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Derivative Transaction

CA Vivek Jain (SERVICE) (1550 Points)

21 July 2008

Kindly let me know whether income / loss from derivatives is speculative or non-speculative in nature?

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4 Replies

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 21 July 2008

Speculative

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krishna bangad (Practice) (22 Points)
Replied 21 July 2008

hello... nitin a a Small Information for you a derivative transaction if traded on recognised Stock exchange then there are non -speculative U/s 43(5) of I.T.Act

CA PRAMOD SARAOGI (Chartered Accountant) (1113 Points)
Replied 22 July 2008

Speculative Transaction: - In a speculative transaction, the contract for sale or purchase is settled otherwise than by actual delivery or transfer of the commodity or scrips. The contract is squared up by paying out the differences which may be positive or negative. In such transactions, although the contract notes are issued for the full value of the purchased / sold scrip, the entries are made in the books of account only for the differences. The aggregate of both positive and negative differences is to be treated as “turnover” for section 44AB purposes. This view of ICAI does not appear to be the correct view – see Growmore Exports Ltd.v.Asstt.CIT [2001] 78 ITD 95/72 TTJ691 (Mum.).

Derivatives, futures and options: - In case of such transactions, the following shall be included in ‘turnover’ for section 44AB purposes: (i) total of favourable and unfavourable differences,(ii) premium received on sale of options; and (iii) difference in respect of reverse trades entered. Growmore Exports Ltd.v.Asstt.CIT [2001] 78 ITD 95/72 TTJ691 (Mum.).

Delivery based transactions: - In respect of delivery-based transactions (purchase/sale) of stock/any commodity, the total value of sales should be considered as turnover provided the stock/ commodity is held as stock-in-trade.