
Cheers,
I have gross salary of amount 5,800000. 2 lakh is rebate and 1 lakh savings.After deductions the taxable amount comes to 2,80000.what is the % of tax? I mean is it that on
(A) 2,00000 it’s 10% and on remaining 80000 is it 20%=36k?
(B)or is it 10% on the whole? i.e 5,80000-200000(exemption)=3,80000-100000(Policy+other)=2,80000X10%=28k
Im working in govt deptt. they says 36k is taxable amount but in previous query u said 28k
This is making me confuse plz clear it.
Tax on Rs 480000(580000-100000) is Rs 26000 ( 28000- 2000 Rebate for Income till 5 Lacs) + CEss 960 Total Rs 26960.
Its 10% Till 5 Lacs …. 5-10 Lacs 20% and Beyond 10- 30% for Other than Senior and Super senior citizens
Please calculate tax for me Sirji
Stcg delivery based profit 12 lakhs
Fno profit 1lakh
Expenses 3 lakh + exemption 2 lakhs
Please calculate tax for me and which itr form would I use..
Gross Total Income
12,00,000
Loss set off
2,00,000
Total Income
10,00,000
Income Tax
1,30,000
Education Cess
3,900
Gross Tax Liability
1,33,900
You can use ITR4 for this
My turnover(settlement profit +settlement loss) for fno is 3000000 ..
My question is do I need audit because there is loss in fno and profit in stcg
Ganesh,
Technically you will need an audit because your turnover is less than 30lks and your profit is less than 8% of the turnover (Section 44AD). If you have a small loss, and don’t need the benefit of carry forwarding it, one of those things that you can do to avoid an audit is to show your gross profit as 8% of the turnover. So show around 2.4lks as presumptive profits, and pay taxes accordingly. But do consult a CA for this.
Cheers,
That means I have to pay taxes on 2.4 lakhs not St CG 12 lakhs please clear
Ganesh,
Your STCG will come under the capital gains head on ITR4, so you will have to pay taxes of 15% of this 12 lks in addition to 2.4lks. Since you had earlier not mentioned the value of STCG. Another thing what you can do if you are a very active trader is show all your trading activity as a business (both equity and F&O), but if you do so, you will have to stick to the same principle in the future as well. In such a case, you can show your STCG & LTCG as business profits, and reduce your F&O losses, and pay taxes accordingly. Do consult a CA for this.
Cheers,
Sir,
I trade (age 30) in commodity derivatives (both MCX and NCDEX). I have not filed IT Returns. Please clarify the following :
1) During FY2011-12, I made a net Trading Profit of Rs.1233000/- & the turnover is Rs.83.00 lakhs &
2) During FY2012-13, I made a net Trading Profit of Rs.1700000/- & the turnover is Rs.68.00 lakhs.
For your information, I had added the settlement profits & losses to arrive at Turnover figure during the financial year.
Please inform me which of the following methods I should adopt to pay Income Tax ie,
(1) deduct the expenses like Office Rent, salaries, etc, etc from Net Trading Profit & pay Income Tax as per the slabs applicable (or)
(2) declare 8% profit on turnover figure and pay Income Tax strait away ? Please also explain in detail with pros & cons for adopting any specific method.
(3) One of my friend says the choice will be with Tax Payer & he/she can adopt any one of the methods. Whether this is true that Tax Payer can have choice like adopting any of the above methods or any guidelines are there for this ?
Abhishek
Abhishek,
The first option would be the right one, the second method where you declare profit of 8% would not be true since you are profits are definitely more than 8% of your turnover and this might come back to you in the future. I have advised a few people to show 8% of turnover as profit, but these are all people whose gross profit was less than 8% of the turnover and this was a way to avoid an audit by the CA. If you pay more taxes than what you have to there is never a problem, it is usually when you pay lesser than what is supposed to be paid.
Hope this clarifies, but do consult a CA.
Cheers,
Hi Nithin,
Can I declare more than 8% profit on turnover, considering the remaining profit as expenses ? I mean declaring say 10% profit of Rs.830000/-, considering the remaining Rs.403000/- as expenses for FY2011-12 and declaring 16% profit of Rs.1088000/-, considering the remaining Rs.612000/- as expenses for FY2012-13 ?
If I file Returns calculating as above, will there be any chances that IT Department questening me in future ? Please tell me the pros & cons over the matter.
Ravindra,
My advise would be for you to get an audit done, you are an active trader, and it doesn’t make sense to be “Penny wise Pound foolish”. As I have mentioned elsewhere, if you owe the IT department less, but pay more, there is no issue, but if you owe them more but pay less, it can always come back to you later.
Hi Nithin,
I have got a short term capital loss of 1 lakh as of 27th March. If i sell shares on 31st march with a profit of 1 lakh, will this gain be offset against the loss?.
The doubt is whether we consider the date of selling or date of amount getting credited to your account to calculate the tax for the financial year.
You can sell it on the 31st, and it can be considered for this year, your contract note will say 31st and that is what matters.
Thanks a lot Nithin for the quick clarification. It will really help me.
Hello,
One of my friend has forwarded me the below.
Please confirm it is helpful.
Enjoy,
CArnot
___________________________________________________________
Indian Income Tax Act 1961, Section 44AB reads as under:
“Audit of accounts of certain persons carrying on business or
profession” — 44AB — Every person, —
(a) carrying on business shall, if his total sales, turnover or gross
receipts, as the case may be, in business exceed or exceeds
one crore rupees* in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession
exceed twenty-five lakh rupees* in any previous year; or
(c) carrying on the business shall, if the profits and gains from the
business are deemed to be the profits and gains of such
person under section 44AE or section 44BB or section 44BBB,
as the case may be, and he has claimed his income to be
lower than the profits or gains so deemed to be the profits and
gains of his business, as the case may be, in any previous
year; or
(d) carrying on the business shall, if the profits and gains from the
business are deemed to be the profits and gains of such
person under section 44AD and he has claimed such income to
be lower than the profits and gains so deemed to be the profits
and gains of his business and his income exceeds the
maximum amount which is not chargeable to income-tax in any
previous year get his accounts of such previous year audited by an
accountant before the specified date and furnish by that date the report of such
audit in the prescribed form duly signed and verified by such
accountant and setting forth such particulars as may be prescribed.
Note – For all practical purposes read “Accountant” as registered chartered accountant
The following have been listed out as professions
(i) Accountancy
(ii) Architectural
(iii) Authorised Representative
(iv) Company Secretary
(v) Engineering
(vi) Film Artists/Actors, Cameraman, Director, Singer, Story-writer, editor,
singer, lyricist, dress designer etc.
(vii) Interior Decoration
(viii) Legal
(ix) Medical
(x) Technical Consultancy
(xi) Information Technology
The following activities have been held to be business :
(i) Advertising agent
(ii) Clearing, forwarding and shipping agents
(iii) Couriers
(iv) Insurance agent
(v) Nursing home
(vi) Stock and share broking and dealing in shares and securities
(vii) Travel agent.
Explanation —
Share brokers, on purchasing securities on behalf of their customers,
do not get them transferred in their names but deliver them to the customers
who get them transferred in their names. The same is true in case of sales
also. The share broker holds the delivery merely on behalf of his customer.
The property in goods does not get transferred to the share brokers. Only
brokerage which is being accounted for in the books of account of share
brokers should be taken into account for considering the limits for the
purpose of section 44AB. However, in case of transactions entered into by
share broker on his personal account, the sale value should also be taken
into account for considering the limit for the purpose of section 44AB. The
case of a sub-broker is not different from that of a share broker.
The turnover or gross receipts in respect of transactions in shares,
securities and derivatives may be determined in the following manner.
(a) Speculative transaction:
A speculative transaction means a transaction in which a contract for the purchase
or sale of any commodity, including stocks and shares, is periodically or ultimately
settled otherwise than by the actual delivery or transfer of the
commodity or scrips. Thus, in a speculative transaction, the contract
for sale or purchase which is entered into is not completed by giving or
receiving delivery so as to result in the sale as per value of contract
note. The contract is settled otherwise and squared up by paying out
the difference which may be positive or negative. As such, in such
transaction the difference amount is ‘turnover’. In the case of an
assessee undertaking speculative transactions there can be both
positive and negative differences arising by settlement of various such
contracts during the year. Each transaction resulting into whether a
positive or negative difference is an independent transaction. Further,
amount paid on account of negative difference paid is not related to
the amount received on account of positive difference. In such
transactions though the contract notes are issued for full value of the
purchased or sold asset the entries in the books of account are made
only for the differences. Accordingly, the aggregate of both positive
and negative differences is to be considered as the turnover of such
transactions for determining the liability to audit vide section 44AB.
(b) Derivatives, futures and options:
Such transactions are completed
without the delivery of shares or securities. These are also squared up
by payment of differences. The contract notes are issued for the full
value of the asset purchased or sold but entries in the books of
account are made only for the differences. The transactions may be
squared up any time on or before the striking date. The buyer of the
option pays the premia. The turnover in such types of transactions is
to be determined as follows:
(i) The total of favourable and unfavourable differences shall be
taken as turnover.
(ii) Premium received on sale of options is also to be included in
turnover.
(iii) In respect of any reverse trades entered, the difference thereon,
should also form part of the turnover.
(c) Delivery based transactions:
Where the transaction for the purchase or sale of any commodity including stocks
and shares is delivery based whether intended or by default, the total value of
the sales is to be considered as turnover.
Further, an issue may arise whether such transactions of purchase
or sale of stocks and shares undertaken by the assessee are in the course of
business or as investment. The answer to this issue will depend on the facts
and circumstances of each case taking into consideration the nature of the
transaction, frequency and volume of transactions etc.
In case such transactions are for the purposes of investment and
income/loss arising therefrom is to be computed under the head ‘Capital
Gains’, then the value of such transaction is not to be included in sales or
turnover for deciding the applicability of audit under section 44AB. However,
in case such transactions are in the course of business, then the total of
such sales are to be included in the sale, turnover or gross receipts as the
case may be, of the assessee for determining the applicability of audit under
section 44AB.
Distinction between shares held as stock-in-trade and shares held as
investment – tests for such a distinction
1. The Income-tax Act, 1961 makes a distinction between a “capital
asset” and a “trading asset”.
2. Capital asset is defined in Section 2(14) of the Act. Long-term capital
assets and gains are dealt with under Section 2(29A) and Section 2(29B).
Short-term capital assets and gains are dealt with under Section 2(42A) and
Section 2(42B).
3. Trading asset is dealt with under Section 28 of the Act.
4. The Central Board of Direct Taxes (CBDT) brought to the notice of the assessing
officers that there is a distinction between shares held as investment (capital
asset) and shares held as stock-in-trade (trading asset). In the light of a
number of judicial decisions pronounced after the issue of the above
instructions, it is proposed to update the above instructions for the
information of assessees as well as for guidance of the assessing officers.
5. In one of the case the Supreme Court observed that:
“Whether a particular holding of shares is by way of investment or
forms part of the stock-in-trade is a matter which is within the
knowledge of the assessee who holds the shares and it should, in
normal circumstances, be in a position to produce evidence from its
records as to whether it has maintained any distinction between those
shares which are its stock-in-trade and those which are held by way of
investment.”
6. In another case the Supreme Court observed :
“The High Court, in our opinion, made a mistake in observing whether
transactions of sale and purchase of shares were trading transactions
or whether these were in the nature of investment was a question of
law. This was a mixed question of law and fact.”
7. The principles laid down by the Supreme Court in the above two cases
afford adequate guidance to the assessing officers.
8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to
the decisions of the Supreme Court in several cases, has culled out the
following principles:
“(i) Where a company purchases and sells shares, it must be shown that
they were held as stock-in-trade and that existence of the power to
purchase and sell shares in the memorandum of association is not
decisive of the nature of transaction;
(ii) the substantial nature of transactions, the manner of maintaining
books of accounts, the magnitude of purchases and sales and the
ratio between purchases and sales and the holding would furnish a
good guide to determine the nature of transactions;
(iii) ordinarily the purchase and sale of shares with the motive of earning a
profit, would result in the transaction being in the nature of
trade/adventure in the nature of trade; but where the object of the
investment in shares of a company is to derive income by way of
dividend etc. then the profits accruing by change in such investment
(by sale of shares) will yield capital gain and not revenue receipt”.
9. Further CBDT emphasises that it is possible for a tax payer to have two
portfolios, i.e., an investment portfolio comprising of securities which are
to be treated as capital assets and a trading portfolio comprising of stock-in-trade
which are to be treated as trading assets. Where an assessee has two portfolios,
the assessee may have income under both heads i.e.,capital gains as well as business income.
10. Assessing officers are advised from CBDT that the above principles should guide
them in determining whether, in a given case, the shares are held by the
assessee as investment (and therefore giving rise to capital gains) or as
stock-in-trade (and therefore giving rise to business profits). The assessing
officers are further advised that no single principle would be decisive and the
total effect of all the principles should be considered to determine whether, in
a given case, the shares are held by the assessee as investment or stock-intrade.
_______________________________________________________________________
How can we create two portfolios like stcg(investment) and future stock(Bussiness)in one itr form and which form should be used?
Dear Nithin Kamath
Thanks for your enormous service – I have just 2 doubts
1.In current year I have profits from business of derivatives whereas I am carrying forward prior period loss under short term capital gains on equity (non speculative ie not same day trades )-Now my ques is can I reduce this prior period STCL from my business income and pay tax only on the balance ?
2. My second doubt is on paying 8% presumptive tax on derivatives turnover under sec 44ad instead of paying much more as per slabs going to 30% -Forget the moral question – But legally if I do this ie I pay 8% on my turnover which is over a crore (yes needing tax audit too ) what can be the legal issue since as per above posts ITO can’t do anything is it not ? If I opt for this then I should file under ITR 4S is it not and not ITR 4 ?
Thanks once again and eagerly awaiting inputs.
Elliot
Well, if your Turnover from business (read derivative trade in this case) exceeds Rs 100 Lacs in any Financial year, the provisions of declaring profit at 8% (or more) of the turnover is not available. In such eventuality one has to compulsorily get the accounts audited and declare profit/loss after accounting for expenses and depreciation etc incurred in running business.
My doubt is ” Can I declare 8% of Turn over as profit even when the actual income after taking into consideration is more than 8% of Turnover”
I will request response strictly from legal point of view.
Yes it is possible for now but Grey area, and probably a loophole that exists in the system. But advice is to not, as it is not in spirit doing the right thing, and it can always come back retrospectively.
I have been trying to find a definitive answer for past few days for precisely this question (entirely out of theoretical interest – I don’t really have any business income; made very small day-trades by mistake in which I had a very small loss – I’m going to show 8% profit next year)
If you file 8% presumptive you may find yourself in soup later. Law is NOT clear on this.
section 44ad supersedes sections 28 to 43 but nothing else. Which means sections 2 and 5 (defining what is income very broadly) and 69, 69a and 69b remain intact.
Some CAs suggest you show the true income, others will tell you that you have a right to show 8%
One High court case (Ahmedabad) settled that where an assessee has maintained books of