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Tax on Income from Share Trading

06 May 2011

Suppose, Mr. A is 55 years old person who trades in shares and income from share trading is only his income. He normally buys and sells on the same day without taking delivery or takes delivery and sells the shares afterwards but before 1 year.

1) What will the nature of income from this two types of transactions? Whether the income from day trading without trading will be treated as speculation gains or business income?

2) How can we show the same for the tax purpose?

3) Are these incomes chargeable at different income tax rates? at what rate of tax?

4) Which ITR form to be used? What could be the nature of business?

5) Is he eligible for any deductions from Section 80C of Income tax Act?

6) If there are losses under these two types of transactions, whether the same can be carried forward?

Kindly revert.

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14 Replies

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 06 May 2011

Originally posted by : bharati vidhyadhar marathe
	Suppose, Mr. A is 55 years old person who trades in shares and income from share trading is only his income. He normally buys and sells on the same day without taking delivery or takes delivery and sells the shares afterwards but before 1 year. 1) What will the nature of income from this two types of transactions? Whether the income from day trading without trading will be treated as speculation gains or business income? 2) How can we show the same for the tax purpose? 3) Are these incomes chargeable at different income tax rates? at what rate of tax? 4) Which ITR form to be used? What could be the nature of business? 5) Is he eligible for any deductions from Section 80C of Income tax Act? 6) If there are losses under these two types of transactions, whether the same can be carried forward? Kindly revert.

1) shares hold more then 365 days in demat then sell , it would come under LTCG, exempted if stt paid on sales.

2) intraday is speculation, and such income is directly added to taxable income, such loss can not be adjusted with any other head except speculation

3) F&O trades are business income / loss.

4) he can avail 80C fron all his turnover except LTCG

5) if business income then ITR4, otherwise ITR2

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Nitin Grover (CS) (1228 Points)
Replied 06 May 2011

Dear Friend

If You Share hold for more than 365 days and then sell it will be treated as LTCG. Its Exempt from Tax because STT has been paid on it with brokerage.

If its short terms then Tax on net profit is 15%

No Exemption in 80 C is allowed because flat rate of Tax is applicable.

In other STCG which clubbed with Total Income is eligible to get exemption uunder section 80C.

Form ITR 2 will be applicable.

To sell share on same day or sell afterwards but before completion of 365 days it has same meaning for Income Tax.

Regards

CS Nitin Grover

+91-9582009494

Email : nitinsgrover @ gmaill.com

bharati marathe (Student) (38 Points)
Replied 07 May 2011

Originally posted by : U S Sharma

Originally posted by : bharati vidhyadhar marathe

Dear Shrma Sir,

Thank you for your reply.

If Mr. A has, suppose, some other income of Rs. 350000 & speculation gain on shares is of Rs. 200000 and also Short term capital gain tax of Rs. 500000 then, STGL will be carried forward for next 8 years can be set off in future against any STCG.

In case of speculation income, Rs. 2 lacs will be added to Rs. 3.50 lacs and thus on total of Rs. 5.50 lacs, income tax as per tax slab rate will be calculated.

Am I right??

Is this speculation income is not chargeable @ 30% special tax rate??

It is not a business of Mr. A but he just trades on day to day to get some income from this. Still he has to file ITR4??

I think there is provision for Nature of Business in ITR4. Which option I need to select?

Sir, please reply.

Thanks.

Suppose, Mr. A is 55 years old person who trades in shares and income from share trading is only his income. He normally buys and sells on the same day without taking delivery or takes delivery and sells the shares afterwards but before 1 year.

1) What will the nature of income from this two types of transactions? Whether the income from day trading without trading will be treated as speculation gains or business income?

2) How can we show the same for the tax purpose?

3) Are these incomes chargeable at different income tax rates? at what rate of tax?

4) Which ITR form to be used? What could be the nature of business?

5) Is he eligible for any deductions from Section 80C of Income tax Act?

6) If there are losses under these two types of transactions, whether the same can be carried forward?

Kindly revert.

1) shares hold more then 365 days in demat then sell , it would come under LTCG, exempted if stt paid on sales.

2) intraday is speculation, and such income is directly added to taxable income, such loss can not be adjusted with any other head except speculation

3) F&O trades are business income / loss.

4) he can avail 80C fron all his turnover except LTCG

5) if business income then ITR4, otherwise ITR2

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 07 May 2011

3.5+2.0 = 5.5 normal income

5.0 income at spl rate @ 15% ( STCG u/s 111A)

In case of speculation income, Rs. 2 lacs will be added to Rs. 3.50 lacs and thus on total of Rs. 5.50 lacs, income tax as per tax slab rate will be calculated.

There are two types of speculation - cash delivery based and F&O based -

any loss from cash delivery based under intraday is speculation and not available for carry forward, it can not be adjusted with any other income except speculation

any loss from F&O based is business loss and available for carry forward upto 8 years max.

Am I right??

Is this speculation income is not chargeable @ 30% special tax rate??

No, speculation income is added to taxable income, and taxed as per slab.

It is not a business of Mr. A but he just trades on day to day to get some income from this. Still he has to file ITR4??

if he has to carry forward the losses for adjustment in subsequent years, then he has to show this as business ( Except LTCG), as carry forward of losses is allowed under business loss only.

I think there is provision for Nature of Business in ITR4. Which option I need to select?

speculation of both catagory comes under business

if he does not want to file ITR 4 then speculation income would go as "income from other sources" and carry forward of losses is not possible.

without taking notice of his 3.5L other income, he is free to select the ITR to filed. but ITR 4 preferred as there is lots of clarity regarding to transactions.

2 Like

bharati marathe (Student) (38 Points)
Replied 07 May 2011

Originally posted by : U S Sharma
	If Mr. A has, suppose, some other income of Rs. 350000 & speculation gain on shares is of Rs. 200000 and also Short term capital gain tax of Rs. 500000 then, STGL will be carried forward for next 8 years can be set off in future against any STCG. 3.5+2.0 = 5.5 normal income 5.0 income at spl rate @ 15% ( STCG u/s 111A) In case of speculation income, Rs. 2 lacs will be added to Rs. 3.50 lacs and thus on total of Rs. 5.50 lacs, income tax as per tax slab rate will be calculated. There are two types of speculation - cash delivery based and F&O based - any loss from cash delivery based under intraday is speculation and not available for carry forward, it can not be adjusted with any other income except speculation any loss from F&O based is business loss and available for carry forward upto 8 years max. Am I right?? Is this speculation income is not chargeable @ 30% special tax rate?? No, speculation income is added to taxable income, and taxed as per slab. It is not a business of Mr. A but he just trades on day to day to get some income from this. Still he has to file ITR4?? if he has to carry forward the losses for adjustment in subsequent years, then he has to show this as business ( Except LTCG), as carry forward of losses is allowed under business loss only. I think there is provision for Nature of Business in ITR4. Which option I need to select? speculation of both catagory comes under business if he does not want to file ITR 4 then speculation income would go as "income from other sources" and carry forward of losses is not possible. without taking notice of his 3.5L other income, he is free to select the ITR to filed. but ITR 4 preferred as there is lots of clarity regarding to transactions.

Sir, much clarity has come after your reply. Thanks.

Points which are cleared, are as follows:

1) If shares are traded on the same day, without delivery, then its a speculation trascation. Income from this transactions will be added to the normal income and taxed as per tax slab rate.

If there is speculation loss, then the same can be carried forward for 4 years and can be adjusted against future speculation gain from shares only.

2) Gains other than 1 above, will either be short term or long term. Short term cap gain will be taxed @ 15% separately. Short term loss if any can be carried forward for next 8 years and adjusted against short term gains in future.

3) If the loss from Speculation transaction needs to be claimed in future, one has to file ITR4.

Points not cleared:-

I have gone through ITR4. It seems to be more tedious to show any income or loss from share trading activity in the same. Also, Nature of Business sheet, I am not clear as to which code to select.

How do I show short term capital loss of Rs. 6.5 lacs and Speculation gain of Rs. 1.65 lacs?

Please guide Sir.

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U S Sharma (glidor@gmail.com) (21063 Points)
Replied 07 May 2011

1) If shares are traded on the same day, without delivery, then its a speculation trascation. Income from this transactions will be added to the normal income and taxed as per tax slab rate.

If there is speculation loss, then the same can be carried forward for 4 years and can be adjusted against future speculation gain from shares only.

- for speculation the loss can be carried forward only when its named as "speculation business"

- short term gain after adjusting short term loss of the year or any previous year would be subject to spl rate of tax @ 15%, if loss is unabsorbed then it would be carried forward.

3) If the loss from Speculation transaction needs to be claimed in future, one has to file ITR4.

Points not cleared:-

I have gone through ITR4. It seems to be more tedious to show any income or loss from share trading activity in the same. Also, Nature of Business sheet, I am not clear as to which code to select.

to claim LTCG you have to make balance sheet and have the shares in asset in previous year, to get some sweet results we have to work a little bit.

How do I show short term capital loss of Rs. 6.5 lacs and Speculation gain of Rs. 1.65 lacs?

Please guide Sir.

under ITR, CFL is there to forward the losses

you need to use form ITR4, if

1) you are claiming LTCG

2) you are claiming carry forward of losses other than capital loss.

2 Like

bharati marathe (Student) (38 Points)
Replied 16 May 2011

Originally posted by : U S Sharma
	1) If shares are traded on the same day, without delivery, then its a speculation trascation. Income from this transactions will be added to the normal income and taxed as per tax slab rate. If there is speculation loss, then the same can be carried forward for 4 years and can be adjusted against future speculation gain from shares only. - for speculation the loss can be carried forward only when its named as "speculation business" 2) Gains other than 1 above, will either be short term or long term. Short term cap gain will be taxed @ 15% separately. Short term loss if any can be carried forward for next 8 years and adjusted against short term gains in future. - short term gain after adjusting short term loss of the year or any previous year would be subject to spl rate of tax @ 15%, if loss is unabsorbed then it would be carried forward. 3) If the loss from Speculation transaction needs to be claimed in future, one has to file ITR4. Points not cleared:- I have gone through ITR4. It seems to be more tedious to show any income or loss from share trading activity in the same. Also, Nature of Business sheet, I am not clear as to which code to select. to claim LTCG you have to make balance sheet and have the shares in asset in previous year, to get some sweet results we have to work a little bit. How do I show short term capital loss of Rs. 6.5 lacs and Speculation gain of Rs. 1.65 lacs? Please guide Sir. under ITR, CFL is there to forward the losses you need to use form ITR4, if 1) you are claiming LTCG 2) you are claiming carry forward of losses other than capital loss.

Dear Sir,

I refer to yellow highlighted point above. As per earlier discussions, the speculation profit is to be added to normal income & taxed as per slab rate.

I just came to know that such profits should be taxed @ 30% plus edu &HEcess.

which one is correct?

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 16 May 2011

speculation is shares is taxed as per slab,

spaeculation in lottery/ horse race is taxed @ 30%

hope now u r clear.

1 Like

Nitin Grover (CS) (1228 Points)
Replied 16 May 2011

Dear Sir

Income from Shares is taxed @ 15% if its Short Term & Nil if its Long Term because STT is paid on this already (except if u sale this in open market).

Regrads

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 17 May 2011

Originally posted by : Nitin Grover
	Dear Sir Income from Shares is taxed @ 15% if its Short Term & Nil if its Long Term because STT is paid on this already (except if u sale this in open market). Regrads

in open market u cant sale except recognized stock exchange, and once u sell through exchange STT is applicable.

pledge , transfer of shares other than sale does not taxed with STT, and there incometax benefits are doubtful as the ITO would ask for all details of such transaction, were STT is not paid for.

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Dhawal Mohnot (Practicing) (449 Points)
Replied 17 May 2011

Sir,

Please clarify. Shares traded on a recognised stock exchange are not speculative transaction right!!!

Gaurav (CA Final) (44 Points)
Replied 18 May 2011

1) What will the nature of income from this two types of transactions? Whether the income from day trading without trading will be treated as speculation gains or business income?

Ans : Nature would be business income in both the cases as Mr A. is trader in shares.

2) How can we show the same for the tax purpose?

Ans : It would be taxable as Business Income.

3) Are these incomes chargeable at different income tax rates? at what rate of tax?

Ans : These incomes are chargeable at normal rates of tax applicable to the assessee.

4) Which ITR form to be used? What could be the nature of business?

Ans : ITR-4 form would be used.

Nature of business would be speculation in case of day trading & normal business in the other case.

5) Is he eligible for any deductions from Section 80C of Income tax Act?

Ans : Yes. upto limit of 1,00,000/-

6) If there are losses under these two types of transactions, whether the same can be carried forward

Ans : Yes losses can be carried forward if ROI filed within due date as per sec 139(1).

Speculation loss upto 4 A.y , can be set off. only against speculation income.

Normal business loss upto 8 A.y. , can be steoff against any other business income except speculation loss.

Note :

There is no case of capital gains involved in the question as the question clearly mentions that Mr. A. is trader in shares. His motive is trading not Investment.

Gaurav (CA Final) (44 Points)
Replied 18 May 2011

Answer quoted by Mr. nitin is incorrect.

Nitin sir please check the provisions of the act as related to business income and capital gain to know the distinction between the motive of share trading and share investment and its taxability.

bharati marathe (Student) (38 Points)
Replied 22 May 2011

Originally posted by : U S Sharma
	speculation is shares is taxed as per slab, spaeculation in lottery/ horse race is taxed @ 30% hope now u r clear.

Sir,

Whether Tax audit is applicable for such person? What could be "turnover / gross receipt" for the purpose of Speculation business and Delivery based short term trading? Do we need club both turnover/gross receipt for arriving at limit u/s44AB for the purpoes of Tax audit?