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

[J_D]

Hello Diosys,

One tax consultant suggests that if we show the stock market transactions under the head Capital Gains, then even if the turnover is high ( more than 40 lakhs as prescribed), we need not maintain books of account. one has to then pay only tax based on long term or short term capital gains. No other deductions which can be done in case of business income is possible.

If it is treated under the head of business income, then books of account need to be maintained and deductions such as expenses related to such transactions can be claimed. and will suffer 30% tax.

So, he says it all depends on the head underwhich the transactions are considered.

1. Can the first timers or those who do such transactions treat this under the head of capital gains and reduce the burden of keeping books of account?


2. In case if it is considered under the head business income and Tax audit is to be done for the transactions, then what is the date for filing of returns?

Is it July 31 or Oct 31.


kindly give your views on this..


JOhn.

 

[exterminate]

Dear Extertiminate....

Please answer one question before i can answer you....

Are you a resident Indian meaning have you stayed in India greater than 182 days in the previous year.....Everything would depend upon this....

Hi Diosys,
I am in Norway from last more than a year. I came in Norway in April 2007. And allowances am getting here is for my self expenses like food, personal travel etc.
Also company is giving me reimbursement for telephone upto certain amount along with monthly bus pass.
Also, company is paying tax on behalf of us as to show the norwegian government tht we are employed here in Norway.

Please clarify now.
Thanks for the reply.

 

[lvgandhi]

There is no reference of it in the Income Tax Act...

As per the guidance note on tax audit, under Section 44AB of the Income-Tax Act, 1961, of the Institute of Chartered Accountants of India (ICAI), a 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 then by actual delivery or transfer of the commodity or scrips. In speculative transactions, the contract for sale or purchase entered into is not completed by giving or receiving delivery so as to result in the sale as per the value of the contract note. The contract is settled otherwise: squaring up by paying out the difference, which may be positive or negative. In such a transaction, such difference is turnover. It can be positive or negative arising from settlement of various contracts during the year. Each transaction resulting into a positive or negative difference is an independent transaction.

You may also refer to the guidance note issued by the ICAI for accounting of F&O. You may also refer to the decision of the tribunal in the cases of Royal Cushion Vinyl Products Ltd [IT Appeal No. 7859 (Bom) of 1992 dated 8 January 1993], Babulal Enterprises 31 BCAJ 788 (Bom), Saumil J Trivedi 34 BCAJ 280 (Bom), and Growmore Exports Ltd 78 ITD 95 (Bom), where it has been held that for speculative transactions, the gross sale value cannot be considered to be the turnover in the absence of delivery.

Althogh not treated as speculative, F&O transactions are completed without delivery of shares or securities. These are also squared up by payment of differences. Contract notes are issued for full value of the asset purchased or sold. But entries in the books of accounts are made only of the difference. Transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in these transactions is to be determined as follows:

* The total of favourable and unfavourable difference is to be taken as turnover.

* Premium received on sale of options is to be included in turnover.

* If any reverse trades are entered, the difference, should also form part of turnover.

Thank you very much for nice and quick answer.

 

[diosys]

Hello Diosys,

One tax consultant suggests that if we show the stock market transactions under the head Capital Gains, then even if the turnover is high ( more than 40 lakhs as prescribed), we need not maintain books of account. one has to then pay only tax based on long term or short term capital gains. No other deductions which can be done in case of business income is possible.

If it is treated under the head of business income, then books of account need to be maintained and deductions such as expenses related to such transactions can be claimed. and will suffer 30% tax.

So, he says it all depends on the head underwhich the transactions are considered.

1. Can the first timers or those who do such transactions treat this under the head of capital gains and reduce the burden of keeping books of account?


2. In case if it is considered under the head business income and Tax audit is to be done for the transactions, then what is the date for filing of returns?

Is it July 31 or Oct 31.


kindly give your views on this..


JOhn.

Dear John,

Your tax consultant is saying it correctly BUT there is a big issue which is being gobbled up....If you refer to the first page of this thread you would understand and appreciate the difference between an investor and a trader.

Accordingly you would be taxable...

Hence the moot question that you need to answer for yourself is whether you are a trader or an investor....Refer to the first page and answer to yourself....If not then come back i would solve it for you....

For the second question if tax audit is to be done then the date of submission is 31st Oct...

 

[diosys]

Hi Diosys,
I am in Norway from last more than a year. I came in Norway in April 2007. And allowances am getting here is for my self expenses like food, personal travel etc.
Also company is giving me reimbursement for telephone upto certain amount along with monthly bus pass.
Also, company is paying tax on behalf of us as to show the norwegian government tht we are employed here in Norway.

Please clarify now.
Thanks for the reply.

According to me only your salary which is received in India is taxable other allowances are not taxable in India...

 

[3dsmaxed]

Hi i opened an ICICIdirect account in January 2008 and i am trying to calculate my capital gains or loss for my IT return. Now i have a few doubts with this

1.) Suppose i bought some shares for 10,000 Rs and above that they charged me brokerage of 100 Rs . Then suppose i sell it for 12,000 and they charge me brokerage of 100 Rs and i effectively get 11,900 as credit. how do i calculate the profit in this case. Do i add the brokerage to Rs 10,00 and my total buy price becomes 10,100 and then i sold it for 11,900. How do i calculate my TAx liability amount?
2.) How much tax is charged on the profit earned for this year all the profits were short term capital gain
3.) What happens to the losses that i suffer. i mean buying at 14,000 and selling at 10,000 means a loss of Rs 4000/-. how do i pay calculate tax for the losses.Do i pay tax on remaining 10,000 that have come back to my account or i still pay it on 14,000?
4.)What happens to the money which is in the market. Suppose i have 2lacs in my savings account and out of which 1,50,000/- have been invested in stock market,and today the value of 1,50000 is 1,10,000 in the market as per my portfolio. how do i calculate my taxable amount?

Please help me with these queries.

Thanks

 

[diosys]

Hi i opened an ICICIdirect account in January 2008 and i am trying to calculate my capital gains or loss for my IT return. Now i have a few doubts with this

1.) Suppose i bought some shares for 10,000 Rs and above that they charged me brokerage of 100 Rs . Then suppose i sell it for 12,000 and they charge me brokerage of 100 Rs and i effectively get 11,900 as credit. how do i calculate the profit in this case. Do i add the brokerage to Rs 10,00 and my total buy price becomes 10,100 and then i sold it for 11,900. How do i calculate my TAx liability amount?
2.) How much tax is charged on the profit earned for this year all the profits were short term capital gain
3.) What happens to the losses that i suffer. i mean buying at 14,000 and selling at 10,000 means a loss of Rs 4000/-. how do i pay calculate tax for the losses.Do i pay tax on remaining 10,000 that have come back to my account or i still pay it on 14,000?
4.)What happens to the money which is in the market. Suppose i have 2lacs in my savings account and out of which 1,50,000/- have been invested in stock market,and today the value of 1,50000 is 1,10,000 in the market as per my portfolio. how do i calculate my taxable amount?

Please help me with these queries.

Thanks

Answer to Question 1...

Net of brokerage would be your profit....

Purchase cost = Purchase + Brokerage
Sale Price = Sale Price - Brokerage .....net would be profit / loss

Question 2....

10% on Short term capital gain...

Question 3...

You dont pay tax on your loss.... For eg one transaction you have a loss 4000 one transaction you gain 10000 hence net profit of 6000. Pay tax on 6000...if in the year your losses are more than profit...then carry forward to set off in the subsequent years.

Question 4....

There is no profit or loss till you sell them....so if your portfolio value erodes then nothing can be done...you cannot claim loss till you sell the holding. Hence this is not considered while calculating profit or loss.

 

[3dsmaxed]

Answer to Question 1...

Net of brokerage would be your profit....

Purchase cost = Purchase + Brokerage
Sale Price = Sale Price - Brokerage .....net would be profit / loss

Question 2....

10% on Short term capital gain...

Question 3...

You dont pay tax on your loss.... For eg one transaction you have a loss 4000 one transaction you gain 10000 hence net profit of 6000. Pay tax on 6000...if in the year your losses are more than profit...then carry forward to set off in the subsequent years.

Question 4....

There is no profit or loss till you sell them....so if your portfolio value erodes then nothing can be done...you cannot claim loss till you sell the holding. Hence this is not considered while calculating profit or loss.

Thanks Man

Question 1 is clear
Question 2 is a tad clear but i have a doubt here. Suppose i bought at 50K and sold it at 56K then i have a profit of 6K on which i pay 10% tax but what about the 50K that came from my income and were invested in stocks.
Question 3 same doubt. Suppose i faced an overall loss of 30K and i had invested 50K and now i have 20K back in my account. I dont need to pay anything for 30K
but i still have balance 20K
will that be still liable to tax because from where did it intially come? obviously my income.
Question 4 what i meant was that suppose i have 5 lacs in my account and out of which 2 lacs are still in the market. so while calculating tax i leave that 2 lacs aside? and calculate on remaining 3 lacs.

thanks once again for ur time

 

[diosys]

Thanks Man

Question 1 is clear
Question 2 is a tad clear but i have a doubt here. Suppose i bought at 50K and sold it at 56K then i have a profit of 6K on which i pay 10% tax but what about the 50K that came from my income and were invested in stocks.
Question 3 same doubt. Suppose i faced an overall loss of 30K and i had invested 50K and now i have 20K back in my account. I dont need to pay anything for 30K
but i still have balance 20K
will that be still liable to tax because from where did it intially come? obviously my income.
Question 4 what i meant was that suppose i have 5 lacs in my account and out of which 2 lacs are still in the market. so while calculating tax i leave that 2 lacs aside? and calculate on remaining 3 lacs.

thanks once again for ur time

Q2....Pay tax on that 50 K as well which was your profit....
Q3....Pay tax on the balance 20K left with you....
Q4....if 3 lacs is your income then pay tax....if its your capital then no tax is applicable.

 

[3dsmaxed]

Q2....Pay tax on that 50 K as well which was your profit....
Q3....Pay tax on the balance 20K left with you....
Q4....if 3 lacs is your income then pay tax....if its your capital then no tax is applicable.

Q2 and Q3 are much clearer now
regarding Q4 my income was 5 lacs and out of that i put 2lacs in market to buy shares. and so i pay tax on remaining 3 lacs as 2 lacs is still invested
right?