Looking for a CA for help in derivative trading taxation

[ritesh.bafna88]

hi ritesh,
1) if I buy an nifty option having price 100 (lot size 50) so total premium paid = 5000 , and then sell it for 110 (premium received = 5500) , so net profit = 5500 - 5000 = 500 Rs., now what is the turnover in this case ?
2) now if I do the above same option transaction by selling first then buying later , what will be the turnover?
3) if I buy nifty future @ 6000(lot size 50) and sell it @ 6050, what will be the turnover ?

Answer to 1 & 2 is 5500. Premium paid in buying a call or put is a expense

Answer to 3 is (6050*50)-(6000*50)

Regards
CA Ritesh Bafna

 

[TraderRavi]

Answer to 1 & 2 is 5500. Premium paid in buying a call or put is a expense

Answer to 3 is (6050*50)-(6000*50)

Regards
CA Ritesh Bafna

thanks ritesh. now futures turnover calculation is clear to me its gross profit + losses without brokerage and other charges. but in options if it is 5500(instead of profit + loss) as per example above, then buying and selling options several times a day will make a very high turnover per day.

 

[DSM]

Thanks Ritesh for clarifying tax issues. Here's one from me :

If I were to open a company to trade in Stocks, F&O's and also provide advisory services against fees (which will be a miniscule part of my trading business), will I be allowed to set off the following expenses? :

1. Salary to staff
2. Rent
3. Telecom exps.
4. Depreciation on F&F, Office Equip., Car (bought under company account)

I assume I need to declare Futures turnover as profits less losses in case of profit, and vice versa in case of losses. And Options turnover is buying less selling price of options.

Assuming my turnover is 12 lacs per annum (gross profit), allowing for expenses of 5 lacs per annum, I will be liable to pay approx. 33% tax on profit of 7 lacs. Is my understanding of the above correct.

Thanks for your help.

 

[ritesh.bafna88]

thanks ritesh. now futures turnover calculation is clear to me its gross profit + losses without brokerage and other charges. but in options if it is 5500(instead of profit + loss) as per example above, then buying and selling options several times a day will make a very high turnover per day.

hello,

selling of option will raise the turnover.

regards,
CA. Ritesh Bafna

 

[ritesh.bafna88]

Thanks Ritesh for clarifying tax issues. Here's one from me :

If I were to open a company to trade in Stocks, F&O's and also provide advisory services against fees (which will be a miniscule part of my trading business), will I be allowed to set off the following expenses? :

1. Salary to staff
2. Rent
3. Telecom exps.
4. Depreciation on F&F, Office Equip., Car (bought under company account)

I assume I need to declare Futures turnover as profits less losses in case of profit, and vice versa in case of losses. And Options turnover is buying less selling price of options.

Assuming my turnover is 12 lacs per annum (gross profit), allowing for expenses of 5 lacs per annum, I will be liable to pay approx. 33% tax on profit of 7 lacs. Is my understanding of the above correct.

Thanks for your help.

in options only the selling premium received will be included in turnover.

premium paid will be regarded as an expense.

a company is not covered under 44AD so yes all the above expenses will be allowed as deduction

please keep in mind you will have to get stat audit done compulsorily and income tax audit above turnover of Rs. 1cr.

yes the tax implication stated by you is also correct.

also remember that your memorandum must specific this FNO and other trading business as your main object of company.

please also file all the annual form with ROC

regards,

CA. Ritesh Bafna

 

[DSM]

Thank you sir, much appreciate your response and for clarifying my doubts.

in options only the selling premium received will be included in turnover.

premium paid will be regarded as an expense.

a company is not covered under 44AD so yes all the above expenses will be allowed as deduction

please keep in mind you will have to get stat audit done compulsorily and income tax audit above turnover of Rs. 1cr.

yes the tax implication stated by you is also correct.

also remember that your memorandum must specific this FNO and other trading business as your main object of company.

please also file all the annual form with ROC

regards,

CA. Ritesh Bafna

 

[vikrit]

hi ritesh,
1) if I buy an nifty option having price 100 (lot size 50) so total premium paid = 5000 , and then sell it for 110 (premium received = 5500) , so net profit = 5500 - 5000 = 500 Rs., now what is the turnover in this case ?
2) now if I do the above same option transaction by selling first then buying later , what will be the turnover?
3) if I buy nifty future @ 6000(lot size 50) and sell it @ 6050, what will be the turnover ?

Ravi, you will find different version/methods mentioned by different CA's. so how you will choose, b/c every CA will explain you his understanding of rules/guidelines and then add a disclaimer that 'maybe other CA using different method, so confirm with your CA before using this' unless you are hiring him. Now, how the hell, persons member of particular body, referring particular guidelines not telling/doing same things. If guidelines are vague or not clear why members (CAs) don't ask for issuing clear guidelines by higher authorities of ICAI whom they elect among themselves.

the one reason could be same as in every expertise field, if things become simple then who will need them. 2nd they don't care if at the end client will suffer, b/c if your case comes under scrutiny, they will get additional business by charging more for presenting your case.

if don't believe, then before hiring any CA, ask if scrutiny begins, will they follow and present your case free of cost (no extra charge other than given for filing return which would be 250-1500 for most of the cases, no fees hidden in form of department bribe etc)

Answer to 1 & 2 is 5500. Premium paid in buying a call or put is a expense

Answer to 3 is (6050*50)-(6000*50)

Regards
CA Ritesh Bafna

Ritesh, you mentioned turnover for 1st and 2nd case asked by Ravi, is 5500. i guess you are following ICAI guidelines for auditing trading business.

two things wanna know, if possible to answer -

1. income tax department, mentioned/issued similar guidelines anywhere in their publications? plz tell me where to look, like link or section of ready reckoner or some other publication for that purpose.

2. if answer to first is yes, then what could be the purpose basically behind IT department treating options differently than futures? and if not then why ICAI wants CAs to treat it differently?

I really appreciate your efforts for helping people and clarifying things. :thumb:

 

[ritesh.bafna88]

Ravi, you will find different version/methods mentioned by different CA's. so how you will choose, b/c every CA will explain you his understanding of rules/guidelines and then add a disclaimer that 'maybe other CA using different method, so confirm with your CA before using this' unless you are hiring him. Now, how the hell, persons member of particular body, referring particular guidelines not telling/doing same things. If guidelines are vague or not clear why members (CAs) don't ask for issuing clear guidelines by higher authorities of ICAI whom they elect among themselves.

the one reason could be same as in every expertise field, if things become simple then who will need them. 2nd they don't care if at the end client will suffer, b/c if your case comes under scrutiny, they will get additional business by charging more for presenting your case.

if don't believe, then before hiring any CA, ask if scrutiny begins, will they follow and present your case free of cost (no extra charge other than given for filing return which would be 250-1500 for most of the cases, no fees hidden in form of department bribe etc)



Ritesh, you mentioned turnover for 1st and 2nd case asked by Ravi, is 5500. i guess you are following ICAI guidelines for auditing trading business.

two things wanna know, if possible to answer -

1. income tax department, mentioned/issued similar guidelines anywhere in their publications? plz tell me where to look, like link or section of ready reckoner or some other publication for that purpose.

2. if answer to first is yes, then what could be the purpose basically behind IT department treating options differently than futures? and if not then why ICAI wants CAs to treat it differently?

I really appreciate your efforts for helping people and clarifying things. :thumb:

vikrit

before giving my comments can you tell me your qualification and what business you do.

thanks

regards,
CA. Ritesh bafna

 

[vikrit]

vikrit

before giving my comments can you tell me your qualification and what business you do.

thanks

regards,
CA. Ritesh bafna

Qualification - MBA (Last formal Degree)

Work- Business Consultation and Project Development (8 years) + Swing trader (3 years, Derivative only)

anything else you wanna know?

 

[arvin_iitr]

I have also tried this software and found extremely suitable for my/our taxation on trading and personal management .
I am requesting to Directshare people to introduce a concessional package for traderji members.

Hi all,

I trade only in derivatives & was looking for some software for easing F&O taxation. I evaluated DirectShares & found it very useful. You can create multiple accounts corresponding to different brokers. It generates many different types of reports. You can also see reports year-wise. Only thing I found missing was bulk upload of contract notes. You have to submit notes one by one. Maybe there is a way to do that, but I haven't figured it out yet.

Hope this feedback is helpful for the members.

Thanks.