Tax Audit for share trading?????
- Thread starter anurag_nagpal
- Start date
For Tax purpose the Income tax act distinguishes between Delivery, Intraday trading in cash segment and FnO segments.
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.
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.
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.
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.
Can u pls explain for the cash and intraday segment how is turnover is calculated??????
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.
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.
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.
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.
THANK YOU SIR FOR THIS CLARIFICATION - REALLY APPRECIATED
One question - My tax return advisor / preparar is saying that for derivatives it should be total turnover and not the turnover taking profit + loss into account - can you direct me to the relevant clarification in the IT act / rules / CBDT circulars where the above is stated so that I can show the same to him.
Thanks Again
Dear Pankaj7!
What a great post. Thanks a lot for the information.
Please clarify :
"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.
Is the income from speculation in the cash segment " day trading " not to be included in the total income and hence taxed as per the tax slab and not a flat 30 % as mentioned by you?
Thanks,
Deepakji
What a great post. Thanks a lot for the information.
Please clarify :
"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.
Is the income from speculation in the cash segment " day trading " not to be included in the total income and hence taxed as per the tax slab and not a flat 30 % as mentioned by you?
Thanks,
Deepakji
--------------------------------
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.
-----------------------------------
recently i have started trading in cash segment intraday...
i got a question.....as per rule 30 % tax profit...i mean
suppose in one year ...i have lost 5 lacs doing day trading and earned 8 lacs doing day trading...then my net profit for the year is 3 lacs...
so 30 % on 3 lacs right ?
and wt abt this 5 lac loss...so wt i mean to ask is do they consider gross profit or net profit...looking forward for the reply from anyone..
regards
harsh
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.
-----------------------------------
recently i have started trading in cash segment intraday...
i got a question.....as per rule 30 % tax profit...i mean
suppose in one year ...i have lost 5 lacs doing day trading and earned 8 lacs doing day trading...then my net profit for the year is 3 lacs...
so 30 % on 3 lacs right ?
and wt abt this 5 lac loss...so wt i mean to ask is do they consider gross profit or net profit...looking forward for the reply from anyone..
regards
harsh
| Thread starter | Similar threads | Forum | Replies | Date |
|---|---|---|---|---|
| C | Due date for Tax Audit Report Submission is 15 January 2021 | Taxation Matters | 0 | |
| C | Tax Audit Due Date Extended Again to 7 November | Taxation Matters | 0 | |
| C | One Week Left for Filing Tax Audit report and return | Taxation Matters | 0 | |
| T | Tax Audit | Taxation Matters | 4 | |
| G | Is tax audit compulsory for a share trader? | Taxation Matters | 3 |
Similar threads
-
Due date for Tax Audit Report Submission is 15 January 2021
- Started by canikhil
- Replies: 0
-
-
One Week Left for Filing Tax Audit report and return
- Started by canikhil
- Replies: 0
-
-