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intra-day share trading

09 April 2010

Hi,

If XYZ buys 1000 shares @ 200 i.e. Rs.200000 at 10.45 a.m. & sells all of them @ 210 i.e. Rs.210000 at 2.56 p.m., is the gain of Rs.10000 a short-term capital gain OR a speculation profit? Is there any deduction available to XYZ in respect of (1) Securities Transaction Tax (2) Service Tax (3) Brokerage & (4) Other Charges & under what section?

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30 Replies

Amir (Learner) (4016 Points)
Replied 09 April 2010

Dear Sir,

Intra Day Transactions are settled without delivery & hence it cannot be treated as "Capital Gains/Loss" for the purposes of Income Tax.

It will be treated as Speculation Business Only.

Deduction in respect of -

Brokerage,Service tax & othercharges are allowed u/s 37(1) i:e General Deductions.

STT is allowed u/s 36(1)(xv)

4 Like

Pravesh Kumar (Still Learning) (163 Points)
Replied 10 April 2010

Amir Bhai,

I hv'nt seen anybody showing speculation loss in his ITRs..

In today's world everybody is doing intra day transaction, but a laymen can never differentiate between his normal short term capital gain or speculation profit etc.

in my view this should be come under short term capital gain.

:-)

Amir (Learner) (4016 Points)
Replied 10 April 2010

Hi Pravesh,

U r rite that people generally covers intraday transactions under Capital Gains only either becos of ignorance of correct treatment or with the intention to evade tax...But that practise is not correct in terms of Inome Tax provisions..;)

Pravesh Kumar (Still Learning) (163 Points)
Replied 10 April 2010

yes.. bro. right practice is what you have just explained. but speculation profit/loss "word" itself is very confusing or you can say suspicious. people try not to show speculative profit/loss in their itr.

:-)

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 10 April 2010

I do not totally agree with the above though some people do not show speculation profit / loss seperately but many people do show speculation gain / loss in their return. I have also seen computation of income which though there are huge book losses but still are paying taxes on income as the loss is due to speculation loss and there are other incomes also in the profit & Loss a/c and pay tax on the same.

SIDHARTH DHIR (senior articled assistant) (623 Points)
Replied 10 April 2010

can a PRIVATE COMPANY ENTER INTO SPECULATION BUSINESS?

vaibhav (M.Com. CA ) (178 Points)
Replied 10 April 2010

Dear aamir bhai

i m so much influenced with ur immediate response on caclub .

thanks a lot n pls carry on........

regarding above discussion i would like to add that as per recent circular intra day, future & option trading is

is grouped under normal business activity instead of speculation provided the transaction is routed

through recognised stock exchange.

if i m wrong kindly enlighten

thanks

vaibhav

SUDHIR & PRADEEP JI (CA FINAL+LLB + DISA) (2299 Points)
Replied 11 April 2010

Intra Day Transactions are settled without delivery & hence it cannot be treated as "Capital Gains/Loss" for the purposes of Income Tax. It will be treated as Speculation Business Only. Deduction in respect of - Brokerage,Service tax & othercharges are allowed u/s 37(1) i:e General Deductions. STT is allowed u/s 36(1)(xv)

Amir (Learner) (4016 Points)
Replied 11 April 2010

Dear Vaibhav,

Thnaks bhai for what u said.

Would appreciate if you could share the details of the circular which u r talking about.

As far as I know that Only derivates are treated as Non -speculative if routed through Recognised Stock exchange. Whereas the present case deals with the securities itself & not their derivatives..:)

But would really happy to learn new thing......

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 11 April 2010

Amir bhai is right. There is no such circular where intraday trading is considered as normal business income except in case of futures & options if routed through Recognised Stock exchange are non speculative business and the recognised stock exchnages are BSE, NSE & MCX stock exchange.

And sidharth even private limited companies can enter into speculative transactions.

Also there is a explanation to Section 73 which is deeming section to treat even delivery in shares as speculative transaction which is reproduced here:

⁷³[Explanation.—Where any part of the business of a company (⁷⁴[other than a company whose gross total income consists mainly of income which is chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources”], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]

1 Like

Ashish Kukreja (CA Final Student) (587 Points)
Replied 11 April 2010

Thanx Amir and Aditya for your valuable answers..i was also confused whether to show profit/loss on intra day transactions as stcg/stcl or speculation business profit/loss,.I want to know whether we can set off speculation loss frm any other source of income in current year,,i know lot of people dosn't show intra day profits in their itrs.Do you have any hight court judgement in this regard??

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 12 April 2010

Section 73 states as under

73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.

So you cannot set off speculation loss against gain from any other source. I had also posted before that

"I have also seen computation of income which though there are huge book losses but still are paying taxes on income as the loss is due to speculation loss and there are other incomes also in the profit & Loss a/c and pay tax on the same as the speculation loss cannot be set off against any other income."

C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 13 April 2010

well i would like to extent the matter further........

If a person buys the shares say on 01-04-2010 and is not able to sell on same day, he gets the opportunity to sell it on next day i.e. 02-04-2010. If he sell on 02-04-2010 what shall be the treatment to the gain received by him.

Questions:

1. Since delivery takes T+2 days , he did not get the said delivery in his account but the said shares were in the demat of his share broker which is known as pool account.

2. If delivery is compulsory to treat a gain as STCG then the above transaction is treated as speculation Income.

Kindly guide on the above matters......

CA Shiv (Business Controller) (2987 Points)
Replied 13 April 2010

Hello,

it is a short term capital gain only... For specualtion business there are lot of other activites involved. If its done rarely than it is not a speculation business. I agree with the delivery part. i dont deny with the logic as given by AMIR.

but if its done rarely than its not a speculation and its just a short term capital gain. If its done regularly than it is treated as speculation business.