NEED EXPERT ADVICE ON TAX OF DERIVATIVES

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 R.SIR,
COULD ANYONE OF YOU GIVE A DETAILED EXPLANATION OF TAXATION OF INCOME FROM OPTION DERIVATIVES e.q.
(a) INCOME,
(b) TURNOVER,
(c) CONDITION FOR MAINTENANCE OF BOOKS OF A/C ETC.

FOR EXAMPLE:
DURING FY2010-11
TOTAL PURCHASE COST OF OPTIONS 19 LAKHS
" " SALE(SQ.OFF ONLY ) 20LAKHS
PROFIT = 1 LAKH

TOTAL OF NET LOSS 4 LAKH
""" "" GAINS 5 LAKHS
PROFIT(NET) = 1 LAKH

1. IS MAINTENECE OF BOOKS OF ACCOUNT ON TOTAL OF NET LOSS AND GAINS OR ON SALE (SQ.OFF AMT.)

2. SOME PERSON SAY THAT TURNOVER = Option Premium paid + Premium Received+
Profit in F&O + Loss in F&O

BUT IF A PERSON ONLY BUYS OPTION CONTRACT AND SQ.OFF IT AT PROFIT / LOSS THEN IS SQ.OFF AMOUNT IS EQUAL TO OPTION PREMIUM RECEIVED?( AS IN ABOVE EXAMPLE)
IF, YES THEN THE SAME CONTARCT PREMIUM IS ADDING TWO TIMES , FIRST AT BUY OF OPTION, SECOND AT SQ.OFF TIME
BUT I THINK IT MAY BE WRONG CONCEPT.
PLEASE EXPLAIN IN DETAIL
THANK YOU VERY MUCH
YOUR EFFORT IS HIGHLY APPRECIATED.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

16 February 2011 MAINTENECE OF BOOKS OF ACCOUNT ON TOTAL OF NET LOSS AND GAINS

SOME PERSON SAY THAT TURNOVER = Option Premium paid + Premium Received + Profit in F&O + Loss in F&O.

If option sold or option exercised then turnover to be considered once only. But in cases where the volume is large it is difficult to identify this and this total is counted.

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 PLEASE GIVE MORE DETAILS

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

16 February 2011 What additional details u need?
for accouting visit this link
https://www.caclubindia.com/share_files/guidance-note-on-accounting-for-futures-options-28916.asp

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 DETAIL ON
(a) INCOME,
(b) TURNOVER,
(c) CONDITION FOR MAINTENANCE OF BOOKS OF A/C ETC.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

16 February 2011 1. Income is the net profit or loss at the year end. STT allowable expenses

2. Turnover in case of F & O is sum of negative and positive differences.

3. Books of accounts needs to be maintained to know the profit & loss in trading.

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 IN CASE OF OPTION ONLY NOT IN FUTURE
DO TURNOVER IS ADDITION OF ALL SQ.OFF AMOUNT OR JUST ADDITION OF GAINS/LOSSES

GIVE UR ANS BY SOLVING THE ABOVE EXAMPLE

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

16 February 2011 For the purpose of computing turnover or gross receipts of speculative transaction in shares, securities and derivatives where contract is settled by paying the difference which may be positive or negative, the difference amount is turnover. Each transaction results in positive or negative difference, though the contract notes are issued for full value of the purchased or sold asset, the entries in the books of account are made only for the difference. As per the Guidance Note on Tax Audit (Revised 2005 edition), the aggregate of both positive or negative differences is to be considered as the turnover for such transactions for determining the liability to audit vide Section 44AB.
Where these transactions are delivery based, the total value of sale is to be considered as turnover.

Upgrade to CAclubindia Pro. Subscribe Now!

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 BUT IN CASE OF OPTIONS AT THE TIME OF BUYING WE PAY A PREMIUM BUT AT THE TIME OF SQ.OFF WE RECEIVE PREMIUM SO HOW IS DIFFERENCE SETTLED

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

16 February 2011 In case of options the turnover should be of one side only but it is very difficult to actually find out whether the option was finally exercised or not or acutally sold or not. So turnover is taken as profit + loss.

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2011 COULD U GIVE SOME PRACTICLE EXAMPLE

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 February 2011 If u purchase Nifty FEB put 5400 by paying Rs. 50 premium and at the expiry nifty at 5500 then the premuim paid initially would be loss as the put would be out of the money option. So effectively no sale here.

Upgrade to CAclubindia Pro. Subscribe Now!

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2011 NOW IF WE SQ. OFF THE SAME @RS.75 THEN WHAT WILL BE
SALE TURNOVER FOR SEC.44AA PURPOSE.
IS IT PROFIT ONLY OR TOTAL PREMIUM PAID

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 February 2011 It would be 75

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2011 ISN'T WOULD BE RS.25 I.E GAIN

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 February 2011 no it would be the sale amount.

Querist : Anonymous

Querist : Anonymous (Querist)

18 February 2011 BUT U TOLD THAT IT ADDITION OF PROFIT/LOSSES.

CAN U GIVE ME SOME RELEVENT PUBLICATION REGARDING THIS OR SOME SAMPLE STATEMENTS, IF U CAN

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

18 February 2011 Going by your statement profit or loss then when u purchase it is ur loss and when u sale it is your profit. Then full turnover should be taken. That is how accouting for Futures is done.

The only publication by the ICAI is the for accouting visit this link
https://www.caclubindia.com/share_files/guidance-note-on-accounting-for-futures-options-28916.asp

Querist : Anonymous

Querist : Anonymous (Querist)

21 February 2011 PLZ MAKE IT MORE CLEAR BY SOLVING THE QUERY IN FIRST QUESTION AT TOP OF THIS PAGE
THANKS

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

21 February 2011 read the guidance note and solve it yourself.

Querist : Anonymous

Querist : Anonymous (Querist)

03 March 2011 PLZ PROVIDE HELP

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

03 March 2011 Now wat more?

Querist : Anonymous

Querist : Anonymous (Querist)

03 March 2011 THE G.N. PROVIDE FOR ACCOUNTING FOR OPTION DERIVATIVE BUT I DID NOT FIND REGARDING TAXATION POINT POINT OF VIEW THAT HOW TURNOVER WILL BE DETERMINED FOR MAINTAINING BOOKS OF A/C FOR SEC 44AA PURPOSE . PLZ TELL BY LOOKING INTO EXAMPLE IN FISRT POINT.
PLZ SPARE SOME OF UR PRECIOUS TIME TO MAKE SOLVE THE QUERY. I M ASKING FOR MANY DAYS. PLZ TELL IN DETAIL

Querist : Anonymous

Querist : Anonymous (Querist)

07 March 2011 PLZ ANSWER SIR

Querist : Anonymous

Querist : Anonymous (Querist)

11 March 2011 MR.MAHESWARI PLZ ANS