income tax on commodity derivatives trading reg
This query is : Resolved
28 September 2008
1. how the limit of Rs.40 lakhs is applied to attract tax audit in the
case of commodity derivative trading through approved broking house on
screen based trading ? i mean only cash settlement on expiry of future
contract.
is it the difference between the total purchase value and sale value
as per the contract notes ?
2. the contract note indicates notional value of total contract
running into lakhs, where as funds invested as margin is only 5% to
10% and brokers updates the account by m to m on daily basis, in which
case how to maintain books of accounts where relevance to the actual
figures not available.
3.whether the profit/loss from commodity derivatives trading is to be
treated as non speculative business income and can it be set off
against profit/loss arising from stock derivative trading ?
grateful if u can kindly clarify at the earliest
regards
gnk kumar
case of commodity derivative trading through approved broking house on
screen based trading ? i mean only cash settlement on expiry of future
contract.
is it the difference between the total purchase value and sale value
as per the contract notes ?
2. the contract note indicates notional value of total contract
running into lakhs, where as funds invested as margin is only 5% to
10% and brokers updates the account by m to m on daily basis, in which
case how to maintain books of accounts where relevance to the actual
figures not available.
3.whether the profit/loss from commodity derivatives trading is to be
treated as non speculative business income and can it be set off
against profit/loss arising from stock derivative trading ?
grateful if u can kindly clarify at the earliest
regards
gnk kumar
30 September 2008
As per Sec 43(5) Speculative transaction means a transaction involving a contract for purchase and sale of commodities, including stocks and shares, which is periodically or ultimately settled other than by actual delivery or transfer of commodities or scrips.
In case the transaction done at commodity exchange is in the nature of a hedging transaction then the transaction will not fall in the ambit of speculative nature otherwise it is speculative.
A transaction is in the nature of hedging when it is entered to secure against the future losses on account of price fluctuations.
In case the transaction is backed by the Stock in hand of the relevant commodity or a purchase order has been placed for the same and the F&O transaction has been entered with an intention to hedge the loss on account of price fluctuations, then it is termed as Hedging.
For the purpose of analysing the limit of Rs 40lacs for Tax Audit u/s 44AB, it is the Negative or Positive income of individual contracts wich is to be summed up irrespective of M to M adjustment as the same represent the margin cover as a result of risk management compliance in accordance with the rules, regulation, bye laws and guidelines issued by the regulators. Also, the gross exposure has no relevance for this analysis.
As per Sec 43(5) Speculative transaction means a transaction involving a contract for purchase and sale of commodities, including stocks and shares, which is periodically or ultimately settled other than by actual delivery or transfer of commodities or scrips.
In case the transaction done at commodity exchange is in the nature of a hedging transaction then the transaction will not fall in the ambit of speculative nature otherwise it is speculative.
A transaction is in the nature of hedging when it is entered to secure against the future losses on account of price fluctuations.
In case the transaction is backed by the Stock in hand of the relevant commodity or a purchase order has been placed for the same and the F&O transaction has been entered with an intention to hedge the loss on account of price fluctuations, then it is termed as Hedging.
For the purpose of analysing the limit of Rs 40lacs for Tax Audit u/s 44AB, it is the Negative or Positive income of individual contracts wich is to be summed up irrespective of M to M adjustment as the same represent the margin cover as a result of risk management compliance in accordance with the rules, regulation, bye laws and guidelines issued by the regulators. Also, the gross exposure has no relevance for this analysis.
30 September 2008
few chartered accountants opined as :
1. commodity trading attracts tax audit if gross sales as per contract notes exceeds Rs.40 lakhs.
2. in case of stock futures Rs. 40 lakhs limit is to be applied on the difference of sales & purchases, irrespective of profit or loss.
3. when the trading are exactly similar in both the cases law of natural justice should prevail.
4. when i brought this confusion to the notice to one of the I T officers, he clarified point blank that both cases are does not fall under speculative income and tax audit attracts only on the diffrence between gross sales and purchases.
5. it is true that the actual reciept of money is limited only to margin money paid with adjustment debit or credit with respect to mark to market till expiry.
6. can u pk throw the light on the above points and review ur reply
regards
gnk kumar
1. commodity trading attracts tax audit if gross sales as per contract notes exceeds Rs.40 lakhs.
2. in case of stock futures Rs. 40 lakhs limit is to be applied on the difference of sales & purchases, irrespective of profit or loss.
3. when the trading are exactly similar in both the cases law of natural justice should prevail.
4. when i brought this confusion to the notice to one of the I T officers, he clarified point blank that both cases are does not fall under speculative income and tax audit attracts only on the diffrence between gross sales and purchases.
5. it is true that the actual reciept of money is limited only to margin money paid with adjustment debit or credit with respect to mark to market till expiry.
6. can u pk throw the light on the above points and review ur reply
regards
gnk kumar
01 October 2008
The only but significant difference in between stock future and commodity future is that commodity future may be converted into delivery while the stock future is compulsorily closed out without any conversion into delivery. And it is the intention of the parties entering into such transactions that one can say the it is speculative or not.
01 October 2008
dear sir
i am trading in commodity futures and compulsorily closing out only on cash settlement, i mean not converting to delivery .
if transactions are closed out without converting to delivery, can i treat as similar to stock futures, is acceptable
thank u for ur guidance
i am trading in commodity futures and compulsorily closing out only on cash settlement, i mean not converting to delivery .
if transactions are closed out without converting to delivery, can i treat as similar to stock futures, is acceptable
thank u for ur guidance
01 October 2008
dear sir
i am trading in commodity futures and compulsorily closing out only on cash settlement, i mean not converting to delivery .
if transactions are closed out without converting to delivery, can i treat as similar to stock futures, is acceptable
thank u for ur guidance
i am trading in commodity futures and compulsorily closing out only on cash settlement, i mean not converting to delivery .
if transactions are closed out without converting to delivery, can i treat as similar to stock futures, is acceptable
thank u for ur guidance
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