What is Speculative Income?
Income Tax Act has not defined the meaning of ‘speculative income’ but has defined ‘speculative transaction’. Thus, it can be said that the income derived from the speculative transaction is a speculative income.
Meaning of speculative transaction
As per provisions contained under section 43(5) of the Income Tax Act, any transaction of purchase or sale of a commodity (including stocks and shares) settled otherwise than by actual delivery or transfer of the commodity or scrip is termed as speculative transaction.
However, there are certain transactions which have been excluded from being treated as speculative transactions. Such specific transactions are:
The loss arising from speculation business of any assessment year is allowed to be set off only against the profit of another speculation business in the same assessment year. But, where the loss of speculation business could not be set off from the income of another speculation business in the same assessment year, then the amount of such loss is allowed to be carried forward in the subsequent year, so that can be claimed as set off only against the income of any speculation business. Such speculation business loss is allowed to be carried forward only for 4 assessment years immediately succeeding the relevant assessment year for which the loss was first computed.
However, it may be observed that there is no compulsion that the same speculation business must continue in the assessment year in which the loss is set off.
Explanation to section 73 of the Income Tax is applicable if the following conditions are satisfied—
If the aforesaid conditions are satisfied, such business shall be considered as speculation business to the extent to which the business consists of purchase/sale of such shares.
However, the explanation to section 73 is not applicable if—
The loss incurred in speculation business can be carried forward to the subsequent year and set off only against the profits of speculation business.
The loss from Speculative Business can be carried forward for 4 assessment years only, immediately succeeding the assessment year for which the loss was first computed.
There is no such requirement that the speculation business (the business in which the loss was incurred) should continue to be carried on in the subsequent year in which the taxpayer wants to set off of the speculative business loss but the assessee should be the same.
The loss of speculative business cannot be carried forward unless the return of income (for the year in which the loss is incurred) is filed within the due date as specified under section 139(1) of the Income Tax Act.
|S. No.||Provisions of Set of and Carry Forward of Losses under Income Tax Act, 1961|
|1||Clubbing of Your Income with Income of your Spouse|
|2||Clubbing of income from assets transferred to Son’s Wife|
|3||Clubbing of income from the asset transferred to Spouse|
|4||Clubbing of Income on Revocable Transfer of Asset|
|5||Clubbing of remuneration income of Spouse from a Concern in which other Spouse has Substantial Interest|
|6||Set Off & Carry Forward of Loss under the head House Property|
|7||Clubbing of income of a Minor Child with Income of parent|
|8||Clubbing of Income from Self-acquired Property converted to Joint Family Property & subsequent Partition|
|9||Clubbing of Income from assets transferred to a person for benefit of spouse|
|10||Clubbing of Income from Assets Transferred to a Person for the Benefit of Son’s Wife|
|11||Carry forward & set off of Business Losses other than Speculation Loss|
|12||Set off and Carry Forward of Capital Loss|
|13||Set-off and carry forward of Speculative Business Loss|
|14||Set-off & carry forward of Loss from owning & maintaining racehorses|
|15||Set off and carry forward of losses of Specified Business | Section 73A|