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derivatives taxation

CA Sandeep Kumar (Audit Assistant) (804 Points)

23 December 2010

Hello members

One of my relative is trading in derivatives and i managed to get statements from them. There are two statements, one is ''Client wise global net position (Cash cumulatives)'' and ''Client wise global net position (derivative cumulatives)''. The statement consists of items of purchase and sale. I wanted to know more details as to what the statement is all about, and profit/loss as indicated in the statement, will it be taxed. Or is there any other adjustment to be made??

PLease reply..

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6 Replies

CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 23 December 2010

Dear Sunny,

In the Net Position Statements generally opening stock held by the client is not considered. You can observe some negative quantities in Cash Segment Statements. For that you have to verify Opening Balance quantities /amount of various stock items.

Even if the situation may be different or say this is a new business then also closing stock quantities as shown by the broker may be at market rate.

It is always better to prepare Excel worksheets for the adjustment of Opening stock.

For valuation of closing stock qualtities utmost care is required.
To handle all these matters proper accounting through contract notes is the best way.

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 24 December 2010

thanks a lot sir.

But the statements used by me will be only for taxation purposes, can accounting entries be ignored ?? Can i take only the profit/loss reflected in the statement and consider that as Short term capital gain or business profit?? Or any furher adjustment is to be made to the profit/loss indicated in the statement?

Another query- cash cumulatives means stock/shares??

derivative cumulatives meaning futures & options??

CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 24 December 2010

If you would like to ignore accounting entries then please cross check whether the results are ok.

For thet you have to take help of General Ledger or Party Ledger A/c issued by the broker.

Suppose If Chqs paid to the broker is 100000/ and You are having stock of120000/- then the increasesin balance is nothing but profit.

If Opening Stock 100000 chqs given 100000 and Stock is 180000 , Receivable from Broker is 40000/

then you should have 20000/- profit in the statement . Means you have to seggregate certain items.

.Another query- cash cumulatives means stock/shares?? ANS : YES..

derivative cumulatives meaning futures & options?? ANS : YES..

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 25 December 2010

thanks a lot for the replies sir.. i am clear with the concept now. Now can you can you please confirm my understanding is correct ot not.

Statements issued by broker

Cash cumulative statement- net profit/loss is indicated - is to be considered for taxation

derivative cumulative statement- net profit/loss is indicated - is to be considered for taxation

Financial Statement-statement showing deposit of amount with broker and balance as at 31-03-2010, not to be considered for taxation, as it is only a cash statement, profit/loss not indicated here.

Please confrim whether whatever i have mentioned is correct or wrong..

CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 25 December 2010

For the purpose of tax calculation it is ok , but when the Income Tax Return will be filed you have to consider the Balances of Broker's A/c as well as Stock as on 31.3.2010.

Pl. confirm stock with Demat A/c Stock and Stock lying in Pool A/c with the Broker.

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 25 December 2010

thanks loads sir.. not many would know about these transactions, and you have advised me so much.. please keep helping .... will go as per your advise..

Merry christmas!!! God Bless you...