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taxation of futures and option

This query is : Resolved 

21 July 2008 Hi,

I trade in futures. Ihave incurred a loss in stock market crash .
My query is
1. Under which head of income I will have to show this loss
2.Whether the books of accounts are to be maintained for this
3. whether tax audit is required for this
4. what will be the due date for filing return

21 July 2008 Query wise reply is as under:
1. Income from Business and Profession
2. books are to be maintained if turnover exceeds Rs. 10lacs.
3.Yes, tax audit is required to be done if turnover is 40lacs or more. Turnover, here means sum of Net profit or loss from Future trades.
4. The due date of filing of return in cases where tax audit report is to be obtained is 30.09.2008 otherwise 31.07.2008. In case, the return is not filed by the due date, the c/f of loss will not be allowed.

21 July 2008 dear ramesh
thanks for your reply
need one more help
I am confused about this turnover
for instance,
If I buy LT fututres lot (50 Qty) at Rs 2000.
hence my buy price will be 2000*50= 100000
I sell the same lot at 2100 . hence my total sale price will be 2100*50 =110000

now in this case my profit will be 10000

My query is What should be included in turnover ,whether purchase price or sale price or only profit

and what about the loss which I have incurred

21 July 2008 It is the net profit or loss from Future and Options which is to be summed up to analyse the limit of Turnover in terms of Section 44AB for the purpose of Tax Audit.

In the instant case, the profit of Rs 10000 will be included in Turnover. The text of my detailed reply to a querist in this regard is reproduced herein below which may be of help to u:

In case of derivative trading-Futures and Option- the difference on which the contract is purchased or sold is important. Although the value of contract is number of contract multiplied with the shares price , yet what is actually given or taken is differential amount in contract. For example if you purchase a future contract for Rs 105 for a share having a lot of 100,you pay nothing at the time of buying a contract, yet at the time of expiry if contract , you are either gainer or loser which is determined whether there is positive or negative difference. So , for the purpose of determining the turnover in case of future and options , for the purpose of 44AB , based on the guidance note of ICAI , following items should be considered to constitute turnover
• The total of positive and negative differences , plus
• Premium received on sale of options is also to be included in turnover ,plus
• In respect of any reverse trades entered, the difference thereon

21 July 2008 dear ramesh

thanks a ton

In my case the difference of gain and loss comes to -260000.
hence I guess I dont need to maintain any books of accounts
How will I show the same in my return of income

21 July 2008 You have to maintain the Books of A/cs u/s 44AA(2) as the books are also to be maintained in case the income exceeds rs 120000 and income means negative income(loss) also.

21 July 2008 Speculative Transaction: - In a speculative transaction, the contract for sale or purchase is settled otherwise than by actual delivery or transfer of the commodity or scrips. The contract is squared up by paying out the differences which may be positive or negative. In such transactions, although the contract notes are issued for the full value of the purchased / sold scrip, the entries are made in the books of account only for the differences. The aggregate of both positive and negative differences is to be treated as “turnover” for section 44AB purposes. This view of ICAI does not appear to be the correct view – see Growmore Exports Ltd.v.Asstt.CIT [2001] 78 ITD 95/72 TTJ691 (Mum.).

Derivatives, futures and options: - In case of such transactions, the following shall be included in ‘turnover’ for section 44AB purposes: (i) total of favourable and unfavourable differences,(ii) premium received on sale of options; and (iii) difference in respect of reverse trades entered. Growmore Exports Ltd.v.Asstt.CIT [2001] 78 ITD 95/72 TTJ691 (Mum.).

Delivery based transactions: - In respect of delivery-based transactions (purchase/sale) of stock/any commodity, the total value of sales should be considered as turnover provided the stock/ commodity is held as stock-in-trade.


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