Can loss of como.fut & option be set off against buis profi
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
27 September 2013
Dear friends,
I have a query regarding sec.43(5) applicability to commodity future and option loss.
assesee is having income from normal manufacturing activity. Through that activity he is having profit.
Now assesee is doing commodity future & option transaction in gold through mcx, which is recognised stock exchange,and bills are there and frequency of transaction is more then 2000 during the year. Assesee is having loss from that f&o activity.
Now my question is
1. weather assesse can set off these loss of gold F&O transaction again normal business income?
I have a query regarding sec.43(5) applicability to commodity future and option loss.
assesee is having income from normal manufacturing activity. Through that activity he is having profit.
Now assesee is doing commodity future & option transaction in gold through mcx, which is recognised stock exchange,and bills are there and frequency of transaction is more then 2000 during the year. Assesee is having loss from that f&o activity.
Now my question is
1. weather assesse can set off these loss of gold F&O transaction again normal business income?
29 September 2013
F&O transactions are not considered as speculative. However, whether the same is considered as business income/loss or capital gain/loss or other income shall depend on case to case basis. In your case, it is possible that due to frequency of transactions, it may be considered as business loss and accordingly set off against other business income.
Please refer to following discussion on F&) Loss:
Taxation On F&O Trading
In the Finance Act, 2005, measures were taken to rationalise the tax treatment of derivatives. It said that transactions in derivatives on recognised stock exchanges shall not be considered as speculative transaction.
Had it been a speculative transaction the losses could only be set off against income from speculative transactions and be carried forward for four years.
Business Income vs Capital Gains
There have always been differences between the taxpayer and tax authorities on the classification of F&O income—whether it is business income or income from capital gains—but it entirely depends on certain facts and circumstances:
■ Linking commodity derivative transactions with existing business;
■ Frequency of the transactions and holding period;
■ Volume of transaction; and
■ Motive behind the transactions.
In this context, one should note that no single factor is decisive and the effects of all the factors should be considered to determine whether the income is in the nature of business income or capital gains.
For example, if the individual is a trader in shares, currently offering his income as business income and carries out F&O transactions at the same time, then the income from F&O will be treated as business income. So, an investor, who has transacted in derivatives has to independently ascertain the nature of the derivatives transactions and decide accordingly.
F&O Income As Business Income
If income from F&O is considered as business income then it has certain implications.
■ Securities transaction tax (STT) and administrative expenses are deductible.
■ Losses can be set off against income from business, house property and other sources, but not against one’s salary income.
■ According to the new rules, unabsorbed losses can be carried forward for eight years and set off against one’s business income.
■ If the turnover exceeds `1 crore, tax audit compliance is necessary.
There is a recent clarification by the finance minister that trading in commodity derivatives shall not be treated as ‘speculative transactions’.
Determination Of Turnover
For derivatives transactions, the following are included in ‘turnover’ for purposes of tax audit under Section 44AB of the Income Tax Act, 1961:
■ Total of favourable and unfavourable differences;
■ Premium received on sale of
options; and
■ Difference in respect of reverse trades entered into.
Example
If one makes a profit of `25 lakh (favourable) and books a loss of `13.5 lakh (unfavourable) in a fiscal from F&O trading, the ‘turnover’ will be `38.5 lakh (total of favourable and unfavourable differences), there is no need for a tax audit. If the turnover exceeds `1 crore, tax audit is applicable.
F&O Income As Capital Gains
If income from F&O is treated ascapital gains then it has certainimplications:
■ Such gains are usually short-term and taxable at normal slab rates.
■ Expenses related to sale or purchase of transactions, such as brokerage, are deductible, but STT is not.
■ Short-term capital loss can be set off against any capital gains and carried forward for eight years.
Conclusion
As F&O transactions can be classified either as income from business or capital gains, salaried individuals must first be aware of the form that needs to be filled in (see Know Your ITR Forms). To avoid any further confusion, one should also critically analyse the nature of income from derivatives and list it under the appropriate head.
Source: http://outlookmoney.com/article.aspx?286519
Please refer to following discussion on F&) Loss:
Taxation On F&O Trading
In the Finance Act, 2005, measures were taken to rationalise the tax treatment of derivatives. It said that transactions in derivatives on recognised stock exchanges shall not be considered as speculative transaction.
Had it been a speculative transaction the losses could only be set off against income from speculative transactions and be carried forward for four years.
Business Income vs Capital Gains
There have always been differences between the taxpayer and tax authorities on the classification of F&O income—whether it is business income or income from capital gains—but it entirely depends on certain facts and circumstances:
■ Linking commodity derivative transactions with existing business;
■ Frequency of the transactions and holding period;
■ Volume of transaction; and
■ Motive behind the transactions.
In this context, one should note that no single factor is decisive and the effects of all the factors should be considered to determine whether the income is in the nature of business income or capital gains.
For example, if the individual is a trader in shares, currently offering his income as business income and carries out F&O transactions at the same time, then the income from F&O will be treated as business income. So, an investor, who has transacted in derivatives has to independently ascertain the nature of the derivatives transactions and decide accordingly.
F&O Income As Business Income
If income from F&O is considered as business income then it has certain implications.
■ Securities transaction tax (STT) and administrative expenses are deductible.
■ Losses can be set off against income from business, house property and other sources, but not against one’s salary income.
■ According to the new rules, unabsorbed losses can be carried forward for eight years and set off against one’s business income.
■ If the turnover exceeds `1 crore, tax audit compliance is necessary.
There is a recent clarification by the finance minister that trading in commodity derivatives shall not be treated as ‘speculative transactions’.
Determination Of Turnover
For derivatives transactions, the following are included in ‘turnover’ for purposes of tax audit under Section 44AB of the Income Tax Act, 1961:
■ Total of favourable and unfavourable differences;
■ Premium received on sale of
options; and
■ Difference in respect of reverse trades entered into.
Example
If one makes a profit of `25 lakh (favourable) and books a loss of `13.5 lakh (unfavourable) in a fiscal from F&O trading, the ‘turnover’ will be `38.5 lakh (total of favourable and unfavourable differences), there is no need for a tax audit. If the turnover exceeds `1 crore, tax audit is applicable.
F&O Income As Capital Gains
If income from F&O is treated ascapital gains then it has certainimplications:
■ Such gains are usually short-term and taxable at normal slab rates.
■ Expenses related to sale or purchase of transactions, such as brokerage, are deductible, but STT is not.
■ Short-term capital loss can be set off against any capital gains and carried forward for eight years.
Conclusion
As F&O transactions can be classified either as income from business or capital gains, salaried individuals must first be aware of the form that needs to be filled in (see Know Your ITR Forms). To avoid any further confusion, one should also critically analyse the nature of income from derivatives and list it under the appropriate head.
Source: http://outlookmoney.com/article.aspx?286519
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