INCOME TAX MATTERS ( A monthly journal on - Income tax and wealth tax- since 1999) - ( subscription for the year 2010 (TWO VOLUMES) is only Rs. 1600/-) - For subcription and to Know more click here

 

ARTICLES - Income Tax

 

Trading in futures and options- taxability under income tax law

Income derived from dealing in futures and options will be treated as income under the head “Profits and Gains of Business or Profession”.

Such income would be treated as speculative income, since there would be no actual delivery of the shares and further since Section 43(5) provides that where there is no periodic or ultimate delivery, the transaction would be treated as speculative.

Section 43(5), however, provides that such transactions will be treated as regular business income, if you satisfy all the foolowing conditions:-

1. the transaction is routed through a recognised stock exchange,
2. is done through a registered broker or sub-broker,
3. where the transaction has a contract note, which specifies the unique code number of such broker or sub-broker, as also your permanent account number and
4. further where the transaction is done on a screen-based trading.

If there is a loss, a regular business loss can be set off against any source or any head within the same year except an income under the head “salaries” in view of the specific prohibition in Section 71.

A speculative loss can only be set off against speculative income within the same year, since the set off against any other source or head within the same year is prohibited in terms of Sections 70 and 71 of the Act.

A regular business loss can be carried forward and set off against business income within a period of 8 assessment years immediately succeeding the assessment year in which the loss was first computed.

A speculative loss can only be carried forward and set off against speculative income within a period of 4 assessment years, immediately succeeding the assessment year in which the loss was first computed.

This is provided for in Sections 72 and 73 respective

 

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