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

[diosys]

Diosys, thanks for your wonderful & prompt reply and for your well-meaning advice to keep books of accounts (in large caps )...

If I may explain what I do maybe you can guide us (me & TFL):

I have a spreadsheet which is a replica of my bank statement which I suitably modify to as to make it filterable / searchable / sortable. So this will provide me information re. cash inputs to my broker and receipts from him.

Each and every contract note, I break up into its components. Say I buy and sell X different scrips in intraday and take delivery of Y different scrips and give delivery of Z different scrips. I paste the relevant part of my contract note into a spreadsheet that allows me to break up scrip-wise and as per intraday or delivery basis. For each, I also pro-rata allocate the various charges (brokerage, ST+EC, stamp duty, Exchange levy and STT) using a spreadsheet formula. The formula ensures that STT on intraday is charged only on the sell leg (for easy deduction u/s 80E (?)).

The proceeds of each contract note are added to a "mega" spreadsheet that contains all the transactions I've done since I started (in Jan 2008). So the contents again are searchable, filterable, sortable.

Additionally, I have a spreadsheet that reflects all credits / debits with my broker. My business begins & ends with him!

The broker provides a closing balance of shares and their market value for 31st March 2008 & 31st March 2009.

I'm not interested in deducting expenses such as conveyance, broadband, etc., so I feel I'm maintaining "proper" records although not in the classical cash book / ledger type of way.

Dear,

As per Income Tax Rule 6(2)(f) one is compulsorily required to maintain books of accounts in a cash book and ledger format...

Spreadsheet accounts would not be accepted. Moreover apart from share broking business there would be several transactions done by you...for eg bought jwellery, house, home expenses etc etc....where would they go ???

Ideally they should be a part of your balance sheet....

My basic point is that the books you maintain are YOURS and not YOUR BUSINESS !!! (i hope you get the difference)...

 

[diosys]

Diosys, in what you have written above, please clarify what is meant by the bold part? Do you mean that if the total value of shares sold (intraday + short term delivery) exceeds Rs. 10 lakhs, it triggers the liability to keep books of accounts? Does this mean we don't subtract the cost price?

In that case the complexity of my return has just sky-rocketed:sos:

Yes Vasa your understanding is corrrect and your ITR does go for a toss....

Just to inform you Intraday for the turnover purposes is calculated just in the same manner as F&O transactions are accounted for....only difference is that intraday transactions are considered speculative whereas F&O are not....

 

[diosys]

Dear Diosys

Your thread is very informative and helpful. Thanks a ton.

I am a full time trader in the futures and options segment with a number of trades intraday. I have Tally 9 for maintaining accounts and am familiar with it . Can you please throw some light on the exact voucher entries in Tally for the sample transactions shown below.

Date of transaction 22/7/09

1) DLF futures qty 1 lot (800) Buy at 350
2) DLF futures qty 1 lot (800) Sell at 357.35
3) DLF futures qty 1 lot (800) Buy at 360.90
4) DLF futures qty 1 lot (800) Sell at 361.50
5) KMFL futures qty 10t (550) Buy at 661
6) KMFL futures qty 1 lot (550) Sell at 662
7) Nifty 4500 puts 1 lot (50) Buy at 94.90
8) Nifty 4500 puts 1 lot (50) sell at 115.00

Digital Contract note is available for this with relevant Brokerage, Service Tax, STT , Turnover tax, Stamp Duty, Cess .

Would you please show the voucher entries for the benefit of all.

I mentioned all the trades to understand the concept of Turnover.
In the above case , profit / loss in each transaction will contribute towards turnover isn"t it ?

When above kind of transaction happens everday and if you take profit, loss acrued in each transaction , the 40 lakhs exemption limit for audit will be touched very easily by a lot of people doing intraday.

Hence a lot of us would greatly benefit from knowing the correct way to account transactions on a daily basis for clarity .

I am asking this of you because my own Auditor seems unsure of this .

Thanks and waiting in anticipation

With warm regards
gsri

Dear

The entries for the day would be very simple....

Since all these entries are intraday you can do one entry for all of them at the day end....

BROKER A/c Dr.
STT A/s Dr.
Stamp Duty A/c Dr.
Other Charges Dr.
To Profit in F&O Cr.

Its that simple.....

Secondly your understanding od aggregate of profit and loss is correct for audit limit under F&O.....I have yet to come across many casses where audit needs to be done in case of excess of 40L....

 

[gsri]

Dear Diosys

THANK you so much for the immediate reply.

When all transactions are intraday , as you say I can club all of them in one and post the entries . But to arrive at the intraday profit / loss , unless the total Buy and Sell Transaction value is entered under some heading in Tally, it becomes slighlty cumbersome to do it seperately in excel. So how do you suggest that I pass entry for the Buy/ Sell transaction Values in Tally .

For example in the previous post that I wrote to you, I have mentioned
- DLF fut bought 800 at 350 - value of contract is 280000.
- DLF fut sold 800 at 357.35 - value of contract is 285880.

and so on for other transactions intraday.

The diff in value between all the buy transaction and all sell transactions
gives us the profit or loss for the day agreed .But under what heading should I be accounting the total buy and sell transaction value ?? or is this not required at all ?

And in case positions are carried forward to the next day how is the MTM accounted ??

Sorry for the number of questions. Just want to maintain things in a acceptable way to the depts.

With Regards
gsri

 

[TFL]

Dear,

As per Income Tax Rule 6(2)(f) one is compulsorily required to maintain books of accounts in a cash book and ledger format...

Spreadsheet accounts would not be accepted. Moreover apart from share broking business there would be several transactions done by you...for eg bought jwellery, house, home expenses etc etc....where would they go ???

Ideally they should be a part of your balance sheet....

My basic point is that the books you maintain are YOURS and not YOUR BUSINESS !!! (i hope you get the difference)...

You mean we traders (if auditing is needed.) need to keep cash book and ledger in Physical format?

TFL.

 

[diosys]

Dear Diosys

THANK you so much for the immediate reply.

When all transactions are intraday , as you say I can club all of them in one and post the entries . But to arrive at the intraday profit / loss , unless the total Buy and Sell Transaction value is entered under some heading in Tally, it becomes slighlty cumbersome to do it seperately in excel. So how do you suggest that I pass entry for the Buy/ Sell transaction Values in Tally .

For example in the previous post that I wrote to you, I have mentioned
- DLF fut bought 800 at 350 - value of contract is 280000.
- DLF fut sold 800 at 357.35 - value of contract is 285880.

and so on for other transactions intraday.

The diff in value between all the buy transaction and all sell transactions
gives us the profit or loss for the day agreed .But under what heading should I be accounting the total buy and sell transaction value ?? or is this not required at all ?

And in case positions are carried forward to the next day how is the MTM accounted ??

Sorry for the number of questions. Just want to maintain things in a acceptable way to the depts.

With Regards
gsri

There is any need to maintain in any such manner so as to depict purchase and sale seperately for the intraday transactions....the clubbing of profit and loss would determine your audit limit.....

Where the positions are carried forwarded next day then everyday the mark to market that is paid is debited or credited and similary corresponding entry is passed in the broker account (reverse to mark to market account)...Once the contract is setteled the profit is credited to account of "Profit from F&O"

 

[diosys]

You mean we traders (if auditing is needed.) need to keep cash book and ledger in Physical format?

TFL.

My dear TFL.....

please appreciate the fact that computer softwares like tally etc generate the cash book and ledger at the end of the year in the format as prescribed....

so where is the need for you to maintain the same in physical format ???

 

[TFL]

I'm opening an office for trading as sole proprietary, for initial license (I heard some permissions are needed) and other matters whom I can hire for help? I think, it will help you get some rest from my questions here.

One more thing,
If I'm a sole proprietor and I buy a vehicle for my personal needs "OR" business needs. Is it possible to deduct the purchase price as business expenses? If so then, how I can prove that the vehicle is for business and not personal? Like wise, my mobile/phone bills etc. In-short how we can separate businesses and personal expenses or we can club them all.

 

[diosys]

I'm opening an office for trading as sole proprietary, for initial license (I heard some permissions are needed) and other matters whom I can hire for help? I think, it will help you get some rest from my questions here.

One more thing,
If I'm a sole proprietor and I buy a vehicle for my personal needs "OR" business needs. Is it possible to deduct the purchase price as business expenses? If so then, how I can prove that the vehicle is for business and not personal? Like wise, my mobile/phone bills etc. In-short how we can separate businesses and personal expenses or we can club them all.

I am not aware if any registration is required in setting up a sole proprietorship business apart from having your own PAN....

As far as car is considered it is a capital expenditure and not deductible as a regular expense...It is allowed as a depriciation @15% p.a.

Thirdly it does not matter in whose name the car is purchased...it would still be allowed as a depriciation....

Ideally to segregate the bills from business and home you need to judge whether the same is used for business or home...allowability of the same depends on the CA / Lawyer arguing and the assessing officer....it is not nessecary that anything that you bought in business name is always used for the sole purpose of business only....Say car...it can be used for prseonal as well as business use...so it depends on circumstances...

HENCE take this notion out from your mind that proprietorship is different from the proprietor....BOTH ARE SAME

 

[TFL]

I am not aware if any registration is required in setting up a sole proprietorship business apart from having your own PAN....

As far as car is considered it is a capital expenditure and not deductible as a regular expense...It is allowed as a depriciation @15% p.a.

Thirdly it does not matter in whose name the car is purchased...it would still be allowed as a depriciation....

Ideally to segregate the bills from business and home you need to judge whether the same is used for business or home...allowability of the same depends on the CA / Lawyer arguing and the assessing officer....it is not nessecary that anything that you bought in business name is always used for the sole purpose of business only....Say car...it can be used for prseonal as well as business use...so it depends on circumstances...

HENCE take this notion out from your mind that proprietorship is different from the proprietor....BOTH ARE SAME

The above information is very valuable for me. Again my petty questions.

Do I necessarily name my sole proprietorship business or just do as now I'm doing?

If I name it like some XYZ and still the above said things by you(http://www.traderji.com/taxation-ma...uieries-i-would-get-solved-71.html#post341309) are valid.

TFL.