Taxation on DerivativesTrading

This query is : Resolved

arunjit (Querist)
Follow

01 June 2010 Respected Sir/Sirs,

I am an intraday trader in Index/Stock Futures. I have been trading for last 2 years in F&O segment and now by the help of technical analysis i have started earning decent profits on an intraday basis. Seldom do i carry positions overnight. I have no other income other than trading in derivatives.I am concerned about my tax liabilities. Kindly advise me on the following issues:
1> How much tax liability arises on my income as an individual from profits made ona yearly basis?
2> In the course of my trading some of my trades are hit by stop losses....can i offset those losses from my profits?
3> Can i shift my income tax status from individual to a corporate one by opening up a company...(pvt.ltd.), whose sole purpose will be trading in futures markets and investment in stocks in due course of time...if yes what are the formalities?
4> As a company owner will be able to enjoy tax deductions on all expenses like salary,electricty bills, establishment costs etc.
5> what are the income tax slabs that will be chargeable on me?

Looking forward for your kind reply,

With rgds,
Thank you

Arunjit

PHANI

PHANI (Expert)
Follow

03 June 2010 Dear Arun,

1. The tax liability depends on the slabs within which you fall based on the profits earned by you. The slabs applicable to a salaried employee or any other individual earning income are applicable to you.

2. You can set-off the losses that arise during your trading with the profits that you earn. For example in the first year you have incurred a loss and has filed the loss return and in the second year you have earned profits. The said loss can be set-off against the profits generated. This is just an example to make you understand but there will be other criteria for set-off of loss against income generated.

3. The formation of a pvt.ltd. company is guided by the Companies Act,1956. You can refer them to know in detail the pre-requisites for formation of a co.

4. The Company is allowed to get deduction for the expenses incurred such as salaries, electricity, establishment costs etc. Please note that although you will be the owner (director) of the co., the Co. is a separate entity from its owner and it has got its own legal status. Also income tax returns has to be filed in the name of the co.
5. In case you wish to do the business in your individual name, then the profits earned by you will be taxable in your hands at the slabs applicable to a salaried or any other income earning individual. However, if you wish to start a co. and do the business, you need to file two separate income tax returns, one in the name of the Co. and second in your name.

Hope I have clarified your doubts, if you still have any, please get in touch with me at this email id - spassociates9@gmail.com

Regards
CA. Phani Kumar