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Taxation of shares & derivatives

harry (Awaiting ca final results) (461 Points)

08 October 2009

consider the following scenario:
Mr.X is a civil contractor and he invests Rs.5,00,000 with Y, a stock broker for conducting day trading in shares and options.so, the issue is
1. Under what head of income be profits from day trading be considered ?
2.How to compute profits in case of day trading from the statements given by the stock broker?
3.If it a loss can it be set-off and carried-forward?

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3 Replies

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 08 October 2009

it would be considered to be profit/loss from speculative business and would be taken under the head profits from business/profession.

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janak (post graduation) (1327 Points)
Replied 08 October 2009

If it a loss can it be set-off and carried-forward?

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 09 October 2009

Dear Harry,

Plz find below;

1) Intraday/BTST(Bought Today Sold Tomorow)/ATST (Acquired today Sold Tomorow) of equity/preference shares shall be considered as speculative transactions and shall affect tax amount as speculative Income/loss. However, premium/net premium on Options shall be considered as your normal business Income i.e. not speculative business Income.

However, one should keep in mind the frequency of transactions to determine nature of assets/securities i.e. Business Assets/Capital Assets.

If you have only one option contract and has premium gain/loss than you may say that you have sold a right in shares and according it may get taxed as Capital Gains.

2) It depends on what statements is given by broker. In case broker Statements, you may directly arraive to taxable profits/loss by doing arethmatic excersice. It is very simple calculation.

3) The loss can be sett off and also can be carried forward in follo manner;

i ) In case of speculative loss (intraday), it can be adjusted against speculative income of same year and balance for subsequent 4 years.

ii) in case of business loss (options), it can be adjusted against business Income including spec income of same year and balance for subsequent 8 years.

Thanks

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