Tax Audit for share trading?????

veru

New Member
#22
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.
Thanks for your info.
I started share trading in cash, F&O SEGMENT FROM APRIL 2010. After 31st March 2011--next yr, I will earn either some PROFIT or LOSS. It cannot be both simultaneously for 2010-2011 year. So what will be my turnover? I am confused.
 
#24
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MANISH_DAMANI

Well-Known Member
#26
I think there is limit on the profit for the audit of share trading.I not an expert in this area but as per my information there is surely a limit.
:

The limit of turnover/gross receipts for tax audit u/s.44AB has also been increased for business to Rs.1 Cr. And for profession to Rs.25 lac w.e.f. A.Y. 2013-14 .
Limit is same for all. Only turnover computation is different. It is computed in following manner-
Gross Profit-1000, Gross Loss: 1500. Total turnover for audit purpose rs 2500.
The amount should cross Rs Rs.1 Crore.
Share investment is out of this preview. Only intraday cash share trading is called speculative business income. All future and option income is business income.:):thumb:
 
#27
Can the loss of derivatives be set off against speculative trading i.e. intraday or short term trading, also can other sources of income like interest etc be used to set off derivatives loss to avoid paying taxes on the same.

Also can the derivatives loss be carried forward, if yes for how many years
 

MANISH_DAMANI

Well-Known Member
#28
Can the loss of derivatives be set off against speculative trading i.e. intraday or short term trading, also can other sources of income like interest etc be used to set off derivatives loss to avoid paying taxes on the same.

Also can the derivatives loss be carried forward, if yes for how many years
Intraday trading is considered as speculative transaction and can be only set-off only against speculative business profit and carry forward for 4 yrs.

Derivatives loss is business loss and can be carry forward for 8 yrs. And also set-off against other heads of income including speculative profit except salary income head.
If you treat shares of short term trading as stock in trade then business income but in that case audit rules are as normal and not similar to derivatives turnover. Means actual purchase or sell (gross) which ever is higher is taken for turnover.
Else better treat it as short term capital gain.However, short-term capital loss can be set off from any capital gain (long-term or short-term)


In case of an Inter-head adjustment of losses, any capital loss, whether short-term or long-term, shall not be allowed to be set off against income under any other head. It shall however be allowed to be carried forward.
After carry-forward of business income-
Business losses can be adjusted only against business income: Business
income may be from the same business in which the loss was incurred, or may be any other business. :):thumb:
 

ethan hunt

Well-Known Member
#29
Tax Audit or Section 44AB Audit :
44AB Audit is not mandatory for all. You need to get your accounts audited, only if you satisfy any one of the following conditions:
1. If the total sales, turnover or gross receipts of your Business exceeds Rs.1 Crore for the financial year ending 31.03.2013 (Rs.60 Lakhs for the financial year ending 31.03.2012 and Rs.40 Lakhs for any other financial year ending before 31.03.2012),
or
2. gross receipts of your profession, (e.g. Doctors, Engineers etc.) exceeds Rs.25 Lakhs for the financial year ending 31.03.2013 (Rs.15 Lakhs for the financial year ending 31.03.2012 and Rs.10 Lakhs for any other financial year ending before 31.03.2012),
or
3. if you carry on a business & claim lower profits and gains under any of the sections 44AD, 44AE, 44BB, 44BBB.

No need for Audit if: FNO (on NSE / BSE only) trades are Business (non-speculative) transactions so turnover (add absolute values of profit & loss of each trade) of these trades should not cross the exemption limit Rs.1 Crore for the financial year ending 31.03.2013 for you to avail benefit of sec 44AB.


BUT !!!!! ………………
As these trades are Business transactions it will be covered under point 3 & if you make a LOSS or PROFIT less than 8% of the turnover you need to get AUDIT done & maintain books !!!!!!!!!!! as per Sec 44AD


Other sections 44AE, 44BB, 44BBB also need to be taken under consideration & deep reading required for other sections mentioned in these sections……….

By the looks of it majority of traders need to get audits done …

& minimum fees for Tax Audit as per ICAI 18500 + service tax = loss pe loss

great !!!
 
Last edited:

ethan hunt

Well-Known Member
#30
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:

Eg 1:

Option shorted at Rs.10 , lot 100 premium received = 1000
Option covered at Rs.6 premium paid = 600
Profit = 400

Turnover = 400 + 1000 = 1400 ???

Eg 2:

Option bought at Rs.20 , lot 100 premium paid = 2000
Option sold at Rs.25 premium received = 2500
Profit = 500

Turnover = 500 + 2500 = 3000 ???

Is this correct ?

Souldnt the T.O. be 400 & 500 respectively

Experts Comments invited
 

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