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Tax structure

garima (Homemaker) (67 Points)

03 June 2011

Hello,

i am house wife and i want to start share trading..

I just want to know the tax structure, if i do trading in futures and option in india and is there any limit after which i have to pay transaction tax etc....

Regards,

Garima

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CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 03 June 2011

you will be normally taxed under the head capital gains , if you hold the shares or securiteis for more than a year the gain you make on them will be tax free and loss from them can not be claimed any where. if you hold shares for less than a year they become short term gains and they will be taxed at flat rate of 15% provided you are trading on recognized stock exchage which i guess you will be doing it definalty, the loss on the other hand from short term selling will be eligible to set off from short term gain or from long term gains from other than shares. dividend reccived any shares will be totally exempt from tax. you wont be eligible for deduction of 80c that is for LIC mediclaim, ppf investment or any deduction available from 80c to 80 u that means u have to pay flat tax at the rate of 15% that s it, to get it taxed as capital gains the main intention of yours must be of investment purpose

but if you traidng in huge volumes and the main criteria for share trading is earning profits then you can show the same as business income also for which you have to prepare proper books so as to convince assessing officer for assesing your income, the benift here is you can claim expenditure done for such business and alos you will be eligible for deductions of lic ppf etc etc what i mentioned in earlier para. here you can claim the stt brokerage service tax stamp duty all that you pay to the sub broker as expenditure, the ndepending on you level of income you will get taxed in a particular slab for eg now for income after deductions of 800000 it is taxed at 30%,. the first option i mentioned in first para there also you will be able to get a basic slab of 190000 exempted from tax and here also you will be eligible for same.for further queires you can recert back

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Harpreet (* * * * * *) (1670 Points)
Replied 03 June 2011

Wise answer Mr. Nimit

garima (Homemaker) (67 Points)
Replied 03 June 2011

Mr.Nimit,

Thanks for the answer...

But i want clear one more thing is as if i go for day trading suppose in Nifty, than total traded volume comes around 6 lakh after squaring off the position. and in this way if i do daily than my total volume per month goes above 1 cr. Than do i have to go for tax audit ? And as i have heard that above 40lakhs of either profit or loss together tax audit should be done, though i will not be a big player in market but want to gain some knoweledge..

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 03 June 2011

the volume in wich you trade is not that important than the intention you show to the assessing officer whether you intention is to invest money in stocks or just earn profits, but as you are sayng you will be squaring off genrally so your intention is clear to earn profits and look for turnover before squarring off ok, you can safly show this as a business income and claim various expendditure on it and go for 80 c also and yes if you show it as a business income and your turnover in a financial year is above 60 lakhs ( turnover as i said to calculate ) you have to go for tax audit also and maintain proper full books of accounts also and various other provisions of income tax act will hit you from section 28 to 44ad which i wont be explain to you like this if you are interested still deep in to it tell me. and one more thing it is NOT 40 LAKHS IT IS 60 LAKHS THAT TOO NOT OF PROFIT OR LOSS IT IS 60 LAKHS OF TURNOVER . for further details you can talk further