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Derivative transaction

24 June 2014

What is the tax treatment of derivative transaction. How is gross recipts calculated in case of derivative transaction. If ITR 4 is to be used then how to show the profit or loss amount?? The margin is very less however the gross value is very high so how to report the same? for Example for one lot of nifty the margin is only 73000/- however for the exposure will be around Rs 4 lacs so which amount to be considered as TO. The net profit or loss how it should be reported in ITR

Please advice

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2 Replies

pavan kumar (CA Final , CMA Final) (202 Points)
Replied 24 June 2014

The meaning of turnover for in case of transactions in Futures and Options of shares is not defined under the I T Act 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 , 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 But not the total value of contract.

If one makes a profit of `25 lakh (favourable) and books a loss of `13.5 lakh (unfavourable) in a fiscal from F&O trading, the ‘turnover’ will be `38.5 lakh (total of favourable and unfavourable differences), there is no need for a tax audit. If the turnover exceeds `1 crore, tax audit is applicable.