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income of future and option

This query is : Resolved 

Income from future and option (trading in share market n commodity ) will come under which head of income.

2. If we treat this income as business income whether tax audit is applicable for turnover ?
3. kindly tell me the section in which this income is under perview

Please note that section 43 states as under:
speculative transaction”29 means a transaction in which a contract29 for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery29 or transfer of the commodity or scrips:

Provided that for the purposes of this clause—

(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or

(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; 30[or]
__________________________________________
[(d) an eligible transaction in respect of trading in derivatives referred to in clause 31[(ac)] of section 232 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;]
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shall not be deemed to be a speculative transaction;

[Explanation.—For the purposes of this clause, the expressions—

(i) “eligible transaction” means any transaction,—

(A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and

(B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;

(ii) “recognised stock exchange” means a recognised stock exchange as referred to in clause (f) of section 234 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified35 by the Central Government for this purpose;]

AS SUCH INCOME FROM DERIVATIVES WILL BE TREATED AS NORMAL BUSNESS INCOME , AND NOT SPECULATIVE BUSINESS INCOME .


IT IS SPECULATIVE BUSINESS INCOME.SEC.28.
COMING TO TAX AUDIT,IT IS AS FOLLOWS:
SEC 44 AB DEALS WITH TAX AUDIT WHICH IS COMPULSORY WHERE SALES/GROSS RECEIPTS OF BUSINESS EXCCEED RS. 40 LACS.
IF IT IS PROFESSION THE ABOVE LIMIT IS RS. 10 LACS FOR TAX AUDIT.
THE BOOKS REQUIRED TO BE MAINTAINED ARE AS SPECIFIED IN RULE 6(F) AND SEC 44 AA OF THE IT ACT.
C.A.R.V.RAO


Income from future and option (trading in share market n commodity ) will come under which head of income.

2. If we treat this income as business income whether tax audit is applicable for turnover ?
3. kindly tell me the section in which this income is under perview

Income from futures & options (F&O) is not treated as speculative any longer. Therefore, you may setoff the loss from F&O against your normal income, including short-term capital gains.
The transactions for the purchase and sale of F&O are completed without delivery of shares and securities. Contract notes are issued for the full value of the asset purchased and/or sold, but accounting is done only for the difference. The amount paid/received is this difference.
For applicability of tax audit under Section 44AB of the Income-Tax Act, 1961, on trading in F&O, the turnover should exceed Rs 40 lakh. Turnover in such types of transactions is the grossing up of the difference of all the trades entered, whether positive or negative. Premium received on sale of option is to be added. Difference on reverse trades is also to be considered. If the turnover so arrived is above Rs 40 lakh, then tax audit would be applicable.




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