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How to claim derivatives loss while filing income tax return

sachin (Others) (79 Points)

25 February 2014

Hi,

For AY 2011-12 my CA filed a tax return by setting off derivatives loss against salary income. This was rejected by CPC Bangalore saying that set off of specualtion loss against non speclation business income (salary income) is not allowed. However I found at many websites that "trading in derivatives (futures and options) is treated as non-speculation business even though delivery is not effected in such transactions". With this appreciate any help on how to rectify this return and submit to CPC?

Regards,

Sachin

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7 Replies

Mayank (CA) (29 Points)
Replied 25 February 2014

Under Section 71 of Income Tax Act, loss from business/ profession cannot be set off against income under the head "Salaries" (applicable from AY 2005-06)

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CA Vikrant Arora (Practicing Chartered Accountant) (67 Points)
Replied 25 February 2014

Originally posted by : sachin
	Hi, For AY 2011-12 my CA filed a tax return by setting off derivatives loss against salary income. This was rejected by CPC Bangalore saying that set off of specualtion loss against non speclation business income (salary income) is not allowed. However I found at many websites that "trading in derivatives (futures and options) is treated as non-speculation business even though delivery is not effected in such transactions". With this appreciate any help on how to rectify this return and submit to CPC? Regards, Sachin

In your case, the loss from the derivative transactions is Speculation business loss, as may activity you are carrying is job, from where you are getting the salary. So it cannot be loss from non-speculative business activity. Even if still is covered under non-speculative, the set-off of salary income with business loss is not allowed.

sachin (Others) (79 Points)
Replied 25 February 2014

Originally posted by : CA Vikrant Arora
	Originally posted by : sachin Hi, For AY 2011-12 my CA filed a tax return by setting off derivatives loss against salary income. This was rejected by CPC Bangalore saying that set off of specualtion loss against non speclation business income (salary income) is not allowed. However I found at many websites that "trading in derivatives (futures and options) is treated as non-speculation business even though delivery is not effected in such transactions". With this appreciate any help on how to rectify this return and submit to CPC? Regards, Sachin In your case, the loss from the derivative transactions is Speculation business loss, as may activity you are carrying is job, from where you are getting the salary. So it cannot be loss from non-speculative business activity. Even if still is covered under non-speculative, the set-off of salary income with business loss is not allowed.

sachin (Others) (79 Points)
Replied 25 February 2014

Thanks Vikrant and Mayank for quick response. There is little correction, sorry about that. The derivative loss was set off against interest income from bank, FD, NSC and debentures. In that scenario is it still not allowed to set it off that way? Appreciate your help again.

RAM KUMAR GOEL (PROPRIETOR) (87 Points)
Replied 28 February 2014

Loss from trading in derivatives of shares is normal business loss and not speculative but cannot be set off against salary. The loss will be carried for to be set off in next years against normal/speculative business income.

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MOHIT AGARWAL (ARTICLE) (23 Points)
Replied 06 March 2014

Mr.Ram Kumar Goel , Please go through the link https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflaash/Documents/india-dec17-2013no2.pdf,

As per this case law Derivative Loss is Speculation Loss. Please Clearify that whether Derivative Loss is Speculative or not .

RAM KUMAR GOEL (PROPRIETOR) (87 Points)
Replied 06 March 2014

Under Section 43(5) clause (d) a transaction in respect of trading in derivatives of equity shares carried out in a recognised stock exchange is not speculative transaction. Under clause (e) of this sub-section transaction in respect of trading in commodity derivatives carried out in a recognised associaation w.e.f. AY 2014-15 is also not a speculative transaction. I think it is clear to you.

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