Taxation Simplified for Traders


Taxation Simplified

Taxation Simplified for Traders: It’s Time To File Your Tax Return

Taxation in leu of gains from trading or investing in shares is somewhat complex. SAS Online has made an attempt to simplify it for the taxpayers. Before you can figure out how much to shell off as the 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 the settlement of the trading account. In a financial year, if your turnover is over Rs.1 crore, then your books of accounts mandatorily 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 crores. All equity transactions are digital. For equity traders, an audit is mandatory(sec 44AD)where turnover is below Rs.2 crores 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

  1. ITR-2 form – for salaried individuals having zero business income, and
  2. 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 SOSOnline 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 of 15% 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 the deduction of STT while calculating gains in the hands of an investor.

For a trader, income from the transaction of securities is taxable as business income. He can claim the deduction for expenses (including trading expenses, the internet, phone, advisory fee etc) incurred relates 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.

Let’s know how we can help you in this. Drop your comment in below comment box and we will get back to you soon.

22 Comments

  1. Thanks for giving this useful information..

    Reply
    • beautiful explanation , removed all doubts. tks for such wonderful topics and timely dispersion of information

      Reply
      • Hi Rahul,
        Thanks for it. We are trying our best to bring the best articles. Stay connected!

        Reply
  2. turn over for options is only premium turnover
    or premium turnover+difference of buy&selling rates
    that is 75*30 OR 75*10+75*30

    Reply
    • Turnover in options is SELL Premium Turnover so as per the example it is 30*75 = 2250

      Reply
  3. I am an Individual who is buying and selling stocks on a greater tha 1 day holding period. It is my understanding that I fall under the %15 short term Cap Gains bracket. Am I entitled to deduct STT, Brokerage and other expenses from my Income to arrive at my Nett Profit which will be taxable at 15% or is my Gross income taxable at 15%?
    Please help resolve this ambiguity in your direction above. Thanks.

    Reply
  4. Brief, simple and useful- thanks!

    Reply
    • Thanks Sachin for your positive comment. stay connected!

      Reply
  5. Thanks, very useful information.

    Reply
    • Thanks Ajay for your positive feedback. stay connected!

      Reply
  6. I fall under the category on non-spculative (Future & option).

    I have not understood the calculation of turn over. I assume turn over is summation of profit or loss for the year. In the example given there is loss of Rs.7500 in future and profit of Rs. 750 so turn over should be -6750. where as you are showing 9750. Please explain.

    Reply
    • let me take another example . Say you trade in NIFTY and BANKNIFTY and make profit of 5000 in NIFTY and loss of 10,000 in BANKNIFTY in a particular settlement. Though your net profit loss would be -5000 but total turnover would be 5000 + 10,000 = 15000. Turnover is total of profit /loss per script in a given settlement

      Reply
  7. I am an individual trading in F&O. My total turnover is 80 lacs and my loss is 6 lacs. Whether, I require to audit my accounts. If I do not get my accounts audited is there any possibilities that my income is calculated as 80 lacs * 6% = 4,80,000.00
    whether, I can carry forward my losses to subsequent years.

    Reply
    • Yes you can deduct trading expenses from your income . 15% slab on Short term is applicable on net profit

      Reply
  8. very very useful info. Didn’t know about this turnover part. Thank you very much.

    Reply
    • Thanks Abhijit for your appreciation, We will keep updating with more articles. Stay tuned!

      Reply
  9. Short crispy and informative writeup. Thanks

    Reply
    • Thanks for your positive feedback. stay connected!

      Reply
  10. thank you for a very valuable information

    Reply
    • Your most welcome Sandeep. Keep reading, more articles to come, Stay connected!

      Reply
  11. Thanks, very useful information.
    and another a lot of thanks for alfa trading plateform

    Reply
    • Most welcome Avinash, Stay connected.

      Reply

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