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Speculation business

Anurag Agarwal (CA Final, Advocate) (292 Points)

03 December 2010

Hey can anyone tell me..what's the meaning of "SPECULATION BUSINESS"???

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Devendra (Chartered Accountant) (4775 Points)
Replied 03 December 2010

Hi Anurag,

Speculative means : Of or relating to an asset or a group of assets with uncertain returns. The greater the degree of uncertainty, the more speculative the asset.

Speculative business involves more risk and uncertainty in the value of the asset in which the business is interested in trading. For eg : Trading in Shares is a speculative business.

Speculation Business

A speculation business means any business in which a contract for the purchase and sale of any commodity including stock and shares are periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity but does not include a business in which a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purposes of fulfilling the person's other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold.

A contract in respect of the stocks and shares is entered into by a dealer or investor to guard against loss in the person's holding of stocks and shares through price fluctuations. A contract is entered into by a member of a forward market or stock exchange in the course of any transaction to guard against any loss which may arise in the ordinary course of the person's business as such member. The amount received or earned from this income is subject to taxable and there is a lot of risk associated with the speculation business especially in the stock exchange market.

Regards,

Devendra P Kulkarni

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CA Saba Naaz (Chartered Accountant) (8487 Points)
Replied 03 December 2010

Speculation business is the business carrying out speculative transactions.

As per Section 43(5):

"Speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares , is periodically or ultimately settled otherwise than by the actual delivery of the commodity.

Also ..... profit or loss from derivative trading carried out through a recognized stock exchange shall not be treated as profit or loss from speculation business. However, derivative trading in commodities shall be treated as speculative transaction.

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