# Fire your tax related queries and i would get it solved!!!

## Are you able to understand the replies and act accordingly to this thread ??

• ### Not able to understand any of the replies !!!

• Total voters
4
• Poll closed .

#### diosys

##### Well-Known Member
Great going,Diosys!This thread will be of great help to many.....

All the best!
Saint
Thanks Saint.....I am fan of your reco's....

#### diosys

##### Well-Known Member
Sir,
Thanks for your endeavour to clear our doubts.

Well. Assuming that F&O trades are treated as "business" by the department, how the turnover for tax audit is to be calculated.

It seems that almost all traders doing F&O trades would be in the tax audit net atleast as far as the department goes.

Thks & Rgs.
Srisrini
Dear Sri....

Tax audit is to be done when one's turnover is above 40 Lacs...For those in other industry it is the basic sale achieved....But in the case of transactions of F&O there is a difference...

For the purpose of F&O transactions the limit of 40 Lacs is the profit or loss in absolute terms...Let me explain with an example....

Suppose you bought one lot of 150 shares of Financial Technology at Rs. 3000...Then you sold it at 3100....Therefore your profit is 100*150=15000...

Now you bought one lot of 1400 shares of HCC at 100 and then sold it for 110...so your profit if 10*1400=15000...

Third, you bought one lot of 8000 shares of IFCI at 60 and then sold it for 50...so you incur a loss of Rs. 10*8000=80000...

therefore for the purpose of determining the total turnover you achieved would be 15000(FTIL profit) + 14000(HCC profit) + 80000(IFCI loss) = 1,19,000....

it would not be the total transaction values but the absolute profit or loss incurred in the transactions...

I hope it is now clear .....

#### oxusmorouz

##### Well-Known Member
What you had read is true.....It is our beloveds FM way to increase litigation even more....It would now be a cat mouse game between the department and the assessee....

See first let me inform you that this circular has two basis distinctions....

One....You may be called a trader....You may so be called if you have done heavy buying and selling....bet it intra day or not....it does not matter....what matter is the intention with which the shares were bought....If they were bought with an intention to keep them for the long term then they would not be trader and be classified as investor....If you are a trader then the income is chargeable to tax in the head of business and tax payable @ 30%....But there may be a benefit in it..........If you socks in hand which are lower than your cost then they would be valued at that and accordingly your closing stock would be less which (would mean lower tax outgo...

Second...The opposite of trader is an investor...Here again the intention of purchasing is the key.....

One thing good that this circular has said is that a person can have two portfolios.....that he can be a trader in one set of shares and can be a investor for another set of shares....

and finally just for your information......CBDT circulars and not binding on the assessee but are binding on the department....therefore you can take out the beneficial portion from the circular and throw the rest away....
Hello Diosys,
I'd like to state a couple of points. Correct me if I'm wrong.
1) Treating trading income under the head "Income from business" allows you to deduct trading related expenses such as purchase of books, depreciation on software purchased etc which isn't applicable to those who treat the income as capital gains.
2) Securities transaction tax rebate under sec.88 E is applicable for those who treat trading as a business income. The rebate is calculated as
(Average rate of income tax * Income from trading of shares) (or) (STT Paid) whichever is less. This benefit again cannot be made use of by those who treat trading income as CG.

Sincerely yours.

#### diosys

##### Well-Known Member
Hello Diosys,
I'd like to state a couple of points. Correct me if I'm wrong.
1) Treating trading income under the head "Income from business" allows you to deduct trading related expenses such as purchase of books, depreciation on software purchased etc which isn't applicable to those who treat the income as capital gains.
2) Securities transaction tax rebate under sec.88 E is applicable for those who treat trading as a business income. The rebate is calculated as
(Average rate of income tax * Income from trading of shares) (or) (STT Paid) whichever is less. This benefit again cannot be made use of by those who treat trading income as CG.

Sincerely yours.
Dear Sir,

What you have stated is absolutely and perfectly correct !!!.....Both your points are correct...

However i would like to supplement your first statement regarding deduction of expenses...

If a person classfies himself as a trader and accordingly assessess his income under the head of business then the biggest benefit that he can derive is that he can value his closing stock at the lower of the cost or the market value....

i.e. if you have made a profit of 100000 and then make a wrong choice and bought a share at 1000 and get stuck with it at 500 then you can get the deduction of the fall in share prices from your income of Rs. 100000....This is the biggest benefit of being classified there !!!

#### aharish_iitk

##### New Member
Dear Diosys,

I just want to clarify that business income is taxed at 30% or according to the tax bracket I fall within. Suppose my profits from the future market is less than 110k and I don,t have any other income. What will be the tax. It will be 30% of zero.

What if I trade from my mother's trading account? Is there any benefit in terms of taxation?

Thanx and Regards,

Harish

#### aharish_iitk

##### New Member
Errata.........

30% or zero.........

my right hand is broken, which is causing many typing mistakes.........

Harish

#### diosys

##### Well-Known Member
Dear Diosys,

I just want to clarify that business income is taxed at 30% or according to the tax bracket I fall within. Suppose my profits from the future market is less than 110k and I don,t have any other income. What will be the tax. It will be 30% of zero.

What if I trade from my mother's trading account? Is there any benefit in terms of taxation?

Thanx and Regards,

Harish
Hi Harish....

You are absolutely correct....there would be no tax liability...Business income in the case of a proprietary business is added to the individuals assessment....if you are in a partnership or a company then the tax is 30% flat and there is no basic exemption limit....

since your taxable income is below 1.10...But please bear in mind that the limit if 1.10 is for the FY 2007-08 and not FY 2006-07....if in FY 2006-07 your taxable income is 1.10 then tax payable is 1000...

If you trade from your mothers account and she is the one who generates the income then she has a basic exemption limit of 1.45 (FY 2007-08)...Which of course is a better option as there is less tax outgo....

#### oxusmorouz

##### Well-Known Member
Dear Sir,

What you have stated is absolutely and perfectly correct !!!.....Both your points are correct...

However i would like to supplement your first statement regarding deduction of expenses...

If a person classfies himself as a trader and accordingly assessess his income under the head of business then the biggest benefit that he can derive is that he can value his closing stock at the lower of the cost or the market value....

i.e. if you have made a profit of 100000 and then make a wrong choice and bought a share at 1000 and get stuck with it at 500 then you can get the deduction of the fall in share prices from your income of Rs. 100000....This is the biggest benefit of being classified there !!!
Hello Diosys,
Please, call me "oxy" or "oxymoron".

If a stock position is unprofitable, a prudent tax payer would and should book his loss, and repurchase the same lot of shares before 31st march.
Say a person has a capital gain of 400,000Rs and a book loss of 100,000Rs incurred from Holding 1000 shares of Infosys which is down by 100Rs (He had purchased it at Rs2,000/share say). Selling the 100 shares of Infy at 1,900 on 28th of March and repurchasing them by the afternoon would reduce his capital gains from shares to Rs 300,000 + would allow him to hold infy, thereby shifting his tax liability to the next assessment year. This process, ignoring the transaction cost, would be very similar to valuing closing stock on "lower of cost and market value" basis. Thus, this cannot be called a serious advantage, from my understanding.

Also, by treating trading income as capital gains, the trader would be allowed to carry forward his losses for 8 assessment years. Treating it as business income would make it speculative business in nature, thus reducing the carry forward of losses to 4 assessment years, from my understanding.

From my point of view, unless the trader has extremely low net profit margin or incurs huge research and development overheads, treating trading income as income from business would increase his tax liability, other things remaining constant.

Sincerely yours.

#### diosys

##### Well-Known Member
Hello Diosys,
Please, call me "oxy" or "oxymoron".

If a stock position is unprofitable, a prudent tax payer would and should book his loss, and repurchase the same lot of shares before 31st march.
Say a person has a capital gain of 400,000Rs and a book loss of 100,000Rs incurred from Holding 1000 shares of Infosys which is down by 100Rs (He had purchased it at Rs2,000/share say). Selling the 100 shares of Infy at 1,900 on 28th of March and repurchasing them by the afternoon would reduce his capital gains from shares to Rs 300,000 + would allow him to hold infy, thereby shifting his tax liability to the next assessment year. This process, ignoring the transaction cost, would be very similar to valuing closing stock on "lower of cost and market value" basis. Thus, this cannot be called a serious advantage, from my understanding.

Also, by treating trading income as capital gains, the trader would be allowed to carry forward his losses for 8 assessment years. Treating it as business income would make it speculative business in nature, thus reducing the carry forward of losses to 4 assessment years, from my understanding.

From my point of view, unless the trader has extremely low net profit margin or incurs huge research and development overheads, treating trading income as income from business would increase his tax liability, other things remaining constant.

Sincerely yours.
Dear Oxy...

I am in a hurry just now...would reply to you tomorrow morning...see you....

Only thing i can state is that why to incur that transaction cost when the same advantage can be availed without that cost !!!....

#### aharish_iitk

##### New Member
Hi Harish....

You are absolutely correct....there would be no tax liability...Business income in the case of a proprietary business is added to the individuals assessment....if you are in a partnership or a company then the tax is 30% flat and there is no basic exemption limit....

since your taxable income is below 1.10...But please bear in mind that the limit if 1.10 is for the FY 2007-08 and not FY 2006-07....if in FY 2006-07 your taxable income is 1.10 then tax payable is 1000...

If you trade from your mothers account and she is the one who generates the income then she has a basic exemption limit of 1.45 (FY 2007-08)...Which of course is a better option as there is less tax outgo....

Dear Diosys,

Thanks for clearing the doubts.
Thanx a lot for ur good wishes.

Harish