Tax Audit for share trading?????

Discussion in 'Taxation Matters' started by anurag_nagpal, Nov 15, 2007.

  1. anurag_nagpal

    anurag_nagpal New Member

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    Hi :)

    My equity/share trading sales turnover (not profit) is above 40 lakhs. Overall short term profit from stock trading is 80000, profit from day trading is around 7000 and derivatives loss is 4000. is my account subject to tax audit?? I am having business of mfg.

    Well, what is criteria for tax audit for stock trading? my maximum transaction comprises of short term gain.

    regards

    anurag
     
  2. kavathiya

    kavathiya Member

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    not required to audit for turnover above 40 lakh but there is limit on profit. if it goes above that limit than it is nacessary but i do not know what is that limit
     
  3. rajinvestor

    rajinvestor New Member

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    I am also in the same boat. Turnover crossed 40 lacs, all thanks to the volatility in markets. I panicked and sold and then repurchased, also tried to book profits sometimes. I've realized LOSS overall but have unrealized profit (at the pity of market). Subhash lakhotia tax advisor at CNBC AWAZ in Tax guru programme told that "TAX AUDIT IS MUST IF TURNOVER IS > 40 LACS. IT DOESNT MATTER U R IN PROFIT OR LOSS." Kindly update me if some latest information is available. It will help others also.
     
  4. aroymkp

    aroymkp Member

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    It is the total amount of profit and loss made added up together - if it crosses 40 lac - then you need audit (For Derivatives)
     
  5. suresh9928

    suresh9928 New Member

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    I think mr. lakhotiya given the confusion reply. As per my konwoledge, the sum of profit & losses > 40 lakhs then Audit is copmulsory. It means 21 lakhs profit + 20 lakkhs loss results audit compulsary.But buing 1 lakhs shares 25 times & selling it 25 times if profit is 2 lakhs then it's not required.
    I think U got it.:)
     
  6. bhatrachar

    bhatrachar New Member

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    sirs, i am a new member, though i am a learner in share trading , i submit to reply my view to answer this .please visit
    http://www.icai.org/icairoot/publications/issuesontaxaudit-2003revised.pdf
    please see page 15 , which gives some statutory information,
    since i am a new member , if the info i provided is not satisfactory, please educate me by good words-thanks
     
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  7. Pallavi1112

    Pallavi1112 New Member

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    yes off course
     
  8. binodc

    binodc New Member

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    Hello,
    Can anyone help to understand the calculation of turnover amount?
    How it calculate? Suppose if i purchase share of rs 30 Lakhs and sold share of 25 lakhs in one financial year then what is the turn over amout. it is crossed 40 lakhs of audit limit. Please help as i don't know.
     
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  9. pankaj7

    pankaj7 New Member

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    For Tax purpose the Income tax act distinguishes between Delivery, Intraday trading in cash segment and FnO segments.

    Consequently the tax treatment for profit/loss in all three are different.

    CASH DELIVERY
    Delivery is deemed as investment in an asset. Therefore Capital gains rules apply.
    On short term investment i.e. shares bought in cash segment and sold before completion of 1 year from date of purchasing, you have to pay 15% of profits as STCG Tax (10% for AY 2008-09/FY 2007-08)
    On long term investments i.e. shares sold after 1 year of holding the long term tax applies which currently is NIL.
    Any loss is allowed to be carry forward and set off for 8 years

    CASH INTRADAY
    Intraday trading in Cash segment is deemed as speculation, same as lottery or betting on horse racing.
    The tax rate applicable on profits from speculation income is flat 30%.
    Any loss is allowed to be carry forward for 4 years, to be set off against future speculation profits.

    DERIVATIVES/F&O
    Dealing in FnO is treated as Business. Thus normal business taxation rules apply as they would to any other business. The rate of Tax is as per Slab applicable in the respective year. In current year, income upto 150,000 is exempt. Above it the Slab rates come into effect.
    Any loss again is allowed to carry forward for 8 years and set off against other heads of income or future income.

    The exempt income slab Rs. 150,000 is available to every individual. i.e. If your total income does not exceed rs. 1.5 L you are not liable to any tax, irrespective of the nature of income being Capital gain or Speculation income or Business Income. Above that the tax rates come into effect.

    IMP: 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. :eek:

    Only consolation is that Tax Audit requirement is dependend upon each year's turnover. And most tax clerks are big assholes. They don't go the extra effort to calculate the audit eligibility of each trader, though the penalty for same if you are required and you dont get it done by due date is Rs. 100,000. There are also provisions for prosecution (jail:() in worst case scenarios.
     
    Last edited: Jan 5, 2009
  10. VJAY

    VJAY Well-Known Member

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    Thanks Pankaj,

    What a great post! I hope every trader will get help from this post who are fear of tax issues.

    Regards
    VJAY
     
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