Expences on shares

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2010 I'm getting following charges on my shares transactions apart from brokerage -
1) Service Tax
2) STT
3) Transaction Charge
4) Stamp Duty
5) SEBI Tax

Is there any exemption that is available on these charges that are paid for shares transaction? Is the exemption/treatment different in-case of Intraday & Capital Gain? Is it needed to track these expenses differently for Shared Intraday Trading & Shares Delivery transaction?

CA. Anoop Gadia

CA. Anoop Gadia (Expert)
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15 July 2010 1,3,4,5 are exp. fro capital gain
and if you are treated that as business than all are exp.

For Tax purpose the Income tax act distinguishes between Delivery, Intraday trading in cash segment and FnO segments.

Consequently the tax treatment for profit/loss in all three are different.

CASH DELIVERY
Delivery is deemed as investment
in an asset. Therefore Capital gains rules apply.
On short term investment i.e. shares bought in cash segment and sold before completion of 1 year from date of purchasing, you have to pay 15% of profits as STCG Tax (10% for AY 2008-09/FY 2007-08)
On long term investments i.e. shares sold after 1 year of holding the long term tax applies which currently is NIL.
Any loss is allowed to be carry forward and set off for 8 years

CASH INTRADAY
Intraday trading in Cash segment is deemed as speculation, same as lottery or betting on horse racing.
The tax rate applicable on profits from speculation income
is flat 30%.
Any loss is allowed to be carry forward for 4 years, to be set off against future speculation profits.

DERIVATIVES/F&O
Dealing in FnO is treated as Business. Thus normal business taxation rules apply as they would to any other business. The rate of Tax is as per Slab applicable in the respective year. In current year, income upto 150,000 is exempt. Above it the Slab rates come into effect.
Any loss again is allowed to carry forward for 8 years and set off against other heads of income or future income.

The exempt income slab Rs. 150,000 is available to every individual. i.e. If your total income does not exceed rs. 1.5 L you are not liable to any tax, irrespective of the nature of income being Capital gain or Speculation income or Business Income. Above that the tax rates come into effect.

IMP: TAX AUDIT IS ONLY REQD FOR BUSINESS INCOME I.E FOR INCOME FROM DERIVATIVES/FUTURES AND OPTIONS. Not from Income from Capital Assets or Speculation Income. So you may have a income of Rs. 2 Crore from Delivery/Intraday but no need for Tax Audit.
Another point to note is the method by which the limit of 40 Lakh is calculated for audit purpose in case of Derivatives. As the Future lots are upwards of Rs. 2 Lakhs its quite easy to cross the 40 Lakh figure by way of turnover, which is incorrect in principle.
So the total difference between Buy and Sell price of FnO is taken to calculate the 40 Lakh limit, i.e. the profit + loss + premium on options recd + premiums paid.
It may well be that you have net loss from derivatives and still have to go for tax audit. For e.g. Profit 20 L + Loss 25 Lakh = Turnover 45 Lakh Tax Audit Reqd. Net Loss = Rs. -500,000.

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