taxation on day trading of NSE futures

saritguha · #1 21st June 2006, 12:51 PM

Hi all,
Today I came across an article in rediff.com named as ‘Of shares and tax’.
There it is mentioned that
‘According to Circular No 3/2006, dated 27-2-2006, trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as speculative transaction.
In the light of this circular, you can adjust your short term gain against the short term loss from the derivatives transaction.’

Does that mean that day trading in derivatives of securities is treated as STCG and attracts 10% tax on net profit?
But then how day trading of NSE indices ( Nifty Future etc.) will be treated? Are Nifty Futures treated under same class ass derivatives of securities?

Anyone who can throw light on this issue will be appreciated.

Regards,

Sarit

aca_trader · #2 21st June 2006, 02:02 PM

Quote:

Originally Posted by saritguha

Hi all,
Today I came across an article in rediff.com named as ‘Of shares and tax’.
There it is mentioned that
‘According to Circular No 3/2006, dated 27-2-2006, trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as speculative transaction.
In the light of this circular, you can adjust your short term gain against the short term loss from the derivatives transaction.’

Does that mean that day trading in derivatives of securities is treated as STCG and attracts 10% tax on net profit?
But then how day trading of NSE indices ( Nifty Future etc.) will be treated? Are Nifty Futures treated under same class ass derivatives of securities?

Anyone who can throw light on this issue will be appreciated.

Regards,

Sarit

Day trading given the nature of trading, high churn and very small period of holding will be treated as Business Income and will be taxed accordingly. It does not matter if day trading is of futures/stock/indices futures.

While taxation of gains from Investment is a grey area as of now and its tax-treatment, depending upon certain factors, may be clasified as Capital Gain/ Business Income, Day Trading without any doubt will be classified as Business Income. Hence, forget about LTCG@10% on your gains and be ready to pay tax as per your income slabs. Ofcourse, you can claim rebate for STT paid during the financial year against your business income and in case of a no. of Day traders, this amount of STT is usually more than the tax liability on trading gains.

As regards speculative business, now trading in derivatives is not treated as speculative business as per the Income Tax Act. Hence, an assessee can set-off loss arising out of such derivatives trading with other business profits which was not allowed earlier.

Best Regards,
--Ashish

anibhai · #3 10th October 2006, 08:22 PM

Quote:

Originally Posted by aca_trader

Day trading given the nature of trading, high churn and very small period of holding will be treated as Business Income and will be taxed accordingly. It does not matter if day trading is of futures/stock/indices futures.

While taxation of gains from Investment is a grey area as of now and its tax-treatment, depending upon certain factors, may be clasified as Capital Gain/ Business Income, Day Trading without any doubt will be classified as Business Income. Hence, forget about LTCG@10% on your gains and be ready to pay tax as per your income slabs. Ofcourse, you can claim rebate for STT paid during the financial year against your business income and in case of a no. of Day traders, this amount of STT is usually more than the tax liability on trading gains.

As regards speculative business, now trading in derivatives is not treated as speculative business as per the Income Tax Act. Hence, an assessee can set-off loss arising out of such derivatives trading with other business profits which was not allowed earlier.

Best Regards,
--Ashish

hi ashish
what is difference between speculative business and business income.?
if I am investing in derivatives or using derivatives as a hedging tool
not on day to day basis but on longer term basis, then the profit arising
out of these transactions, is it considered business income or can I use
10% Short term tax.
also, after reading one of your posts I interpreted that if you are investing
in cash then the sell part of the transaction amount is counted towards the
40 lakh audit trail. is that true?...
btw what is the meaning of audit trial...
does it mean that IT dept will audit your account if the turnover in your trading account for a financial year is above 40 lakhs ....
also, do they add up transactions in cash/derivatives or is it counted
seperately
thanks in advance

aca_trader · #4 10th October 2006, 09:26 PM

Quote:

Originally Posted by anibhai

hi ashish
what is difference between speculative business and business income.?

Hi!
A speculative business is one specified under section 73 of the Income Tax Act. Trading in stock derivatives through NSE/BSE is not speculative business. Any profit from a non-speculative business is taxable as business income.

Quote:

if I am investing in derivatives or using derivatives as a hedging tool
not on day to day basis but on longer term basis, then the profit arising
out of these transactions, is it considered business income or can I use
10% Short term tax.

If can be taxable as Short term capital gain only when income from such transaction does not constitute a major part of your income or you are not devoting a major part of your productive hours in earning this income.

Quote:

also, after reading one of your posts I interpreted that if you are investing in cash then the sell part of the transaction amount is counted towards the 40 lakh audit trail. is that true?...

In my opinion it is. However, this provision will apply only when profits earned from the sell-purchase of securities in Cash segment is taxable as business income.

Quote:

btw what is the meaning of audit trial...
does it mean that IT dept will audit your account if the turnover in your trading account for a financial year is above 40 lakhs ...

Audit trail, in a lay man language, refers to a sequence of records which serve as evidence of a financial transaction and can be used for validation of the authenticity of the transaction or process.

It does not mean that IT department will audit your trading accounts. If turnover is above the specified limit of 40 lacks, the accounts will be audited by a Chartered Accountant.

Quote:

also, do they add up transactions in cash/derivatives or is it counted
seperately thanks in advance

The same will be added up. However, the adding process can take place only after turnover under each of the segment has earlier been determined on the basis of criteria applicable to that segment.

Best Regards,
--Ashish

siddhakala · #5 19th December 2006, 05:52 PM

Hello,

I am a short term or swing trader in Nifty. My position remains open for few days (5 to 6) to few hours.

1. What are the statements required to fulfill taxation procedure?
2. Which Statements one should get from broker?
3. As we maintain Sale Purchase and Stock register in other business, is it necessary to maintain Sale Purchase register by trader.

Sudesh

aca_trader · #6 19th December 2006, 10:37 PM

Quote:

Originally Posted by siddhakala

Hello,

I am a short term or swing trader in Nifty. My position remains open for few days (5 to 6) to few hours.

1. What are the statements required to fulfill taxation procedure?
2. Which Statements one should get from broker?
3. As we maintain Sale Purchase and Stock register in other business, is it necessary to maintain Sale Purchase register by trader.

Sudesh

Broker's contract note will be sufficient documents for taxation purposes.
Maintenance of regular books of accounts will be helpful at the time of assessment.

Best Regards,
--Ashish

parvatix · #7 28th December 2006, 05:28 PM

Hello,
What are the parameters for differentiating a Trader from an Investor from the taxman's point view? - a Trader is asked to add his short term capital gains to his income where as an investor is asked to just pay 10%+ as tax.

muttusagara · #8 20th February 2007, 12:21 PM

Quote:

Originally Posted by aca_trader

Hi!
A speculative business is one specified under section 73 of the Income Tax Act. Trading in stock derivatives through NSE/BSE is not speculative business. Any profit from a non-speculative business is taxable as business income.

If can be taxable as Short term capital gain only when income from such transaction does not constitute a major part of your income or you are not devoting a major part of your productive hours in earning this income.

In my opinion it is. However, this provision will apply only when profits earned from the sell-purchase of securities in Cash segment is taxable as business income.

Audit trail, in a lay man language, refers to a sequence of records which serve as evidence of a financial transaction and can be used for validation of the authenticity of the transaction or process.

It does not mean that IT department will audit your trading accounts. If turnover is above the specified limit of 40 lacks, the accounts will be audited by a Chartered Accountant.

The same will be added up. However, the adding process can take place only after turnover under each of the segment has earlier been determined on the basis of criteria applicable to that segment.

Best Regards,
--Ashish

Pls help me.

If the income generated from day trading is treated as Businees income, then

1. Can we deduct expenses such as
Rent on premises ?
Electricity?
Phone?
broadband?
Fee paid to Stock technical analysts?
fee paid to CA?
Investments made for Hardware and software?

2. If the day trading is done as a SOHO (Small Office/Home Office) set up
how are the above expenses treated.

3. Will there be double taxation on the income? (once a s a business income and again as a Income tax as an Individual)

ratan jain · #9 20th February 2007, 04:02 PM

very very very valid questions.....

answers by a professional would be much appreciated.

pranaypankaj · #10 20th February 2007, 06:32 PM

Hi all,
I want to know whether indian traders are allowed to trade in foreign market and if yes how that income will be treated by income tax department?

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