SECTION 43(5) DERIVATIVE TRANSACTIONS

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BHARAT (Querist)
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09 August 2010 AS PER 43(5) F&O INCOME COMES UNDER BUSINESS TRANSACTION BUT THE LOGIC IS NOT CLEAR TO ME. WHY IT SHOULD NOT BE TAKEN AS SPECULATIVE TRANSACTION? AND IF NOT THEN WHY NOT SHORT TERM OR LONG TERM CAPITAL GAIN TRANSACTION? AND WHAT ABOUT TRANSACTIONS IN CASE OF COMMODITY TRADING, WHERE WILL IT BE PLACED AND REASON? PLEASE CLERIFY IN DETAIL...

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CA Punit

CA Punit (Expert)
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09 August 2010 A transaction is called speculative if it is without delivery of underlying asset/item.

Transaction in derivatives are presently cash settled & do not involve delivery of any kind.
The motive behind trading is to earn only from diff in prices & not investment.
Also they expire at specified time.

Hence the profit therefrom is not capital gain but treated as business income. Hwever, earlier they wr considered as speculative business but now are regarded as non speculative.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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09 August 2010 In addition to above Commodities Trading is still considered as speculative business as it is not carried out on a recognised stock exchange in India for Income Tax purpose.

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