Pankaj Kumar Laskar
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Tax treatment of F&O gain or loss

Pankaj Kumar Laskar at 08:16 PM - Aug 25, 2015 ( ) Views: 6,305

2 10

Dear Members,

Can any member please let me know as how the gain/loss of F&O are treated. Is it like as the service used to do or something different.

Please Help me on this.

Thanks & Regards,

P.K.Laskar


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Neelam Gandhi at 11:43 AM - Aug 28, 2015 ( )

IF your Turnover is Less than Rs.1 Crore, Audit is not required.

Still you have to mamintain Books of Accounts if you are showing your profit @ less than 8% of your F&O Turnover i.e. for Rs.50 lacs turnover profit is less than 4 lacs.

You can file return in ITR 4S (Sugam) on presumptive basis if your profit is higher than 8% of F&O turnover and need not maintain books of accounts

K.chandrasekaran K at 03:23 PM - Aug 27, 2015 ( )

Shri Neelam Gandhi Sir,

If F&O Turnover is less than Rs 1 crore, then also your income is to be

treated as Business Income and Books of Accounts are to be maintained

and audited?

Manpreet Bull at 03:15 PM - Aug 27, 2015 ( )

Thanks Hemant Bhai for ur valuable inputs...

Pankaj Kumar Laskar at 03:08 PM - Aug 27, 2015 ( )

Thanks to all the esteemed members for their valuable views!! Hope this thread will help a lot of people like me!!

Again thank you so much to all!!

 

Regards!!

Neelam Gandhi at 10:52 AM - Aug 27, 2015 ( )

All about income tax return filing in case of Futures & Options (F&O) trading

Trading in derivatives including commodity derivatives on a recognised stock exchange will not be considered as a speculative transaction and hence not treated as speculative business.

Therefore since these are not considered as speculative business, therefore income from such transactions will be considered as normal business income and loss from such transactions will be considered as normal business loss.

Applicability of Tax Audit in case of derivative (F&O) Trading

Since income from derivative trading is considered as normal business income, therefore normal rules as applicable to tax audit as stated in section 44AB will be applicable in case of F&O trading also.

Therefore, the applicability of tax audit will be as follows in case of F&O Trading:

1) In case of Profit from transactions of F&O trading

  • In the case of profit from derivative transactions, tax audit will be applicable if the turnover from such trading exceeds Rs. 1 crore.
  • Tax audit u/s 44AB r/w section 44AD will also be applicable, if the net profit from such transactions is less than 8% of the turnover from such transactions.

2) In case of Loss from F&O Trading

In case of Loss from derivative trading, since profit (Loss in this case) is less than 8% of the turnover, therefore Tax Audit will be applicable u/s 44AB read with section 44AD.

Calculation of turnover in case of F&O Trading

Determination of turnover in case of F&O is one of the important factors for every individual for the income tax purpose. Turnover must be firstly calculated, in the manner explained below:

  1. The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
  2. Premium received on sale of options is to be included in turnover.
  3. In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.

Here, it makes no difference, whether the difference is positive or negative. All the differences, whether positive or negative are aggregated and the turnover is calculated.

Expenses

Expenses such as postage, conveyance and telephone, incurred for carrying on the business can be claimed as business expenses. You can also claim depreciation on assets used for the business or profession.

Maintenance of Books of Accounts in case of F&O Trading

Since income from F&O Trading is considered as normal business income, therefore normal rules for the maintenance of Books of accounts as stated in section 44AA of the Income Tax Act’1961 are applicable. These rules can be summarised as follows:

1) If there is loss in F&O trading or the Net profit is less than 8% of the turnover or the turnover exceeds Rs. 1 crore, then provisions of Tax Audit are applicable and in order to get tax audit done, maintenance of books of account are mandatory.

2) if there is a profit in F&O and the profit is 8% or more of total turnover , then only the income has to be declared as business income and accordingly ITR has to be filed. There will be no need to maintain books of accounts.

Provisions relating to filing of Income Tax Return

Since income from F&O trading is to be treated as business income, therefore an individual filing return with F&O trading income has to file ITR in form ITR 4.

Depending on the requirement to get the accounts audited as per section 44AB & 44AD, the due date for filing the return of income will be as follows:

If Tax Audit is applicable: Due date will be 30th September of the Assessment Year (30.09.2015 for AY 2015-16).

If Tax Audit is not applicable: Due date will be 31st July of the Assessment Year (31st August for the current assessment year i.e 31.08.2015 for AY 2015-16).

Carry forward & and set off of Loss

The set-off and carry forward of loss from F&O transactions is also one of the most important questions asked by people. The provisions relating to set-off and carry forward of F&O Loss are as follows:

If there is a loss in F&O and you are claiming the same in the Income Tax return then:

You should file it before due date to carry forward the loss and set off from income in future.

However, there are case laws which prohibit the carry forward and set-off of loss from F&O transactions stating share derivative transactions carry the character of speculative transactions for section 73 and any loss arising therefrom will be characterised as loss from speculative business and same cannot be set-off against normal business income

Courtsey: CA Pratik Anand


Balya P at 10:05 AM - Aug 27, 2015 ( )

thanks hemant sir for your guidence, thanks a lot

Hemant Parikh at 09:52 AM - Aug 27, 2015 ( )

 

 

TAX AUDIT IS ONLY REQD FOR BUSINESS INCOME I.E FOR INCOME FROM DERIVATIVES/FUTURES AND OPTIONS.


Not from Income from Capital Assets or Speculation Income. So you may have a income of Rs. 2 Crore from Delivery/Intraday but no need for Tax Audit. 


Another point to note is the method by which the limit of 40 Lakh is calculated for audit purpose in case of Derivatives. As the Future lots are upwards of Rs. 2 Lakhs its quite easy to cross the 40 Lakh figure by way of turnover, which is incorrect in principle. 


So the total difference between Buy and Sell price of FnO is taken to calculate the 40 Lakh limit, i.e. the profit + loss + premium on options recd + premiums paid. 


It may well be that you have net loss from derivatives and still have to go for tax audit. For e.g. Profit 20 L + Loss 25 Lakh = Turnover 45 Lakh Tax Audit Reqd. Net Loss = Rs. -500,000

Balya P at 08:54 AM - Aug 27, 2015 ( )

thanks all for suggestions on this very valuable thread, this help a lot.

Ncp Sowmya at 08:44 AM - Aug 27, 2015 ( )

thks .. first time filing stock market p/l...  even my CA is confused.. every one filing tax for equity and f&o segments  for years.. give inputs.....willl be hellpful..

Raj Patel at 01:56 AM - Aug 27, 2015 ( )

Bit complex, but yes. If traded in Future & Options category, you need to file ITR-4 (Government wants you to be serious and take F&O seriously as 'a Business'). Full year's Profit and loss need to be CA - audited and then ITR-4 needs to be uploaded by him. You can google it further, or google for zero-dha articles on the same. A normal CA would cost too much. (if tax liability is less than CA fees, show 8% profit on turnover, and pay tax, no audit required), if not, better to go for online tax filing services like clearta-x, business plan etc.. last date of filing for audit case is 30-sep-2015, else 31st august. hope it helps... cheers

Raj

Ncp Sowmya at 11:31 PM - Aug 26, 2015 ( )

sorry hemant.. it was for Hanumantharaju Ramaiah

Ncp Sowmya at 12:22 PM - Aug 26, 2015 ( )

Hemanth.....do u mean 5 lakhs worth options, for one month / at one time / for the whole financial year.....

 

Hanumantharaju Ramaiah at 03:08 AM - Aug 26, 2015 ( )

audit is required if u trade big QTY like buying 10000 QTY evey now and then in options i mean if u buy options worth more than 5 lakh 

u need to else IT people will send u notice and there starts the trouble

 

if you are buying less that 1000 QTY or Less the 50000 invdst ment in options dont wry

Hemant Parikh at 12:53 AM - Aug 26, 2015 ( )

 

IF U TRADING AS INDIVIDUAL , THEN AUDIT IS NOT REQUIRED

IF U TRADE AS A MEMBER OF ANY FIRM , THEN AUDIT IS REQUIRED

Shankar M at 11:18 PM - Aug 25, 2015 ( )

Not required

Rajesh Madhani at 11:03 PM - Aug 25, 2015 ( )

Dear Shankarji please let me know in your option 2 Audit required or not? 

Shankar M at 09:28 PM - Aug 25, 2015 ( )

Hi,

You have 2 options:

1. You can show it as p/l from business/profession. Advantages: All business expenditure is allowed as deduction. Can set off/ carry forward losses. Disadvantages: Requirement of audit based on turnover or should show a defined percentage of profit and the return filing is a big process.

 

2. Show it as capital gains/losses. Advantage: Easy to calculate and file return. Disadvantage: carry forward of losses is available but no set off against other income sources. Business expense not allowed.

I have been doing the second one from a long time.

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