25 July 2008
in case of a person who regularly buys and sells shares and also in derivatives.,i would like to know if the sale consideration from the transatcions are to be considered for the limit of sec 44ab or the net profit from such transactions are to be considered forthe 40 laks limit 2) even if there are a lot of transactions running into crores can they still be considered as short term or long term gains 3) now because fo sec 43(5)derivativs are not considered as speculation, so what does this mean that income from derivatives are always to be considered as business income/loss please let me know urgently thank u
25 July 2008
1. In case of derivative trading-Futures and Option- the difference on which the contract is purchased or sold is important. Although the value of contract is number of contract multiplied with the shares price , yet what is actually given or taken is differential amount in contract. For example if you purchase a future contract for Rs 105 for a share having a lot of 100,you pay nothing at the time of buying a contract, yet at the time of expiry if contract , you are either gainer or loser which is determined whether there is positive or negative difference. So , for the purpose of determining the turnover in case of future and options , for the purpose of 44AB , based on the guidance note of ICAI , following items should be considered to constitute turnover • The total of positive and negative differences , plus • Premium received on sale of options is also to be included in turnover ,plus • In respect of any reverse trades entered, the difference thereon
2. In case a lot of transactions are executed in routine, then it can be held as an adventure in the nature of trade and profit or loss from such a business will be covered under the head of Income from Business or Profession.
3. In case of derivatives of securities the profit or loss is not treated as a speculative. Moreover, it is said to be non-speculative. The intent of law in such a case is based on the ground that deliveries are not possible in case of F&O segment and the trades are compulsorily to be settled otherwise than effecting deliveries.
However, in case of Commodity Derivatives the gain or loss will have to be treated as speculative if the same is not a hedging transaction.
25 July 2008
Further to the query posted in the comments column, whereby u have rightly said that the magin entries need not be considered to arrive at the figure of Turnover and it is only the entry of net profit or loss which may be picked, summed up and arrived at the figure of turnover.
CAclubindia
