Fire your tax related queries and i would get it solved!!!

[diosys]

^ Thanks you.

Again I re-read the 25 pages and come up with new doubts and clarification required from the above post.

MANDATORY AUDITING:
Assume person X starts trading(day) with a capital of 1 lakh. He has no other asset or savings or anything. All he has is this 1 lakh amount. In day trading he makes 25 lakhs profit and 26 lakhs loss. Now his net loss is 1 lakh i.e., he lost his initial investment. Now falls under mandatory auditing. Even, His survival is doubtful now, how can he afford auditing?

ADVANCE TAX:
"Advance tax is an estimate which needs to be based and paid on last years earning. Advance Tax is legally required by persons having a tax outgo greater than Rs. 10000 in a year."
Person X income was just 1 lakh. So, he got exempted from paying tax. If he earns 10 lakh this year, he doesn't need to pay advance tax.(Because, based on last years earnings, he wouldn't have earned much to fall into any tax bracket.)

DAY TRADER NEEDS TO MAINTAIN BOOKS OF ACCOUNT:
He can get ledger from his back office. From where he can get cash book. If he has to make it, (he can make it if he knows making it or else he needs to employ someone to do it.) With the mere income of 1.2Lakh how he can afford to employ someone to maintain books of account.

CALCULATING TURNOVER OF DERIVATIVES FOR AUDITING PURPOSE:
As you said, Profit/Loss is calculated after deducting STT, TAX, and other fees.
So he needs to audit each and every trade to find which one falls into profit/loss or some times no profit/loss)
(For eg: Nifty 1 lot Bought @ Rs. 2/- and Sold @ Rs.3/- (STT, tax and other Fees is Rs. 50/- for both buying and selling (assumed amount for calculation). Here its no profit or loss(Profit on trade is Rs. 50/- and fee is Rs. 50/- So, 50-50 is 0). So this trade can't be taken into account for auditing purpose. Am I right?

DOCUMENTS NEED TO BE ATTACHED ALONG WITH ITR:
You have mentioned, individual no need to attach anything but just ITR.
Do anyone else need to attach the same, if he falls into mandate auditing category or his income for a particular year is 2 crores or something???

STOCKS SOLD @ LOSS BUT NO STT PAID:
How? Without paying STT how can he sell his shares. or there were no STT some years back???

MAINTAINING TWO DEMAT ACCOUNT TO AVOID AMBIGUITY:
Assume I have one demat account. I have holdings of RELIANCE 100 shares bought @Rs.1000/-. In my DP that shares always stay with same qty and same price. Even though I do intraday trading in RELIANCE. How come ITO take FIFO method here and club my holdings with intraday trading. Even if I have two demat account he would take FIFO method and club everything.
In one of your post you have clearly explained how would assessing officer will take into account for short term and long term positions of the same scrip. But here is long/short term with intraday. Is there any possible to club long/short term with intraday??? If no, he can maintain one demat and could cause no ambiguity. Am I right?

PAGE NO. 103, POST NO. 1026:
He invested 1.4Lakh now he has only .6L how he might have to pay tax. Please explain this.

OPTION TURNOVER:
As you said, derivatives turnover is calculated by adding profit and loss (cumulative).
But, here is a quote says
"Option turnover is calculated by adding premium(buy and sold)"
I don't know where i read this. Some one wrongly written it or this is how option turnover was calculated some years back???
And your quote "F&O income comes under business income. Here option turnover is the option premium"
NOW, I am totally confused?????

DOUBTS AND CONTRADICTIONS - TAX READY RECKONER:
"Books needs to be maintained if the sale in any of the previous three years is in excess of Rs. 10,00,000"
What do you mean by sale, selling house, land or something else? For day trader, he would sell that 10 Lakh amount worth shares everyday. Please explain

STCG-"STCG on equities is 15% (over expemtion)"
In your above post you said "Tax slab for all are the same it does not matter how and in what form the income has been earned...the only thing is that the person should be an individual." (Assume X earns 10L)If that's the case over exemption i.e., 1.6L and 1 lakh savings, balance is 7.4Lakh(10-1.6-1) so his tax liability is Rs. 1,11,000/-(@15% of 7.4Lakh) not Rs. 1,26,000/-(1lakh standard savings so tax is nil, 1.6tax basic exemption, 1.6-3 @10% i.e 14k, 3-5 @20% i.e. 40k, 5-7.4 @30% i.e 72k.
Please clarify this.

Pure trader-You have said individual's tax liability is based on slab where he falls. But your other quote confuses me "A "pure" day trader is taxed at 30% flat rate"

Gift - You have posted like this, if X transfer some money to his wife as gift that will be taxed and income generated with that income will be taxed on X's head. And you have said solution and iterate that its not a fool proof as transfer money as gift to X's mother in law and ask her transfer back to his wife.
And your quote "Gifted money there is no tax if between relatives."
Clarification needed.

Again it become like an essay. I'll try and write short and precise.

AUDITING:
Cant help on that one...can only explain the law...Only probably Pranab Mukherjee would be of any help with this one !!!

ADVANCE TAX:
What i meant that current year income along with the last year's earning to be repeated is what is required as to be judged for payment of advance tax...It is not that it is based on previous years income alone...

DAY TRADER NEEDS TO MAINTAIN BOOKS OF ACCOUNT:
Again call Pranab Mukherjee for this one....LAW IS WHAT LAW DOES !!!

CALCULATING TURNOVER OF DERIVATIVES FOR AUDITING PURPOSE:
Yes....because there is no profit or loss

DOCUMENTS NEED TO BE ATTACHED ALONG WITH ITR:
No it is not required under any category be it Indi, HUF, Comp, firm etc....

STOCKS SOLD @ LOSS BUT NO STT PAID:
Stocks can be sold off market too !!! Physically held shares can be such instance....

MAINTAINING TWO DEMAT ACCOUNT TO AVOID AMBIGUITY:
Yes he can still, but by maintaining two demat account one can easily demonstrate that this is held for long term and this for intraday purposes...I believe the ITO has no other option rather to accept this notion.

PAGE NO. 103, POST NO. 1026:
Simple...Invest 1.4L with broker...made and booked 3L profit during the year...Made one bad investment in March which took the portfolio value down from 4.4L to .60L but did not book this loss and carried forwarded the same...that does not mean that he does not need to pay tax on that Rs. 3L earned.

OPTION TURNOVER:
This seems my error ... for options it is the sale premium which needs to be considered for calculating the total turnover...Sorry for the mistake.

DOUBTS AND CONTRADICTIONS - TAX READY RECKONER:
If you sell and purchase land or house on a day to day basis then it is business income otherwise it falls in capital gains category where the books maintenance is not required...10L limit is for the year and not day.

STCG-"STCG on equities is 15% (over expemtion)"
I think this example is self explanatory...In order to calculate the tax one needs to go from 0 towards the taxable figure and not from the taxable figure towards 0.

Pure trader:
I doubt if i have said that it would be taxable at 30% flat...it might be in relation to one which is not an individual assessee.

Gift:
Clarification in what sense is required i fail to understand because what i have quoted is simple and as required in Income tax...

Just one small thing which i would like to highlight is that unfortunately i cannot teach the entire Income tax Act here nor you are in a position to learn the same from this thread...Going through this thread you need to see in what reference that question was asked and in that reference i had given that answer...It cannot be generalized to each and every problem...Each doctor can prescribe you a different medicine.

 

[diosys]

sir, if my only source of income is fo trading and my income is less than 1.6 lacs from 01st april 2009 till 31st march 2010...shud i file my it returns and by which date???

Ideally you should (though not mandated under law) by 31st July, 2010

 

[wattax]

Diosys, could you explain the Annual Information Return concept to me?

Specifically the part regarding investments of more than 2L in Mutual funds.

2) Also, this is an information return, correct? I won't be charged a separate tax over this?

3) Do I only need to list MF transactions of that particular year or my whole MF portfolio(like a balance sheet)?

4) I believe this info is used to help with random tax scrutinizing. Would I be MORE at risk by providing this info?

 

[mkh]

Sir,I understand no gifttax is payable if it (Gift) is made to and by Lineal Ascendant or Descendant.Could you explain what relationship is covered by this Lineal Ascendant and Descendant.Thanks.
Regards,
MKH

 

[diosys]

Diosys, could you explain the Annual Information Return concept to me?

Specifically the part regarding investments of more than 2L in Mutual funds.

2) Also, this is an information return, correct? I won't be charged a separate tax over this?

3) Do I only need to list MF transactions of that particular year or my whole MF portfolio(like a balance sheet)?

4) I believe this info is used to help with random tax scrutinizing. Would I be MORE at risk by providing this info?

Yes, this is just a self decleration part.....

Whole of MF would do....

By not providing this info you would be more at risk because the government already has this info with them, they are just cross checking how faithful the assesee are !!!

 

[diosys]

Sir,I understand no gifttax is payable if it (Gift) is made to and by Lineal Ascendant or Descendant.Could you explain what relationship is covered by this Lineal Ascendant and Descendant.Thanks.
Regards,
MKH

I can only

This issue is sooooooooo vexed that even if i 20 pages it would cannot be finalized.

Just an example....

Mr. X is grand father to A from parental side....Similarly Mr. Y is grand father again to A but from maternal side....

Very technically A is a lineal descendant of Mr. X but not of Mr. Y !!!

This is such a vexed issue that it would not be fruitful to delve upon this until one has a very specific query in mind.

 

[mkh]

Sir,Specifically issue is - There are two sisters A & B. Sister A gives a Gift of 40,000/= each to the Two Granddaughter of Sister B. Would this come under lineal descendent relationship as per Gift Tax or would tax be payable. Would Sister A have to pay Gift Tax as exempt amount is only 50000/= whereas she has given total 80000/=.Does the giver or receiver of gift have to pay tax?I hope I am clear in explaining above.Regds and Thanks.

 

[diosys]

Sir,Specifically issue is - There are two sisters A & B. Sister A gives a Gift of 40,000/= each to the Two Granddaughter of Sister B. Would this come under lineal descendent relationship as per Gift Tax or would tax be payable. Would Sister A have to pay Gift Tax as exempt amount is only 50000/= whereas she has given total 80000/=.Does the giver or receiver of gift have to pay tax?I hope I am clear in explaining above.Regds and Thanks.

since each recipient has received less than Rs. 50000 hence no tax is payable...no point in debating on the lineal ascendant or descendant thing.

 

[Best of Luck]

Dear Sir ,
My brother is doing daytrading.So far only losses.now he starts to make profits.He has not filed tax returns for the past 4 years.What would be the penal provision ? pls explain.
Thanks,
Best of luck.

 

[diosys]

Dear Sir ,
My brother is doing daytrading.So far only losses.now he starts to make profits.He has not filed tax returns for the past 4 years.What would be the penal provision ? pls explain.
Thanks,
Best of luck.

if he did not have taxable income then no penal provisions....

Only loss is that those losses that he had incurred would not be allowed to be set off against the profits made this year and hence would need to pay tax on the profit earned.