Taxability of Derivatives

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Balaji R K (Querist)
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25 June 2009 Kindly provide Income Tax treatement on Profit or Loss arising from transactions of Index Futures.

Is the income from derivatives can be treated as Capital Gain?

I believe the Income arising from such F & O transactions can be treat as normal business, however for 44AB purpose, the sale value of F & O transactions will under tax audit report. Eg :

Sale of Index Futures Rs.50,00,000
Purchase Value Rs.48,00,000

Net Income Rs.2,00,000

In the above mentioned example the turnover is more than 40,00,000/- wil it cover under 44AB.

Kindly clarify.

Rajesh U. Ameta

Rajesh U. Ameta (Expert)
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26 June 2009 Derivative income are considered as business inocme. Hence in above case capital gian will not be attracted and section 44AB will be applicable.

Balaji R K

Balaji R K (Querist)
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26 June 2009 Thanks for your reply.

Could you please provide any section notes to this.

I believe Capital Gain can also be attracted, since the definition of asset includes Securities. Securities includes Derivatives as per SCRA. But one needs to pay the tax as per the normal slab basis instead of Short Term Capital Gain of 15% to avoid the Tax Audit.

Also for Derivatives even in one transaction you can cross the limit of Rs.40 Lacs. In this case whether we need to take sales as turnover or the net income from Derivatives for the purposes of Section 44AB.

Please advise

Balaji R K

Balaji R K (Querist)
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26 June 2009 This query is not yet resolved

Mayank Dave

Mayank Dave (Expert)
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26 June 2009 its business income and not capital gain. For ascertaining turnover figure, difference of transaction shall be counted i.e. in ur case its 2 lac that is turnover

NISHIT A. DOSHI

NISHIT A. DOSHI (Expert)
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26 June 2009 In my humble opinion, f & o transactions are considered as business income. AT the same time it is written in section 44AB that turnover/gross receipts which clarifies that when turnover/gross receipts excees rs.40lakhs then books are required to be audited.
According to me capital gain arises when any capital asset is transferred. in the present case,you are dealing with the securities regularly. so securities would not construe as capital asset. hence, it is not liable for capital gain. And now i am answering to the last question i.e.for the purpose of tax audit one needs to look at the turnover/sales/gross receipts and not the net income.
with regards,
ca nishit doshi

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