Tax audit in case of Futures & Options (F & O) and Share trading:
Hello readers, today I will discuss very interesting topic whether tax audit applicable in case of Futures & Options and share trading-
There are two forms of share trading-
♦ Delivery based
♦ Non-delivery based
First of all, lets discuss Delivery based transactions-
Meaning of ‘turnover’ in case of delivery-based transactions- In case of delivery-based transactions when we buy any commodity including stocks and shares and hold it for more than 1 day and sell them, the total value of sales is to be considered as turnover.
For e.g.- we bought 100 shares of Wipro Ltd for Rs 800 shares and sold them at Rs 820 so turnover in this case will be Rs 820*100=82000
Now next question comes in your mind in case turnover exceeds Rs 1 crores or 10 crores then tax audit applicable??
In that case we have to check whether we are dealing in these transactions regularly or casually –
In case our main source of income is dealing in commodities in that case tax audit applicable if turnover exceeds tax audit limit but if we are doing above stated transactions side by side i.e., addition to main source of income then in that case it will be treated as capital gain irrespective of turnover or profitability.
Non-delivery-based transactions-
Non-delivery-based transactions are two types-
1. Intra -day transactions – (Speculative Business Income)
♦ A Speculative transaction means a transaction in which contract for purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrip.
♦ The contract is settled otherwise and squared up by paying out the difference which may be positive or negative.
♦ As such in that case the difference amount is turnover.
♦ In case of an assessee undertaking speculative transactions there can be both positive or negative differences arising by settlement of various such contracts during the year. Both positive and negative differences are not related to each other.
♦ Entries in books of account are made only for the differences.
♦ Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for tax audit purposes under section 44AB.
♦ For e.g.-positive difference Rs 400 and negative difference Rs 600 so total turnover in that case will be Rs 1000 i.e., aggregate of positive and negative differences.
2. Futures & Options – (F & O)
I. Futures & Options are also completed without the delivery of shares or securities and also squared up by payment of differences.
II. The transactions may be squared up any time on or before the striking date.
III. The total of favourable and unfavourable differences shall be taken as turnover,
IV. Example -Mr X buys 100 units of Nifty Futures – Rs 8000 p.u and sell at Rs 7900 p.u. Loss for 100 units = -10000 is turnover.
♦ The requirement of calculating turnover arises only when treating trading P& L as business income-Turnover is only to determine if tax audit applicable or not.
♦ Your tax liability is not affected by your turnover.
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Due date of Income Tax returns approaching so any queries related to above can be mailed at [email protected].
Author Bio
I have incorporated a Partnership Firm for the sole purpose of Investment in Stock Market. We are doing this investment and trading ( F&O and Intraday ) activity through a stock broker. No other business activities are done in this partnership firm. Our turnover is approximately 1.10cr so there is any requirement of audit.
1. As a Partnership Firm, can I show my profit in ITR-5 on ‘Capital Gain’ or in (PGBP) ‘Profits and Gains of Business and Profession’?
2. Whether I am in the slab of tax audit or not?