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Treatment of Future and Options (NSE Index and Stocks) Income and Loss

Scott (Not Applicable) (48 Points)

15 July 2009

Hi,

I have been going through numerous information sources on the net and there seems to be lot of confusion regarding the treatment of Income/Loss from F&O trading. Can the forum members help with the queries please ?

Can one file tax returns quoting Income/Loss from F&O trading as Short Term Capital Gain/Loss
Is there is turn over amount above which F&O income/loss has to be treated as a business income/loss ?
Is there a turn over amount above which there any compulsary tax audits ?
If F&O related income is a Speculative income is it to be treated as a Business Income ?

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6 Replies

N.J.R (Practice) (346 Points)
Replied 15 July 2009

Hi Scott,

1. Profit or Loss from F & O is regarded as Business Loss not Short/Long Term Capital Gain.

2. Any amount of Profit or Loss from F & O is Business Income.

3. F & O Profit Rs. 20 lacs & Loss 21 Lacs then aggregate amount is Rs. 41 lacs & hence tax audit applicable.

4. As per Sec 43(5)(d) w.e.f. 25.01.2006, Profit or Loss from F & O carried out in NSE or BSE cannot be regarded as Speculative Business. Hence, F & O trans are now Non-speculative Business Income.

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Scott (Not Applicable) (48 Points)
Replied 15 July 2009

Thanks for the clarification.

If someone has filed IT returns last Assesment Year showing F&O loss as Short Term Capital Loss and has a F&O Profit this AY, how can this be handled before returns are filed this month ?

(Guest)

Yupp... I go with NJR !!!

(Guest)

Hi Scott,

You can file a revise return u/s 139(5) within 1 yr from the end of relevent AY or before copmletion of assesment whichever is eaplier. then file your current AY return as usual.

Scott (Not Applicable) (48 Points)
Replied 15 July 2009

Thanks NJR and Tinku for the clarification.

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Scott (Not Applicable) (48 Points)
Replied 17 July 2009

Thanks for your response to my query on treatment of F&O Income/Loss. My sincere appreciations and Thanks for your help on the forum.

I saw a response to a similar query from another forum member saying that one needs to prepare financial statements if Section 44AA is applicable.

(1) Reading through 44AA, I undestand that this would mean that one needs to prepare Balance Sheet and P&L account. Is this right ?

(2) Are the limits for shares, F&O different from the trigger limits of 44AA of Income = Rs 1,20,000 or turnover is greater than 10 lakhs ?

(3) While filing ITR-4 if we say under PART A -GEN (Audit Info) that section 44AA is applicable, will we be satisfying the obligations under 44AA if we fill in PART A - BS and PART A - P&L in ITR-4 only or do we need to prepare statements as an additional paperwork ?

(4) For F&O trading related income only, most of the items in BS and P&L may not be very menaingful if we do not plan to show any additional expenses. In such cases can one fill details under NO ACCOUNTS CASE under PART A - BS and PART A - PL even if we have said that 44AA is applicable under response to PART A - GEN ?