MENU MENU SIMPLE TAX INDIA SEARCH. PROP ITR OFFRS SITEMAP. The taxation aspect of share transaction is very complex and thus confusing for an average taxpayer. The taxability of the same depends on the holding period as well as whether the same are listed or unlisted. Tax liability will also vary depending on whether the shares have been sold on the platform of stock exchange or not. Let us try to understand all this. For the purpose of capital gains the shares are divided into two categories: The shares which are listed on any stock exchange shall qualify as long term once the same have been held for more than twelve months.
For other shares including shares listed on foreign stock exchanges unlisted shares the holding period requirement is more than 24 months. For the shares which are traded on the platform of stock exchange in India the brokers are required to collect Security Transaction Tax STT.
So any profit made on the listed equity shares sold through a broker will be fully tax free if held for more than twelve months. In case of profits made on equity shares held for 12 months or less and sold on Indian stock exchanges will be taxed at a flat rate of Please note that on such short term capital gains the benefits of deductions under chapter VIA like section 80 C, 80 CCD, 80D, 80E, 80 G, 80GG is not available.
So in case you do not have any other income except these taxable short term capital gains, you will not be able to take the benefits of various items like contribution toward public provident fund, NSC, ELSS, mediclaim premium, NPS etc.
However in case your other income excluding these short-term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability. In case of profits made on non listed shares which were held for not more than 24 months or the listed shares on which STT was not paid and held for not more than 12 month, shall be treated like your other income and taxed at slab rate applicable to you.
The long term capital gains made on such shares listed shares held for more than 12 months and other shares held for more than 24 months will be taxed at flat rate of However in case the of listed shares on which STT is not paid, you have the option to pay tax It is important to note that in case the shares are not listed in India, this option of choosing between So in case you sell any shares which are listed on any foreign stock exchange, you will have to pay tax on long term capital gains It ,may also be noted that here also you can not claim any deduction under Chapter VIA as discussed above your long term capital gains.
Likewise in case your other income excluding these long-term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit here also. This provision has been grossly misused by people for money laundering so the budget provides an additional conditions in respect of equity shares acquired after 1st Octoberthe date on which STT became applicable.
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The budget provides that for such shares the long term capital gains shall become exempt only if STT has been paid on purchase of such transactions as well. The government is being authorised to notify some other acquisitions on which though no STT has been paid will still continue to be exempt under Section 10 This notification should include the shares acquired under IPO, FPO, bonus shares, ESOPs etc.
The tax treatment for transactions in shares carried out by the day traders is different than those for investors.
The day traders normally indulge in transaction of shares with an intention to square off the transaction without taking the delivery of the securities. For the purpose of income tax, these transactions are treated as speculative transactions and are treated differently. For profits made on such transaction, the same has to be offered as business income and added with other income and taxed at the slab rate. In case of a few transactions the profits can be shown under the head income from other sources.
Before computing the taxable amount in respect of such squared off transactions you are allowed to adjust any loss incurred by you on similar transactions.
So any loss made by you on shares trading account can be adjusted against profits made by you for any commodity transactions. The net speculative loss, however, is allowed to be carried forward and set off against any profit of speculative nature in four subsequent years.
If the same can not be set off during this period of four years, it will lapse. In case you enter into these transaction very frequently, you will have to get your accounts audited in case the aggregate of profits and loss without netting off exceeds the threshold of Rs.
The total of positive and negative, or favorable and unfavorable differences shall be taken as turnover. Premium received on sale of options is to be included in turnover. Forex gold streaming chart respect of any reverse trades entered, the difference thereon shall also form part of the turnover.
Computation of Turnover Eg. X offered to purchase shares at a cost of Rs. Thus, the turnover of Mr. X will be calculated as under: In case of such transactions if the aggregate of these profits as well as loss without netting off exceeds Rs.Nifty automatic trading software
Any loss on such transactions can be set la chanson money maker against income from other sources except income from salaries. Read more posts by [Balwant Jain] [Budget] The views expressed in this article are his own. He can be reached at jainbalwant at gmail.
Overview of Accounting, Reporting and Overview of Accounting, Reporting and Taxation of Taxation of Futures, Options and other Futures, Options and other DerivativesDerivatives By: AO cannot disregard the method of accounting followed by the assessee where the method of accounting is based on a standard forex magic wave review guideline commended for adoption ratio spread option strategy a professional body such as the Forexpros sgd to inr. Woodward Governor India P.
Notified Accounting Standards by central government Till date under section of income tax act, A. Draft Tax Accounting Standards Drafts of the Tax Accounting Standards on the following issues based on the corresponding Accounting Standard issued by the ICAI after harmonising the same with the provisions of the Act S. TAS Corresponding AS 1.
Draft Tax Accounting Standards S. TAS Corresponding AS 8. Requirements for presenting information about financial instruments are in Accounting Standard AS 31, Financial Instruments: Requirements for disclosing information about financial instruments are in Accounting Standard AS Classification of Financial instruments, from the perspective of the issuer, into financial assets, financial nifty option auto trading software download and equity instruments. Classification of related interest, dividends, losses and gains.
Circumstances in which financial assets and financial liabilities should be offset. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. Guidance on accounting treatment Premium received on sale of stock market crash dotcom bubble is to be included in turnover.
Tax Audit In case a lot of transactions are executed in routine, then it can be held as an adventure in the nature of trade and profit or loss from such a business will be covered under the head PGBP. Thus, the net turnover of Mr X. MAJOR ISSUES…… Whether the derivative transaction is a speculative transaction? Whether set off of losses from derivative transactions is possible? Taxation aspects Key Points No specific provision under the Act regarding taxability of.
Provisions having an indirect bearing on derivative transactions are Section 28, sec. 2016 in review stock exchange winners and losers transaction as per Sec 43 5 of IT Act Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity including stock options strategies in indian market shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or latest currency rates in karachi. Provisions to Sec 43 5 Transactions not to be deemed as speculative: Eligible transactions on BSE and NSE w.
Contd… Provisions to Sec 43 5. Derivatives As per clause acof sec 2 of Securities Contract Regulations Act,Derivatives include: Accordingly, the amendment has been done in clause 5 of section 43 of the Income Tax Act, BSE and NSE as recognized stock exchanges.
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Amendments as in Finance Bill, Explanation 2 for the purposes of clause ethe expressions — Commodity derivatives: Derivatives are security defined under SC R Act or the contracts carrying right, thus they can be considered as a property carrying value.
Clarification for carry forward of speculative losses The loss in respect of speculation business shall be allowed to carried forward for four years in place of eight years vide Circular no. Issues…… Whether transaction in an exchange before the release of notification would amount to speculation? No, the notification is only clarificatory in nature, therefore, the transaction would not be considered as speculative. Arnav Akshay Mehta  25 taxmann.
Vimal Vadilal Shah  27 taxmann. Issues…… Whether mere violation w. Mere intention of law was that the transactions to be carried out through recognized stock exchange and hence, not to be considered as speculative. JCIT,  25 taxmann.
Issues If actual delivery of share scrips does not take place both for purchases as well as sales — Sec 43 5 — delivery recalled by brothers — No actual delivery. Speculative transation — Loss cannot be set off against business income. ITO ITAT, Asr 71 ITD Whether derivatives transactions not settled through delivery of the asset would be considered as speculative?
Derivatives transactions not a commodity derivative through a recognized stock exchanged shall not be speculative. Taxability of speculative transactions Income from speculation gains is taxed at the normal rates.
Speculation losses can be set off only against speculation gains as per sec Taxability of speculative transactions Speculation losses can be carried forward for a maximum of four years immediately succeeding the relevant assessment year vide Circular no.
Considering the fact, the physical existence of money, currency can be considered as a commodity. Taxability of speculative transactions Therefore, currency derivatives transactions shall be covered by main part of the speculative transactions definition.
Taxability of speculative transactions Also, currency derivatives are transacted at stock exchanges and not on commodity exchanges. Therefore, should not be considered as speculative transactions, if they qualify as derivatives under SCRA, Taxability of speculative transactions Currency transactions on stock exchanges, indicates them to be a type of securities.
Speculative transactions Since, the income from speculative transactions is considered as business income, Audit would be required if the turnover exceeds 2 crore.
Sale value of the transaction shall be considered for the purpose of calculation of turnover. There is no clear cut guidelines, as to whether assessee w.
For any queries, feel free to contact: Pallav Agarwal [next] Distinction between shares held as stock-in-trade and shares held as investment - tests for such a distinction. The Income Tax Act, makes a distinction between a "capital asset" and a "trading asset". Capital asset is defined in Section 2 14 of the Act.
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Long-term capital assets and gains are dealt with under Section 2 29A and Section 2 29B. Short-term capital assets and gains are dealt with under Section 2 42A and Section 2 42B. The Central Board of Direct Taxes CBDT through Instruction No. In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessees as well as for guidance of the assessing officers.
In the case of Commissioner of Income Tax CentralCalcutta Vs Associated Industrial Development Company P Ltd 82 ITRthe Supreme Court observed that:. In the case of Commissioner of Income Tax, Bombay Vs H.
Holck Larsen ITR 67the Supreme Court observed:. This was a mixed question of law and fact. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers. The Authority for Advance Rulings AAR ITRreferring to the decisions of the Supreme Court in several cases, has culled out the following principles: Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under: The second principle furnishes a guide for determining the nature of transaction by verifying whether there are substantial transactions, their magnitude, etc.
It will not be out of place to mention that regulation 18 of the SEBI Regulations enjoins upon every FII to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances.
CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i. Where an assessee has two portfolios, the assessee may have income under both heads i. Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment and therefore giving rise to capital gains or as stock-in-trade and therefore giving rise to business profits.
The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade.
These instructions shall supplement the earlier Instruction no.
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