Itr4 futures trading questions

rajeev (Accountant) (159 Points)
Replied 16 July 2012

Mr.Gauvrav

Insted of Manually you try ITR-4 in excel format.download from NSDL site.

You will gate clear idea.

Gaurav Verma (Software Engineer) (39 Points)
Replied 16 July 2012

Mr Rajeev,

I was referring to ITR-4 form in excel format that I downloaded from https://incometaxindiaefiling.gov.in website! I am trying to complete this form but headings are not clear to me hence the questions in my earlier message.

Kajal Rai (Commerce) (61 Points)
Replied 16 July 2012

Mr. Gaurav Verma,

In your case (where 'only' share trading is done)

PART BS :-
No Account Case (Ponit 6)
1. Amount of cash balance : An approximate cash balance in your hand as on 31-03-2012.
2. Amount of total sundry debtors : Yes, your understanding stands correct.

PART PL :-
No Account Case (Ponit 51)
1. Gross Receipts : 0
2. Gross Profit : Total speculation gain/loss earned/beared.
3. Expenses : 0

Additional Information To Input :-
SCHEDULE BP :-
Point A.2i. : Speculation gain/loss

(I'm assuming there are no prior year losses on which STT is paid.)

CG-OS :-
SCHEDULE OS : Other Sources
Yes...Interest received from saving bank a/c's & all FD's (gross) is clubbed & shown here.
If there is any TDS deduction on FD interest received then you need to provide the details in 'TDS-TCS : SCHEDULE TDS2'.
Before doing so, match your Form 16A with 26AS.

Last;
You need not disclose your total FD Investment anywhere in ITR4 as on 31-03-2012 since you do not maintain books of accounts.
However, be sure to disclose the accurate & actual FD interest amount in the above mentioned columns.

If there is still a doubt....feel free to ask.

1 Like

Gaurav Verma (Software Engineer) (39 Points)
Replied 17 July 2012

Thank you Ms Kajal Rai.

A few clarifications, I am trading futures not share trading hence I believe that this is treated as business income and not as speculation.

You have stated:

"PART BS :-
No Account Case (Ponit 6)
1. Amount of cash balance : An approximate cash balance in your hand as on 31-03-2012."

After searching the forum, I believe "Amount of cash balance" includes cash in hand + balance with banks. Please confirm.

"PART PL :-
No Account Case (Ponit 51)
1. Gross Receipts : 0
2. Gross Profit : Total speculation gain/loss earned/beared.
3. Expenses : 0"

1. I cannot enter Gross Receipts as 0 since I am also self-employed and have other business income. So, I need to include Gross receipts from futures trading also otherwise the figures wouldn't match.

3. I believe that I can claim electricity, internet as expense from my futures trading income. So, why would Expenses be 0?

Thank you.

Gaurav Verma (Software Engineer) (39 Points)
Replied 18 July 2012

Dear Members,

Please give advice. Your help is much appreciated. Thanks.

Kajal Rai (Commerce) (61 Points)
Replied 23 July 2012

Kind Attention,

Mr. Gaurav Verma.

First of all, I am truly sorry to keep you waiting for so long....have been busy & hence didn't find time to login.

Now, for your clarifications :-

1. PART BS :-
No Account Case (Ponit 6)
1. Amount of cash balance : "An approximate cash balance in your hand as on 31-03-2012."

Clarification : Here amount of cash balance 'only & only' means cash balance in hand. The balances with banks or any other financial instituions are not to be included here.

2. PART PL :-
No Account Case (Ponit 51)
1. Gross Receipts : 0
2. Gross Profit : Total speculation gain/loss earned/beared.
3. Expenses : 0

Clarification :

You are self-employed. You are correct in the Gross Receipts part, that Gross Receipts won't be Rs.0/-. However, your total gross receipts would be 'only & only' from self-employed business & not from futures trading.
Gross Profit would be 'profits earned from self-employed business + futures trading'
Expenses would include only 'expenses incurred for self-employed business'. (since you are not liable for maintaining books or under audit concluding there are no voluminous transactions.)
All this is however based on my assuming that your total self-employed business income does not exceed Rs 1,20,000/- in P.Y.2011-12 or total business turnover receipts does not exceed Rs 10,00,000/- in any one of the three years immediately preceding the previous year, i.e. F.Y.2008-09, F.Y.2009-10 & F.Y.2010-11; you are not maintaing books of accounts.
I would have a more stronger base to confirm my answer if I knew what sort of business are you undertaking. So, you letting me know would help for your own benefit since the response would differ in case you come under specified businesses.
Your doubt about the figures not matching; the Net Profit is calculated by deducting your Expenses from Gross Profit. Gross Receipts here is just a disclosing factor.
As mentioned earlier, you are required to input additional information in 'Schedule BP'. In the end, your 'Income Chargeable under the head Profits & Gains' will be your self-employed business income.
You cannot claim electricity or internet expenses for futures trading. However, you can claim such expenses if they are incurred for your self-employed business.

Since, you are self-employed, there's one more thing thats comes to my mind...there's also, amount of sundry creditors to be filled in if there exist any.

If you still have any query, I suggest you contact me on gmail. Feel free to express any doubts.

1 Like

Gaurav Verma (Software Engineer) (39 Points)
Replied 23 July 2012

Thank you Ms. Kajal Rai,

Regarding point no 4 that you have mentioned, I have realized that regular books would need to be maintained by me. Unfortunately, I need to fill out ITR-4 again.

So now, problem is that under which heading do I declare my futures trading income in Part PL if regular books are maintained. At the moment, I am putting net future income in "Any other income (3j)".

Also, in Part BS there is a heading called "Balance with bank (3iii)". Now, here do I declare my fixed deposits? Or is there some other heading where this should be done.

In Part BS, should Propreitor's capital (1a) figure match the figure at 5) Total, application of funds? In my balance sheet, this is matching.

Thank you.

Kajal Rai (Commerce) (61 Points)
Replied 23 July 2012

Mr. Gaurav Verma,

1. I am assuming you are in a self-employed business of engineering & hence refer to the attached file for provisions of maintaining books (in your case).

2. To be honest, I am too not quite sure about where should gain on futures trading be exactly disclosed in case books are maintained. But my best guess is in 'PART PL - either 3.f. Profit on sale of investments being secuirties chargeable to STT or 3.j. Any other income'.

3. In PART BS - 3.iii.Cash & Bank Balances - B. Balances with bank - This figure should be your 'actual bank balance only' as shown in bank statement/passbook, reflecting your all bank a/c's as on 31-03-2012.
The fixed deposits in banks will be included in - 2. Investments, a) Long Term Investments, ii) Goverment & Other Securities-Unquoted

4. PART BS - Your (4) Sources of Funds should match with (5) Total Application of Funds.
(If there are no loans taken by you, or any deferred tax liablity then; your capital = sources of funds)

5. There must be assets in your business, make sure to read from 1-4, Application of Funds Part & fill in the required details properly.
(No offence to your understanding or reading skills)

Do not take it otherwise, but to avoid future inconvience from I.T.Department be sure to represent correct & accruate figures in the right boxes before you upload.

All The Best :)

Attached File : 833961 1022744 44aa.pdf downloaded: 149 times

1 Like

Gaurav Verma (Software Engineer) (39 Points)
Replied 24 July 2012

Originally posted by : Kajal Rai
	2. To be honest, I am too not quite sure about where should gain on futures trading be exactly disclosed in case books are maintained. But my best guess is in 'PART PL - either 3.f. Profit on sale of investments being secuirties chargeable to STT or 3.j. Any other income'.

Thank you Ms Kajal Rai. You have been most helpful.

Regarding point 2, I was also thinking that futures income should be disclosed under 3f Profit on sale of investments being securities chargeable to STT. After doing some research, I found that all derivative trasnactions are regarded as Securities:

Derivatives transactions
(in Index Futures) are regarded
as “Securities” under the
Securities Contracts (Regulation)
Act, 1956.

But, the problem is the word "investment" in 3f Profit on sale of investments being securities chargeable to STT. I trade index futures and that is not investment but trading. So, if I declare my future trading income in 3j Any other income, the ITO might be suspicious as to the source of this "other income" since it is a large amount and thereby conduct a scrutiny. So, I am a little unsure what to do here.

Thanks.

Kajal Rai (Commerce) (61 Points)
Replied 24 July 2012

Mr. Gaurav Verma,

How to represent Futures :

Since you are liable to maintain books, you are suppose to show futures trading in detail.
Now, you will have to club your Gross Receipts from self-employed business & from futures trading and disclose in point 1 of PART PL. So, will apply for purchases, closing stock & expenses. (Expenses only if you are having voluminous transactions in future trading, as mentioned earlier).
The Net Profit would be differentiated in 'Schedule BP' as mentioned earlier.

1 Like

Gaurav Verma (Software Engineer) (39 Points)
Replied 25 July 2012

Thank you Ms Kajal Rai,

For futures trading, how should one calculate 1. Gross receipts and 7. purchases? I have asked many accountants and they are all giving different answers. Some are saying that gross receipts is the absolute sum of profit and loss. Others are saying it is net value. One CA said that Gross reciepts is the net profit amount and puchases is the net loss amount.

Kajal Rai (Commerce) (61 Points)
Replied 26 July 2012

Mr. Gaurav Verma,

I can understand how confused you must be right now...everyone with their own alternatives!!!

Well....as far as my knowledge goes, this is what should be done:-
1. Gross Receipts (GR) : In simple words, this will be your sale price. The cost at which you sold the futures.
2. Purchases (P) : This is your cost at which you had bought the futures.

Example :
Let say FO (Futures) were bought on 01-04-2011 at Rs.200/- which includes cost, STT, etc. & on 30-06-2011 FO was sold at Rs.225/- which includes sell price, STT, etc.
Now your GR is Rs.200/- & P is Rs.225/-. Profit will be automatically calculated.
Itś not the best example, but I hope it helps.

If, you still are confused...not to worry. Prepare an excel sheet having details of all expenses coulmnwise with FO´s & mail me (kajalrai2802 @ gmail.com). I don pride on myself, but I have been working in this field for 5 years now...so, I guess I can help.

Good Luck!

1 Like

Gaurav Verma (Software Engineer) (39 Points)
Replied 26 July 2012

Thank you Ms Kajal Rai.

It is not possible for me to send you excel sheet since there are over 2000 transactions with actual contract value of over 200 crores which is normal for most day traders.

I do not think it is possible to put sale price as Gross Receipts. The reason is that 1 contract of Nifty futures is worth around Rs.250,000. Now, we only pay a certian margin to the broker to buy/sell this contract which is roughly 10% of the contract amount. If I calculate the Gross receipts as sale price, the total yearly Gross receipts would work out to be Rs.100 crore and and the purchase amount would be similar! You can imagine that the ITO would be very confused! Even if I work out this in terms of margin amount (10%), it is still too high.

Hence turnover of futures is always worked out on daily Net P/L. So, if one day I have profit of Rs.200 and next day loss of Rs.-100, then turnover is Rs.300 and not the actual contract value which is in lakhs.

Therefore, the problem is what to put in Gross receipts if we can't put actual Sale amount since it is too large. Similar problem is there for purchase amount.

Most CAs are also not very clear on what to do here because of the above issues. I even rang the ITO helpline(trpscheme.com) and he wasn't sure what to do either.

Thanks.

1 Like