Shares trading /investments, F&O trading – taxation

Shares trading /investments, F&O trading – taxation for FY 2018-19 or AY 2019-20 for Individual and HUFs

Return form:-  

ITR-1 SAHAJ- Individual (salary / one house property/other source)

ITR-2– Individual /HUF (where there is no income from business or profession). I.e. person having short term /long term capital gain need to file this ITR

ITR-3– Individual /HUF having income from business or profession. i.e. short term / long term capital gain on shares, speculation (intra-day equity), non-speculation (F&O trading)

ITR-4– Individual /HUF / firm (other than LLP) having business income u/s 44 AD, 44ADA or 44AE

 Due date- July 31st for non-audit case and Sept 30th for audit case

There are below types of gain and loss from trading in shares:

Long term capital gain /loss- equity investment holding for more than 1 years

1. Tax rate -10% (gain upto Rs. 1 lakh not chargeable to tax)
2. Long term capital loss can be set off only against long term capital gain
3. Can be carried forward for 8 assessment year (subject to return filled within time limit as per section 139(1))

Short term capital gain /loss- holding period is more than 1 day and less than 1 year

1. Tax rate -15%
2. Short term capital loss can be set off against any capital gain (long term / short term)
3. Can be carried forward for 8 assessment year (subject to return filled within time limit as per section 139(1))

Business Income / loss-

• Speculative business income/loss (intra-day equity trading)

1. Tax rate- normal rate of tax as per slabs
2. Loss in speculation business can be set off only against profit in speculation business
3. Can be carried forward for 4 assessment year (subject to return filled within time limit as per section 139(1))
4. Tax audit applicability – (i) where turnover exceed Rs. 1 Crores (ii) In case of books of accounts not maintained, turnover not exceed Rs. 2 crores and estimated income is below 6% of turnover and net total income is above basic exemption limit of Rs. 2.5 Lakh

• Non-speculative business income/loss (trading in F&O- including intra-day trading)

1. Tax rate- normal rate of tax as per slabs
2. Loss from a non-speculation business can be set off against income from speculation or non-speculation business (except salary income)
3. Can be carried forward for 8 assessment year (no time limit for unabsorbed depreciation, exp. on scientific research, loss from specified business u/s 35AD) (subject to return filled within time limit as per section 139(1))
4. Tax audit applicability – (i) Where turnover exceed Rs. 1 Crores (ii) In case of books of accounts not maintained, turnover not exceed Rs. 2 crores and estimated income is below 6% of turnover and net total income is above basic exemption limit of Rs. 2.5 Lakh

Other notes and examples:-

• There is specific limit and criterion for compulsory maintenance of books of accounts
• Speculative (intraday equity) loss can’t be offset with non-speculative (F&O) gains, but speculative gains can be offset with non-speculative losses.
• g. If you incur speculative (intraday equity) loss of Rs.1 Lakh for a year, and non-speculative profit of Rs. 1 Lakh, then you cannot net-off each other and say zero profits. You would still have to pay taxes on Rs. 1 Lakh from non-speculative profit, and carry forward the speculative loss.
• g. If your net income for the year (trading + everything else) is less than Rs. 2.5 Lakh (basic exemption limit), you don’t have to pay any taxes, and hence no audit will be required. But if your net income for the year is above Rs. 2.5 Lakh and if you make a trading loss (F&O or intraday equity), the yes you may need to get an audit done.
• If your profit is less than 6% (presumptive basis) and your turnover is less than Rs. 1 Crore and if your total income is less than Rs. 2.5 Lakh then there is no need of tax audit.