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Taxation Simplified for Traders

  • Published: Sunday, 18 October 2020

Taxation in lieu of gains from trading or investing in shares is somewhat complex. SAS Online has made an attempt to simplify it for the tax payers. Before you can figure out how much to shell off as tax you must first decide whether you are a trader or an investor.

Trader or Investor:

If you buy stocks with an intention to earn from dividends then you are an investor. A trader buys stocks to profit from price rises.

Long-Term & Short-Term Gain:

If a listed security is held for less than 12 months and then sold, the consequent gain/loss is considered to be short-term capital gain/loss. If the holding period is above 12 months, long-term capital gain/loss arises.

Speculative and Business Income:

Intra-day trading or same day buying and selling of any share is interpreted as speculation income.It involves no actual deliveries of stocks. Trader can gain or lose. Loss can only be offset against speculative gains.

Income from trading F&O (futures and options), intraday as also overnight, on all the exchanges is considered as non-speculative business income.

How to Calculate Turnover

Turnover refers to the profits and losses that are incurred after settlement of trading account. In a financial year, if your turnover is over Rs.1 crore, then your books of accounts mandatory have to be audited

Audit Requirements

An audit is mandatory if you have business income and the yearly business turnover crosses Rs. 1 crore. For digital transactions,this limit is Rs 2 crore. All equity transactions are digital. For equity traders, an audit is mandatory(sec 44 AD)where turnover is below Rs.2 crore but profits are lower than 6% of the turnover and total income exceeds minimum exemption limit.

ITR Forms

If you are a salaried employee trading in stocks, the form you use for filing income tax returns will depend upon the instrument, frequency and volume of trade.

There are 2 options

  • ITR-2 form - for salaried individuals having zero business income, and
  • ITR-4 - for income from business and profession.

An individual who takes delivery of all the stocks, can fill ITR-2 where he can show the gains and losses made.  ITR-4 filing is mandatory for those who trade in the F&O segment (you can do trading via SAS Online platform).

Taxation, Carry Forward and Set Off

For an investor, only the profit resulting from a securities sale is taxable in his hands. A tax rate GST @ 18 % applies on short-term gains on which Securities Transaction Tax (STT) has been charged.

Long-term gains are tax exempted. The IT Act does not allow for deduction of STT while calculating gains in the hands of an investor.

For a trader, income from transaction of securities is taxable as business income. He can claim deduction for expenses (including trading expenses, Internet , phone , advisory fee etc) incurred related to the trading activities provided these have documentary evidence. Both speculative and non-speculative business income must be added to your total income including salary, other business income, bank interest, rental income, etc.Taxes will be paid as per your tax slab.

Loss from F&O can be set off against income except salary else can be carried forward for 8 years. Loss from intraday equity trading can’t be offset against any other income but can be carried forward for next 4 years and offset against speculative gains.

Note: that for tax filing, you can refer 'Portfolio' report on Back Office Portal by selecting Capital Mkt: 17-18 and select date as : 31-03-2018 in 'As on Date' option available in 'Report Type'.  Kindly refer this LINK for viewing/ downloading Portfolio Report.