Treatment oF Day Trading income

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MANISH KAPOOR (Querist)
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16 June 2009 An Indivudual is deriving his income from Salary, he is also into Day Trading of Shares in a recogonised stock exchange and during the previous year his transactions were approximately 80 Lakhs now my questions are :-

1. In which head The income from Day Trading will come (Capital Gain, Business income or Speculative Business income).

2.Is he liable to Tax Audit U/s 44AB.

3.What is the amount that we have to write in the AIR column of ITR (i.e amount of purchases or Sales).

4.Do we have to use ITR 4 in this case.

CA Hemant T Dewani

CA Hemant T Dewani (Expert)
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16 June 2009 Speculation?

If a person is engaged in share trading and turnover of delivery based buying & selling is less than 40 lacs but speculation business in share trading where intra-day sale purchase is effected but delivery is not taken exceeds 40 lacs, is tax audit applicable

This issue was subject to controversial interpretation by assessee and income tax department.The issue had come up in case of Babulal Enterprise vs ACIT before Mumbai bench of ITAT [1999-2000] wherein it was held that where the actual delivery was not taken and difference in price was settled on the basis of contract note,the turn over can not include those transactions. Another decision of Mumbai Tribunal expressing similar views was in case of Growmore Exports Ltd vs ACIT [78 ITD 95] . Therefore , if you are involved in Day Trading, i.e you are squaring off of the share deal same day, the contract value is not taken for the purpose of turnover, but the differential shall be taken for the purpose of turnover.

Remember , however since the F & O trades have been declared as business trade and not speculative , the department shall read the law literally.So, in case of Future & option trade , get your accounts audited u/s 44AB of the I T Act.

Therefore, if you are only doing day tarding ,and intra day sale exceeds Rs 40 lac contract note vale of share sale , you will not fall for tax audit u/s 44AB of the I T Act

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CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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16 June 2009 1)Speculative Business Income.

2)Provided the Net "Gain and Loss" both cumulatively exceed 40 Lakhs.In your case, you have mentioned Sales and Purchase transactions are 80 lakhs. Check whether the Gain as well as loss is more than 40 lakhs or not.

3)No need for information in AIR, that's for Capital Gains Transactions.

4)Yes.

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