Looking for a CA for help in derivative trading taxation

[prabuanand]

hello,

3. undoubtedly there is a requirement to get accounts audited if 8% profit is not shown or to claim a loss in any business by virtue of section 44AD, if your current case i think u have a loss in FNO business hence it will be better to get the accounts audited and claim the loss to be carry forwarded for the coming years.

Dear Ritesh,

Thanks for taking your valuable time to clear the taxation queries of Traderji members.

I'm preparing my ITR4. My only business income is derivative trading in Nifty Index futures.

1. I've used code 0204 - Trading-others in Nature of Business.

2. I've chosen no account case, in PART PL under Item51, and filled in the following.

a Gross receipts 51a 1802630
b Gross profit 51b 101093
c Expenses 51c 12482
d Net profit 51d 88611

Since my net profit 88611 is less than 8% of my turnover, should i change the Net Profit to 144210 in Item51 if i don't prefer to get audited.

3. With Net profit as 88611, In BP Sheet, if i enter 144210 in field 33i, i'm getting a negative income of -55599 in fields 6,10,13 and 32. Do i need to fill anything in BP Sheet for section 44AD?

4. The entire transactions are maintained electronically using an accounting software Directshares. I also seek your advice on the charges for getting a tax audit, if the above scenario warrants the same.

 

[ritesh.bafna88]

Dear Ritesh,

Thanks for taking your valuable time to clear the taxation queries of Traderji members.

I'm preparing my ITR4. My only business income is derivative trading in Nifty Index futures.

1. I've used code 0204 - Trading-others in Nature of Business.

2. I've chosen no account case, in PART PL under Item51, and filled in the following.

a Gross receipts 51a 1802630
b Gross profit 51b 101093
c Expenses 51c 12482
d Net profit 51d 88611

Since my net profit 88611 is less than 8% of my turnover, should i change the Net Profit to 144210 in Item51 if i don't prefer to get audited.

3. With Net profit as 88611, In BP Sheet, if i enter 144210 in field 33i, i'm getting a negative income of -55599 in fields 6,10,13 and 32. Do i need to fill anything in BP Sheet for section 44AD?

4. The entire transactions are maintained electronically using an accounting software Directshares. I also seek your advice on the charges for getting a tax audit, if the above scenario warrants the same.

your code "0204" is okay.

in case u want to show 8% profit than i would suggest you to fill form ITR 4S.

ITR 4S is specially made for presumptive income.

in case you want to go for audit and claim lower profits then you can expect a charge of Rs 10000 to 15000 as the turnover is small.

the above charge can very significantly depending on the CA you choose . a CA is only allowed to take 45 tax audits and your low turnover audit will take one slot of audit which may not be cost effective to some CAs

although the limit is not implemented religiously in previous years but due to filing of electronic audit reports from this year onwards the CA may follow the limit rule.

as per my understanding of Section 44AD as per the clause 5 audit is required when the income is shown below 8% and if your Gross total taxable income is above Rs 200000.

keeping mind that your only income is FNO trading and as per 8% calculation the Profit comes to Rs 144210. assuming you don't have any other income or even if you do than the total gross income doesn't adds up to Rs.200000. you wont have to get the FNO business audited.

to comment on the ITR 4 that u r preparing i will be able comment only if i could look at the form.

for the sake of convenience and i you desire than pls upload PDF version of the filled form.

Thank You
CA. Ritesh Bafna.

 

[prabuanand]

your code "0204" is okay.

in case u want to show 8% profit than i would suggest you to fill form ITR 4S.

ITR 4S is specially made for presumptive income.

in case you want to go for audit and claim lower profits then you can expect a charge of Rs 10000 to 15000 as the turnover is small.

the above charge can very significantly depending on the CA you choose . a CA is only allowed to take 45 tax audits and your low turnover audit will take one slot of audit which may not be cost effective to some CAs

although the limit is not implemented religiously in previous years but due to filing of electronic audit reports from this year onwards the CA may follow the limit rule.

as per my understanding of Section 44AD as per the clause 5 audit is required when the income is shown below 8% and if your Gross total taxable income is above Rs 200000.

keeping mind that your only income is FNO trading and as per 8% calculation the Profit comes to Rs 144210. assuming you don't have any other income or even if you do than the total gross income doesn't adds up to Rs.200000. you wont have to get the FNO business audited.

to comment on the ITR 4 that u r preparing i will be able comment only if i could look at the form.

for the sake of convenience and i you desire than pls upload PDF version of the filled form.

Thank You
CA. Ritesh Bafna.

Dear Ritesh,

Thanks for your thorough reply.

1. In my post, i only gave the business profit of 88611. I have other income like interest income from FD's, STCG and some Exempt Income under LTCG(STT Paid) and Dividend. So total income definitely exceeds exemption limit of 2,00,000.
So i either pay tax based on business profit of 8% of turnover(144210) or pay tax for actual profit (88611) and undergo tax audit as per Section 44AD.

2. i've uploaded the partial ITR4 here..
In the ITR4, sheet BP, Item 33 various sections like 44AD, 44AE ... are given. I suppose the above business profit must be declared under Sectio 44AD in Item 33. Please confirm.

3. Please advise if other uploaded sheets are proper.

Thanks again for your detailed guidance.

 

[ritesh.bafna88]

Dear Ritesh,

Thanks for your thorough reply.

1. In my post, i only gave the business profit of 88611. I have other income like interest income from FD's, STCG and some Exempt Income under LTCG(STT Paid) and Dividend. So total income definitely exceeds exemption limit of 2,00,000.
So i either pay tax based on business profit of 8% of turnover(144210) or pay tax for actual profit (88611) and undergo tax audit as per Section 44AD.

2. i've uploaded the partial ITR4 here..
In the ITR4, sheet BP, Item 33 various sections like 44AD, 44AE ... are given. I suppose the above business profit must be declared under Sectio 44AD in Item 33. Please confirm.

3. Please advise if other uploaded sheets are proper.

Thanks again for your detailed guidance.

1. yes in such a case you will have to pay tax on 8% calculation or get the accounts audited.

2.1 in "Part A-P& L: Profit and Loss Account for the previous year 2012-13 of the proprietory business"

please enter your FNO turnover in "51A". rest is okay.

2.2 the sheet containing tax calculation is correct.

2.3 the Sheet BP is made up wrong. you have missed to enter figure at 2 places (1) enter the 88611 figure at "A.4" which will make the Balance at "A.6" NIL (2) enter the 88611 figure at "33i" hence the total at "33xi" will also change to 88611

please note: that the above comments are made on the basis of profit that you have shown in the shared sheets. these figures are less than 8% of turnover. if you show 8% profit than change the 88611 figure to 144210 at all the places.

further to clarify doubt, the 144210 should be the net profit hence please add the expenses in net profit figure to come up with gross profit figure. which in your case will be as follows : gross profit:156692 expense: 12482 net profit: 144210.

Regards,
CA. Ritesh Bafna

 

[anuragmunjal]

Dear Ritesh

thank you very much for helping TJ members. I have one query.. how do we calculate our turnover in derivatives? is it by adding up all the daily mtms or is it done in some other manner?

regards

Anurag

 

[prabuanand]

1. yes in such a case you will have to pay tax on 8% calculation or get the accounts audited.

2.1 in "Part A-P& L: Profit and Loss Account for the previous year 2012-13 of the proprietory business"

please enter your FNO turnover in "51A". rest is okay.

2.2 the sheet containing tax calculation is correct.

2.3 the Sheet BP is made up wrong. you have missed to enter figure at 2 places (1) enter the 88611 figure at "A.4" which will make the Balance at "A.6" NIL (2) enter the 88611 figure at "33i" hence the total at "33xi" will also change to 88611

please note: that the above comments are made on the basis of profit that you have shown in the shared sheets. these figures are less than 8% of turnover. if you show 8% profit than change the 88611 figure to 144210 at all the places.

further to clarify doubt, the 144210 should be the net profit hence please add the expenses in net profit figure to come up with gross profit figure. which in your case will be as follows : gross profit:156692 expense: 12482 net profit: 144210.

Regards,
CA. Ritesh Bafna

Dear Ritesh,

Thanks once again for clarifying and correcting the errors in the above ITR4. I have made all the corrections as suggested by you and the corrected ITR4 sheets are here.

I hope Traderji members benefit by looking at the filled in ITR4 forms. Thank you.

 

[ritesh.bafna88]

Dear Ritesh

thank you very much for helping TJ members. I have one query.. how do we calculate our turnover in derivatives? is it by adding up all the daily mtms or is it done in some other manner?

regards

Anurag

no sir mare to market has noting to do with turnover calculation

to calculate turnover one has add up the difference between buy and sell values of share of all the contracts even if there is a loss one has to add up.

for example suppose: X stock having 1 lot of 500 shares being buy price 150 then the contract value becomes 500*150= 75000 and sell price is 175 then sale contract value is 500*175=87500 then the turnover is 12500. if in same stock there is difference of -10000 then now the turnover is 12500+10000=35000.

Regards

 

[ritesh.bafna88]

Dear Ritesh,

Thanks once again for clarifying and correcting the errors in the above ITR4. I have made all the corrections as suggested by you and the corrected ITR4 sheets are here.

I hope Traderji members benefit by looking at the filled in ITR4 forms. Thank you.

your itr extract are correctly filled.

just to remind you that in same if you r going with 8%profit then it will be convenient for you to file ITR 4S coz this return is specifically made for such cases.

Regards.

CA. Ritesh Bafna

 

[prabuanand]

your itr extract are correctly filled.

just to remind you that in same if you r going with 8%profit then it will be convenient for you to file ITR 4S coz this return is specifically made for such cases.

Regards.

CA. Ritesh Bafna

Dear Ritesh,

Thanks for confirming the correctness of filled up ITR4 form. I hope Traderji members benefit from using the above form as a quick reference.

By looking at the form ITR4S, i believe ITR4S is not applicable if a person has Capital Gains/Losses, Carried Forward Losses, Exempt income etc. Please correct me if i'm wrong. As can be seen from PartB-TI-TTI sheet, besides Business Income(F&O) i've another Investment portfolio(Equity Delivery) which has STCG,LTCG,CFL etc. So i suppose i've to go for ITR4 only.

 

[a1b1trader]

to calculate turnover one has add up the difference between buy and sell values of share of all the contracts even if there is a loss one has to add up.

But how the calculation of turnover of options is done.

Is it the total premium received on selling option of a strike of stock/index.
For example, if I sell 5 lots of NIFTY6000C @100, then my total turnover for this trade will be 5 (lots sold) * 50 (lot size) * 100 (price of the option) = 25000
and nil turnover for buy side.
Am I right in my calculation. Please confirm

And what about the options bought but not squared off and expired ITM (in the money).

Isnt the calculation of turnover for options is based on wrong assumption/calculation. On one side in futures they take loss or profit as turnover and while in options the total actual turnover.

That means deptt. wants that an option trader, to avoid audit process must earn minimum 2000 on net basis in above example. Isnt it a cruel joke.