Need clarificaiton on Capital gain tax in trading !

arun16 · #1 16th March 2006, 06:50 PM

friends,
I am new to this field & having doubts abt the CG taxation issues.

Regarding the CGTax if I am right - 10 % of profit is charged as CGTax if shares are sold within one year. It is only applicable for profit sales.
1) My doubts r whether the CGtax will be deducted by the broker or we have pay it seperatly ?
2) I am using sharekhan - They reduce Turnover tax ( approx 10% on the net )amount - is it CGtax ?
3) also in IT returns what classification these trading comes ?

4) If I am doing a day trading, getting a profit of Rs 1000/- in one trade & losing Rs 2000/- in other trades - then what will be CG tax calculation ?
Will it on the profit of Rs 1000/- or net loss will be taken in account ?

Will be grateful for replies from seniors on this

gvnarendra · #2 16th March 2006, 07:33 PM

There is one guy by name aca trader(ashish) who can answer your taxation matters correctly. He had answered me in the thread "Tax on Derivatives". You can question the same in that thread and get the answer.
gvnarendra

asnavale · #3 16th March 2006, 07:49 PM

The capital gains tax is applicable for short term gains in case of Shares. Short term here means 365 days or less. (One year does not mean one financial year). For example, If you bought some shares in Jan 2005 and sold them in Dec 2005 then you have to pay tax on the profit. This gain you have to show in your IT return as capital gains (short term) and pay tax yourself. The broker does not deduct it. If you are holding the share for more than 365 days then there is no tax. You can add all your profits and losses together and pay tax on the net amount. If there is no profit no tax. If you incur overall losses you can not offset the loss against any other income.

-Anant

aca_trader · #4 16th March 2006, 10:36 PM

Quote:

Originally Posted by arun16

friends,
I am new to this field & having doubts abt the CG taxation issues.

Regarding the CGTax if I am right - 10 % of profit is charged as CGTax if shares are sold within one year. It is only applicable for profit sales.
1) My doubts r whether the CGtax will be deducted by the broker or we have pay it seperatly ?
2) I am using sharekhan - They reduce Turnover tax ( approx 10% on the net )amount - is it CGtax ?
3) also in IT returns what classification these trading comes ?

4) If I am doing a day trading, getting a profit of Rs 1000/- in one trade & losing Rs 2000/- in other trades - then what will be CG tax calculation ?
Will it on the profit of Rs 1000/- or net loss will be taken in account ?

Will be grateful for replies from seniors on this

The answers are as follows:

1. You are right that If the shares are sold within 1 year of their purchase, 10% tax on Short term capital gain is applicable.

2. CG tax is to be paid seperately.

3. Turnover tax is different from Income Tax and they are not linked in any way so far.

4. For Intraday Trade and even Cash trade, only the net position will be considered for the taxation purposes.

However, there is one caveat. Your simple assumption that the profits you make from trading will be taxable as Short Term Capital Gain may not be correct in all the cases. For position trades, the question whether the profits will be taxable as capital gain or Business Income will be decided upon a no. of factors most importantly the frequency of trade.

Intraday trade without any doubt will be treated as Business Profit and will be taxable on normal rates, viz., 10%, 20% and 30% depending upon the income slab of the trader. However, a trader can claim all the expenses incurred in earning income which is taxable as Business Profits as deductions. Besides, STT paid by the trader will be reduced from the Income Tax payable to arrive at net tax payable.

Hope, this clears your doubt.

Best Regards,
--Ashish

aca_trader · #5 16th March 2006, 10:52 PM

Quote:

Originally Posted by gvnarendra

There is one guy by name aca trader(ashish) who can answer your taxation matters correctly. He had answered me in the thread "Tax on Derivatives". You can question the same in that thread and get the answer.
gvnarendra

Hey Narendra!
Thanks 4 referral.

Best Regards,

arun16 · #6 18th March 2006, 02:12 PM

Quote:

Originally Posted by aca_trader

The answers are as follows:

1. You are right that If the shares are sold within 1 year of their purchase, 10% tax on Short term capital gain is applicable.

2. CG tax is to be paid seperately.

3. Turnover tax is different from Income Tax and they are not linked in any way so far.

4. For Intraday Trade and even Cash trade, only the net position will be considered for the taxation purposes.

However, there is one caveat. Your simple assumption that the profits you make from trading will be taxable as Short Term Capital Gain may not be correct in all the cases. For position trades, the question whether the profits will be taxable as capital gain or Business Income will be decided upon a no. of factors most importantly the frequency of trade.

Intraday trade without any doubt will be treated as Business Profit and will be taxable on normal rates, viz., 10%, 20% and 30% depending upon the income slab of the trader. However, a trader can claim all the expenses incurred in earning income which is taxable as Business Profits as deductions. Besides, STT paid by the trader will be reduced from the Income Tax payable to arrive at net tax payable.

Hope, this clears your doubt.

Best Regards,
--Ashish

Ashish - Thanks very much for giving detail reply.

You have clarified my doubts
Nice to see that u r helpful to many friends here

I need one more information -
How to pay CG tax - in banks or in IT offices ?
It should be paid half yearly / annually ?
Any proof needed to be submitted when paying CG tax ( like documents abt buy / sell of shares )

Advance thanks

aca_trader · #7 18th March 2006, 03:08 PM

Quote:

Originally Posted by arun16

Ashish - Thanks very much for giving detail reply.

You have clarified my doubts
Nice to see that u r helpful to many friends here

I need one more information -
How to pay CG tax - in banks or in IT offices ?
It should be paid half yearly / annually ?
Any proof needed to be submitted when paying CG tax ( like documents abt buy / sell of shares )

Advance thanks

Dear Arun,

I am trying to pay back in the way I can for whatever I am learning over here.

About your query;
If your expected tax liability (for all the incomes during the year) for the year is more than Rs. 5000/-, then you will need to pay advance tax as per the following schedule:

By 15th September -- 30%
By 15th December -- 60%
By 15th March -- 100%

If the tax liability is less than Rs. 5K, one can pay it by 31st July of the next financial year. Income tax can be paid in any branch of the scheduled banks.

You will need to file Income Tax Return at which time only the computation of income, etc. will need to be submitted. There is no need to submission of proof at the time of tax payment.

Best Regards,
--Ashish

arprtrd · #8 18th March 2006, 04:17 PM

How does one estimate advance tax for derivatives trading profits.
I may make 100000 by Sep 15 and lose it all later.

What is the penalty for not paying advance tax, other than the extra interest charges?

Thanks

aca_trader · #9 18th March 2006, 10:29 PM

Quote:

Originally Posted by arprtrd

How does one estimate advance tax for derivatives trading profits.
I may make 100000 by Sep 15 and lose it all later.

What is the penalty for not paying advance tax, other than the extra interest charges?

Thanks

Well, there is no clear cut formula in this regard. One can however use his past trading experience for estimation. Besides, one has to pay advance tax on the estimated profit for whole year in installments. For example, if a person has earned profit of Rs. 1 lacs til 15th sep and his expected profits for the year is Rs. 25L, he will have to pay Rs. 2.25L as Advance Tax by 15th Sep. (Assuming Tax rate of 30%)

Penalty for non-payment of advance tax is payable only when an order to pay advance tax was served on him by the Assessing Officer and he had failed to comply with that order or failed to provide an estimate of his income after he was served such an order if in his opinion his tax liability was not to increase Rs. 5 thousand for the year.

Agilent · #10 19th March 2006, 08:53 PM

Quote:

Originally Posted by aca_trader

Dear Arun,

I am trying to pay back in the way I can for whatever I am learning over here.

About your query;
If your expected tax liability (for all the incomes during the year) for the year is more than Rs. 5000/-, then you will need to pay advance tax as per the following schedule:

By 15th September -- 30%
By 15th December -- 60%
By 15th March -- 90%

Rest of the amount can be paid by the due date of filing return which is 31st July except in the case of companies, firms and other assesses where Tax audit is required. In the later scenario the due date is 31st October.

Best Regards,
--Ashish

Ashish

Its 100 % I think , not 90 %

Let us know
Rgds
AGILENT

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