01 July 2010
A pvt Ltd. deals in shares and its turnover is
Jobbing Rs. 7227677/- loss Rs. 19829/- Future Trad. Rs.31860310/-Loss Rs.149248/- Delivery Rs. 2915910/- Loss 251312/-
1.Which are speculative transation? 2. Is Tax audit Applicable ( Delivery Tunover only rs 29 Lacs) 3.Delivery turnover taxableunder business or capital gain head?
01 July 2010
Whether purchase and sale of share through demat account is STCG or Speculation? Income Tax Act distinguishes between different types of transaction in shares . The purchase or sale of shares can result in -short term capital gains or trading gains or speculative gains – all depending upon the circumstances in which such purchase or sale of shares have been done. In this context , Om Prakash Singh of Varanasi asks : “Whether purchase and sale of share through demat account is STCG or Speculation and whether interest paid on loan for purchase of share is deductible in STCG?” Speculative transaction is defined under section 43(5) of the I T Act to mean that purchase or sale transaction without taking delivery is speculative transaction. Thus , when you do day trading i.e you buy the shares and settles same day or after a day without taking or giving delivery , whatever gains or loss arising out of such transaction is speculative gain or loss. But when you buy and shares are delivered to your demat account, it means you have taken delivery and after that you sale shares and delivers the shares , it means such transaction will not be speculative transaction , because buy and sale has been effected by delivery of goods. The gains or loss out of such transaction can be either trading gains or capital gains depending upon houw you treat your purchase of shares in your accounts. If you treat the bought shares as investment , the gains may be treated as short term capital gainsif the holding period of shares is below 12 months . If you treat the bought shares as Stoc-in-Trade , in that case the gians or loss will be business gains or loss. Is interest allowed? Yes, if the borrowed fund is ustilised for earning capital gains, interest is deductible.
i.e jobbing and future trades are speculative transactions which are done without taking delivery.
Delivery turnover is taxable under head capital gain head.
Tax audit is applicable. Becasue speculative transaction business is cross 40 Lac limit.
01 July 2010
Thanks but i have received this reply also. can u tell what should i do?
The day trading is definitely speculative in nature. The delivery is never taken of given. Therefore, confusion is created regarding what should be the turnover of day trading transaction should the value of purchase or sale or only difference between the purchase and sale be taken for computing turnover for the purpose of tax audit U/S 44AB of the IT Act.
The issue had come up in case of Babulal Enterprise vs ACIT before Mumbai bench of ITAT (IT Appeal No. 6031 (Mum) of 1996 dated 12.02.1997) wherein it was held that where the actual delivery was not taken and difference in price was settle on the basis of contract note the turn over can not include those transactions value. Another decision of Mumbai Tribunal expressing similar views was in case of Grow more Exports Ltd., vs ACIT (78ITD 95).
In case of day trading, a person does trade in margin i.e. difference in purchase and sale transaction. The meaning thereby that the speculator squares off the trade without ever actual delivery. Therefore, if the difference amount of squared off deals, without taking into account the positive or negative figure, exceed Rs. 40 laksh, then tax audit has to be taken. For example, let us say following are the data of transactions of a day trader:
Date Difference Amount
1/9/2006 Gain + 4,00,000 20/10/2006 Loss – (24,00,000) 28/10/2006 Loss – 4,00,000 1/11/2006 Gain – 11,00,000
The turnover for the purpose will be 43 lakhs (4 + 24 + 4 + 11). The day traders has to get his accounts audited.
Note that only difference amount was taken and positive or negative sign were ignored.
01 July 2010
Turnover in case of F & O and day trading is taken as sum of positive and negative differences. If the same along with the other turnvoer exceeds Rs. 40 lakhs then audit is required.
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