[Updated Aug 2014]
There is a confusion in the minds of tax payers engaged in non-delivery based trading on the stock markets, commonly referred to as Futures and Options (or at F&O). We thought it to be very important to focus on this topic in an article addressing all these related to filing of tax returns in case of non-delivery based transactions, considering that the due date for tax return filing is fast approaching.
Individuals engaged in future and options should keep in mind following things for Income Tax Return filing:
Taxable as Business Income
As per the provision of the Income Tax Act, 1961, income from futures & options (F&O) is treated as normal business income. Thus, profit or loss from such business (F&O) will be taxable as income under the head profits and gains of business or profession whether or not the assesse is carrying on any other business or profession.
Tax will be charged on such income at the normal rates applicable to an individual.
Compliances in case of Profit & Loss
If there is a loss in F&O, here provisions of section 44AD will apply and accordingly audit of books of accounts will also be required. The provision of this section mandates disclosure of at least 8 % of net profit on the gross turnover.
So, in case the assesse does not discloses the same (less than 8 per cent or loss) , the assesse will be required to maintain books of accounts and is required to get tax audit under provisions of section 44AA and 44AB. Thus, pursuant to this change, income from business cannot be below 8 per cent of the gross turnover in any circumstances.
So, if there is a profit in F&O and you are disclosing 8% or more of total turnover as profit then only the income has to be declared as business income and accordingly ITR has to be filed. There will be no need to maintain books of accounts and of audit.
Now, here comes the point calculation of turnover. Determination of turnover in case of F&O is one of the important factors for every individual for the income tax purpose. Turnover must be firstly calculated, in the manner explained below:
- The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
- Premium received on sale of options is to be included in turnover.
- In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.
Here, it makes no difference, whether the difference is positive or negative. All the differences, whether positive or negative are aggregated and the turnover is calculated.
Tax audit under Section 44AB
As Futures & options (F&O) is treated as normal business income, so, if the total sales, turnover or gross receipt from business for the previous year relevant to assessment year exceeds Rs. 60 lacs in FY 2010-11 & 2011-12 (Rs. 1 crore from the FY 2012-13) then its mandatory to get books of accounts audited.
Expenses such as postage, conveyance and telephone, incurred for carrying on the business can be claimed as business expenses. You can also claim depreciation on assets used for the business or profession.
Due date for return Filing
In case you are liable for audit under provision of section 44AB or 44AD then the due date of filing ITR would be 30th September of the assessment year (Like for FY 2011-12 due date would be 30th September 2012).
And, in other case or say in case you are not liable for audit then the due date of filing ITR would be 31st July of the assessment year (Like for FY 2011-12 due date would be 31st July 2012).
Carry forward & and set off of Loss
If there is a loss in F&O and you are claiming the same in Income Tax Return then you should file it before due date to carry forward the loss and set off from the income in future.