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Turnover calculation in intraday for income tax

piyashamit (non) (25 Points)

15 December 2013

Dear Sir,

I am salaried individual and invest in intraday Equity shares please let me know am I liable for tax audit and how to calculate the turnover in intraday ?

I have visited many CA and every one had given me different opinion they are as follow

1) Total of Purchase and Sales is considered as turnover for Tax Audit .

2)Total of sales made is considered as turnover and in my case tax audit is not needed as I am not doing it as a business.

3) Total of differences in intraday transaction is treated as turnover and I need to maintain accounts and they are charging heavily for the same.

I am very confused and need your assistance on this and guide me choosing the right option for filing the income tax.

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20 Replies

CA Dhruva Kalamanji (Chartered Accountant ) (1996 Points)
Replied 15 December 2013

Dear Piyashamit,

when you are salaried employee and doing nvestment in share, your status will be like below:

1) you total income will include income form salary and income from investment in share(other income),

therefore your income is based on the salry and other income where as tax audit is only for those who carry business and proffession

you will not fall under any of the two and hence tax audit is not required by you but proper discousre of income in the invcome tax return is very necessary.

Ajay (CA Job) (512 Points)
Replied 16 December 2013

Dear Piyashamit

The broad legal postions are as follows:

Dealing in shares can result either in "Business income" (chargeable as Profits & Gains of Business or Profession chargeable under section 28 of the Income Tax Act,1961) or "Capital Gains" (chargeale uder Sec.45 of the Act).
Thus, dealings in shares could either be
1. in the course of business - chargeable as Business Income, OR
2. for the purpose of investment - chargeable as Capital Gains.
Classification into Business Income and Capital Gains depends on facts & circumstances of each case. However, as a very broad guideline, as held in many cases, it can be said that - oridnariliy, the purchase and sale of shares with the motive of earning a profit, would result in transaction being in the nature of trade, but where the object of investment in shares of a company is to derive income by way of dividend etc., then the profit accruing by sale of shares will yield capital gains and not revenue gains(business income).
If such dealings in the shares are in the course of business, you may note the definition of "Speculative Transaction" as defined under Sec.43(5) of the Act - "A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips."
Note that the definition of specultaive losses is relavent for the operation of Sec.73 of the Act which deals with "Losses in Speculation Business". In case of Specultive losses, it can be set off in the current year only against gains from any other speculative business and also, if carried forward, it can be set off in the subsequent year only against gains from another speculative business. Also, Speculative losses can be carried forward only for 4 years unlike other business losses which may be so carried forwarded for 8 years.
Now, your attention may be directed to the Para 5 of"Guidance Note on Tax Audit under Section 44AB of the Income Tax Act,1961" issued by The Institure of Chartered Accountants of India (ICAI), which provides the guidelines regarding "Turnover or Gross Receipts in respect of transactions in shares.." as follows: (a) Speculative transaction: A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be positive or negative. As such, in such transaction the difference amount is 'turnover'. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit vide section 44AB.
(c) Delivery based transactions: Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sales is to be considered as turnover.

Above being the legal postions/guidelines relevant in your case,

As a first step, you have to place whether your transactions are Business Transactions or Investments.
Though, it purely depends on facts of your case, assuming you do the intra-day trading on a regular basis, we can say your income may be taxable as Business Income rather than Capital Gains (Investment).
Next question is whether your business income is "Speculative Income" or "Non-Specultaive Business Income". By definition under Sec.43(5), we may have to say that it is "Specultive Income".
Now if it is speculative income, the turover as per the relevant Guidance Note of ICAI, the "turnover" is "Net" of all postive and negative incomes from various transaction and NOT total of all Sales transaction. So, if your "net income" exceed Rs.1 Crore, you are liable to tax audit.
Futher, in case you have loses,it can be set off only against other specutive losses and not against any other income. Further, it can be carried forward only for 4 years being Specultive Income and also, such carried forwarded losses can be set off only against other specutive losses and not against any other income.
Refer https://www.capitalmarket.com/CMEdit/story11-37.asp?SNo=314481

Thus, I feel you have to disclose both your "Salary income" and "Business Income' separately in your return.

KINDLY NOTE that the above are based on whta I have learned from various sources. So after reading the above you must consult or re-consult a praticing CA dealing in such cases and I believe you will be in a better position to understand the situation.
Also, kindly anyone correct me if I am wrong/need updation.

Regards

Ajay

11 Like

yogesh kumar verma (Auditor) (80 Points)
Replied 05 February 2015

Dear friend

Invesment in share whether capital assts or business assets depending on portfolio of investor. inverstor as capital assets than income from share taxable as capital gain , if share purchase as stock in trade the income is liable as business income and turnover shall be total amount of trading receipt and payments. it is irrelevent that you are a salary employees.

Narendra choudhary (mumbai) (109 Points)
Replied 27 July 2015

AJAY is 100% right

1 Like

CA AJIT MUNDADA (Practice) (33 Points)
Replied 07 August 2015

Ajay explained very nicely & citations he has given is ablsolutely correct.

I just want to make one clarification for the Turnover Calculation with respect to below lines

Now if it is speculative income, the turover as per the relevant Guidance Note of ICAI, the "turnover" is "Net" of all postive and negative incomes from various transaction and NOT total of all Sales transaction. So, if your "net income" exceed Rs.1 Crore, you are liable to tax audit.

Here "Turnover" is to be calculated as Total of differece between Sale & Purchase Transations, be it positive or negative figures. It means if you have incurred a Loss ( negative difference between Sale & Purchase Transactions ) of Rs. 40 Lacs & Profit ( positive difference between Sale & Purchase Transactions ) of Rs. 60 Lacs, then your total Turnover for deciding whether your are liable to get books audited under Section 44AB is Rs. 1 Crore. ( Rs. 40 Lacs Loss + Rs. 60 Lacs Profit )

2 Like

Sparsh Gupta (Others) (1 Points)
Replied 16 September 2015

Dear sir / friends Pls help me out with this notice that i have got from IT department regarding ITR filing assessment year 2013-2014. Some information summary for my PAN they have sent in the notice paper are as follows 1. 2012-13 CIB-502 contract of Rs 10,00,000/- or more in a commodities exchange 2. 2012-13 STT-01 purchase of sale of equity in a recognised stock exchange And 2 more. Now here is my story I was a grad student back in 2012 and i started doing trading since then. I have been doing trading (sometimes on regular basis and sometimes for delivery). I never thought about any type of income tax on my day trading until yesterday's notice. Pls tell me what should i do now Do i need to collect all my contract notes from nov2012 to till now to submit/ file my all ITRs. And do i need to attach all my contract notes during filing of ITR. Pls help me because i have talked to so many advocate in my town but no one is enough competent to solve my problem. Yes i live in small town and city is 103 km from my place . Any one can contact me on my email id sparshaaa @ icloud.com Or 09519173610 Sparsh gupta

ruchik bhatt (1 Points)
Replied 09 January 2016

Don't need to attach all the contract note. Consult your C.A. in big city as this is a complex thing. Don't consult advocates, only consult C.A.. Also check under which section you got the notice because there are broad definitions. Let C.A. have a look at your records and he will inform you about it.

Saroj Jyoti (GSTP, Tax Consultant) (100 Points)
Replied 20 August 2016

Originally posted by : CA AJIT MUNDADA

Ajay Sir, undoubtedly you explained it very cleary, but the one calcualtion i didnt understand that as you said ( highlighed).

The point i dont understand that (- 40 lacs) + (+ 60 lacs) got total of Rs. 1crore. or the total fo both should be +20 Lacs (i.e. -40 + 60= 20) ?

So while calculating the same which total can be consider as turnover? Plz help me out.

priya (ca) (22 Points)
Replied 12 December 2016

sir u really explained in a very easy way... thanx sir

sir i have one doubt that while showing the turnover as revenue in P&l which is calculated as the difference of positive and negative figures, and also the same is not liable for tax audit as turnover is less than 1 crore. But feedind the same details in the software it is showing the applicability of the section.

sir what is the solution to show the same in the software.

yogesh kumar verma (Auditor) (80 Points)
Replied 12 January 2017

Dear friend,

Concept of calculate turnoover is clear. If intraday trading, it is Speculation business and aggregated of difference of sale and purchasees shall become part of tuenover. Further negative difference also deemed positive difference for calculate turnover.

DETERMINATION OF TURNOVER:

yogesh kumar verma (Auditor) (80 Points)
Replied 12 January 2017

Dear friend,

DETERMINATION OF TURNOVER:

1 Like

Aman sirsikar (N.A) (32 Points)
Replied 01 February 2017

Considering If intraday trading, it is Speculation business and aggregated of difference of sale and purchasees shall become part of tuenover. Further negative difference also deemed positive difference for calculate turnover.

Suppose I have an intraday trading loss on shares and not Derivatives (F &O) of 1,00,000 rupees, will there be a negative turnover in the PL sheet of ITR-4? If not what will be the solution.

1 Like

Roop Kishore Aheer (practice) (22 Points)
Replied 03 May 2017

Accouting for intraday transaction, futures and options are different concept. What it is discussed so far is relating to taxation of income tax and calculating the turnover as per Income Tax Act 1961. so be clear and dont be confuse with accounting and taxation.