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

[diosys]

Thanks a great deal, diosys. Your zeal in answering to quries of one and all must be very taxing. One sincerely appreciates your effort.

The first page of the thread initiated by you was seen before addressing you. This was done thinking that the first page was written in May 2006 and by now perhaps the matter must have been settled with clarity. This was the reason for giving an account of the circumstances under which share trading was initiated. The under current of the logic running in the mind was that trading was initiated not to make 'profit' but with a view to gaining the lost value. Acquisition of DLF shares that was surely by chance could not be classified as 'trading'. Loss of value of the shares also could not be attributed to 'trading' by the holder. Therefore, an attempt to regain the lost value should also not be treeated as trading!

It is, however, appreciated that this argument would not be acceptable to IT authorities. One has to proceed with the assumption that the author of this mail would be considered as a trader and not an investor.

Now, the issue related to calculation of PL arises. The query is proposed to be raised by taking a real time example. During the period April 01, 2009 to March 31, 2009, 1500 shares of Balrampur Chini were 'Buy', 1200 were 'Sell'. leaving a closing balance of 300 shares that were carried over to the year 2009-10.

The 'Net Qty' carried over to the year 2009-10 was 300. The average cost per share of these 300 sahares would be (Buy value of 1500 minus Sell value of 1200 shares)/Net Qty of 300. The net rate of these 300 shares worked out to Rs. 46.96.

The Trading software of India Infoline indicated the closing price of the shares as Rs. 52.45. Needless to say, both the figures of Rs. 46.96 and Rs. 52.45 would have to be adjusted after taking into account the brokerage and taxes.

Now, one method to work out the PL for 2008-09 can be as under:

(A) PL = (Value of the OB quantity - Buy cost of 1500 shares + Sell value of 1200 shares - Value of the balance quantity)

It may be noted that, in this case, the opening balance of this scrip for the year 2008-09 was 'nil'.

Another method to work out the PL for 2008-09 could be:

(B) PL = Sell value of 1200 shares, to be based on Average Sell Rate - Buy value of 1200 shares, again based on Average Buy rate deduced from the Buy value of 1500 shares on pro-rata basis.

The author would be grateful to know from you which of the two methods (A) or (B) would be correct?

Further, the question that arises is whether the value of the OB Qty of 300 would be worked out from Rs. 44.96 or Rs. 52.45 for calculating the PL for 2009-10? (C)

Your opinion on (C) would also be valuable.

Thanks again in anticipation for your indulgence.

Hugs Rajen

Dear Rajan,

The situation since then has remained the same....No clarity has emerged and I am very very much SURE THAT NONE WOULD ARISE ALSO !!!

Anyways...Pertaining to your question of recovering the PL then that would not stand any chance in court of law or with IT...which you have correctly pointed out...Hence keep that out of your mind...

Coming to calculations...

I am very much sure that TT of IIFL shows value on weighted avg value method WHICH IS NOT RECOGNIZED IN IT...IT only recognizes FIFO method....that is First In and first Out...So you need to value the closing stock at FIFO and not weighted....

Plus the correct method would be very simple....

Actual Opening Cost + Actual Purchase Cost - Actual Sales Value - Closing Stock value based on FIFO (this would carry over as Op stock next year)...

 

[vasa1]

Diosys!

A not so small request!

What is your opinion about you starting a new thread / topic that will deal exclusively with the trader versus investor aspect. I suspect many of us would benefit greatly by having our questions and your answers in such a thread.

 

[rds1933]

Dear Rajan,

The situation since then has remained the same....No clarity has emerged and I am very very much SURE THAT NONE WOULD ARISE ALSO !!!

Anyways...Pertaining to your question of recovering the PL then that would not stand any chance in court of law or with IT...which you have correctly pointed out...Hence keep that out of your mind...

Coming to calculations...

I am very much sure that TT of IIFL shows value on weighted avg value method WHICH IS NOT RECOGNIZED IN IT...IT only recognizes FIFO method....that is First In and first Out...So you need to value the closing stock at FIFO and not weighted....

Plus the correct method would be very simple....

Actual Opening Cost + Actual Purchase Cost - Actual Sales Value - Closing Stock value based on FIFO (this would carry over as Op stock next year)...

Dear diosys,

Your reply made one remember his grandma (Nani yaad dila dee). Every day one makes 10-15 trasactions in as many scrips. Fifo would require availability of scripwise Buy & Sell data for the entire year. One needs to find out from the TT of IIFL whether such data would be available there. Even if available, it is going to be a heculean task further. One wonders, if there is any software that could reduce the amount of labor required to be put in. If there is one in your knowledge, please do inform.

Any way, many many thanks for the clarification given by you. It was so gracious of you to have responded to the queries.

Hugs

Rajen

 

[vasa1]

Dear diosys,

Your reply made one remember his grandma (Nani yaad dila dee). Every day one makes 10-15 trasactions in as many scrips. Fifo would require availability of scripwise Buy & Sell data for the entire year. One needs to find out from the TT of IIFL whether such data would be available there. Even if available, it is going to be a heculean task further. One wonders, if there is any software that could reduce the amount of labor required to be put in. If there is one in your knowledge, please do inform.

As far as I'm aware, FIFO is the only way to reckon. There has been a mention elsewhere that traders can opt for LIFO but I would like Diosys to clarify if this is true.

If data is entered daily from contract notes into a spreadsheet, the task is quite simple even for 10-15 transactions daily. Of course if there's a massive backlog then all the best but it's still very doable.

 

[diosys]

Dear diosys,

Your reply made one remember his grandma (Nani yaad dila dee). Every day one makes 10-15 trasactions in as many scrips. Fifo would require availability of scripwise Buy & Sell data for the entire year. One needs to find out from the TT of IIFL whether such data would be available there. Even if available, it is going to be a heculean task further. One wonders, if there is any software that could reduce the amount of labor required to be put in. If there is one in your knowledge, please do inform.

Any way, many many thanks for the clarification given by you. It was so gracious of you to have responded to the queries.

Hugs

Rajen

Dear Rajan,

If you are doing day trading then there is no need to maintain FIFO....there would be no stock at the end of the day....hence no worry for them...

Yes, if delivery is taken then FIFO is required PROVIDED YOU GET ASSESSED IN BUSINESS INCOME and not capital gains....again the moot question comes.....TRADER OR INVESTOR ???

that depends on the intention and the manner of transactions....by the looks of it seems that you are a trader and should be assessed under business income.

 

[diosys]

As far as I'm aware, FIFO is the only way to reckon. There has been a mention elsewhere that traders can opt for LIFO but I would like Diosys to clarify if this is true.

If data is entered daily from contract notes into a spreadsheet, the task is quite simple even for 10-15 transactions daily. Of course if there's a massive backlog then all the best but it's still very doable.

Yup Vasa, FIFO is the method to do it.....

 

[diosys]

Diosys!

A not so small request!

What is your opinion about you starting a new thread / topic that will deal exclusively with the trader versus investor aspect. I suspect many of us would benefit greatly by having our questions and your answers in such a thread.

Dear,

I dont have a problem with one more thread but....each and every situation is unique and there would not be any general answer....

I cannot see everyone's trading pattern here hence can never give a concrete answer as to where he or she lyes....It is for them to take a call based on their actual intentions and manner of transactions..

 

[vasa1]

Dear,

I dont have a problem with one more thread but....each and every situation is unique and there would not be any general answer....

I cannot see everyone's trading pattern here hence can never give a concrete answer as to where he or she lyes....It is for them to take a call based on their actual intentions and manner of transactions..

Diosys, what I meant was it would be simpler if we had one thread that deals exclusively with the issue of Investor versus Trader so that folks could know the pros and cons from the taxation point of view.

This thread would clarify principles and perhaps not provide personal solutions.

 

[TFL]

Diosys, what I meant was it would be simpler if we had one thread that deals exclusively with the issue of Investor versus Trader so that folks could know the pros and cons from the taxation point of view.

This thread would clarify principles and perhaps not provide personal solutions.

diosys,

This is a very fundamental question from a first time tax payer.
I was some what clear in these things but the lastest informations really confusing me so please take your time answering my question below.

My Profile:
Income from trading in F&O and Equity including delivery in the last year from March 2008. Trading from home.

1. Now I want to pay the taxes...upto what time I can pay taxes for the above with out penalty?

2. In which category I will be paying tax?

3. What are the formalities of accounting them as business income if possible?

4. Please guide as a bit for paying the tax in terms of a new tax payer.

 

[TFL]

Diosys, what I meant was it would be simpler if we had one thread that deals exclusively with the issue of Investor versus Trader so that folks could know the pros and cons from the taxation point of view.

This thread would clarify principles and perhaps not provide personal solutions.

diosys,

This is a very fundamental question from a first time tax payer.
I was some what clear in these things but the lastest informations really confusing me so please take your time answering my question below.

My Profile:
Income from trading in F&O and Equity including delivery in the last year from March 2008. Trading from home.

1. Now I want to pay the taxes...upto what time I can pay taxes for the above with out penalty?

2. In which category I will be paying tax?

3. What are the formalities of accounting them as business income if possible?

4. Please guide as a bit for paying the tax in terms of a new tax payer.