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.

59 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
    • isit right??? i noticed it in some where in internet…Short term capital gains are taxed at 15%. What if your tax slab rate is 10% or 20% or 30%? Special rate of tax of 15% is applicable to short term capital gains, irrespective of your tax slab. Also, if your total taxable income excluding short term gains is less than the minimum income which is chargeable to tax (Rs 2,50,000 for financial year 2016-17) – you can adjust this shortfall against your short term gains. Remaining short term gains shall be then taxed at 15% + 3% cess on it.Whereas long term capital gain on equity shares listed on a stock exchange are not taxable

      Reply
      • Hi,
        Short Term gains are taxed at 15% irrespective of which slab you fall into . However if other income excluding this short- term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability. Further In case your taxable income including STCG is below exemption limit then you are not liable to any tax.

        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. Where can we get our profit loss statement or total turnover in SAS online account?

    Reply
  4. Very informative write-up.
    Please let me know name of reports where by I can get the following from your back-office:-

    1.Financial Ledger
    2.Sale purchase of shares company wise in excel format- with date, purchase price, purchase cost (including STT, brokerage etc.,) sale price, selling amount and profit and loss (with break up of ST and LT – profit/loss)

    Reply
    • You can take all details from our support team support@sasonline.in while mailing these details.

      Reply
    • Hi,
      You can drop an email to support@sasonline.in and the team will guide you in better way.

      Reply
  5. 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
    • Yes you can deduct trading expenses from your income . 15% slab on Short term is applicable on net profit

      Reply
  6. what taxes levies on commodity trading?

    Reply
    • Hi Prem,
      Commodity Trading is considered non speculative business income and taxed as per slab . Further you may account for trading and other expenses while calculating income from Commodity Trading.

      Reply
  7. Brief, simple and useful- thanks!

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

      Reply
  8. Thanks, very useful information.

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

      Reply
  9. 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
  10. 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
  11. 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
      • Sirs,
        I have STCG (STT paid) of 18,000/- and speculative income (STT paid) of -100/- (loss). Here are my doubts:
        1. Can I report STCG as 17,900/- (since STT is paid)?
        2. Since the speculative amt is loss, can I show only 18,000 in STCG?
        3. I don’t have salary income, nor business of my own. Can I file ITR2?.
        Request you to provide clarification. Thanks for your help.

        Reply
        • Hi,
          1. STCG and speculative income from Intra-day have to be reported separately
          2. Since you are trading intraday which comes under business income you have to use ITR 3 . ITR 2 is where you have income from capital gains only

          Reply
  12. Short crispy and informative writeup. Thanks

    Reply
    • Thanks for your positive feedback. stay connected!

      Reply
  13. Speculative (Intraday Trading Turnover) is to be calculated as Sum of +ive and -ive differences as explained.

    So what is turnover: As you Explained in RIL example, It is 2000-400=1600.

    or Should I calculate it as : 2000+400=2400. as per example I found on caclubindia website.

    I found this:
    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 ).
    ————————————————

    I am Puzzled!!!!

    Reply
    • Hi Raman,
      Yes, turnover is 2400.

      Reply
  14. thank you for a very valuable information

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

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

    Reply
    • Most welcome Avinash, Stay connected.

      Reply
  16. Very useful info esp for F&O traders where confusion with regard to calculation of turnover and audit requirement persists.

    Reply
    • Thanks pushp

      Reply
  17. Very good information from SAS,. Thank for the same.

    Reply
    • Thanks Sridam for your positive comment

      Reply
  18. A good article. I would like to know in which section the redemption of Elss fund after 3 years(no tax) is entered while filing tax returns?

    Reply
    • Hi S.Mahesh,
      Thanks for appreciation. for the rest you need to consult to your CA for this.

      Reply
  19. DEAR SIR, YOU KEEP ALL OUR TRANSACTIONS NOTED IN YOUR BACK OFFICE. WILL IT BE POSSIBLE FOR YOU TO PROVIDE US THE FIGURES OF PROFITI/LOSS, YEARLY TURNOVER AS REQUIRED BY THE I.TAX REQUIREMENT LIMIT SO THAT WE MAY TAKE DECISION TO GET OUR ACCOUNT AUDITATED OR NOT BEFORE FILING OUR I.TAX RETURN. PL HELP US IN THIS AREA. THANKS IN ADVANCE.

    Reply
    • Hi, We are working on it meanwhile Turnover can be calculated from PNL statement shared for Tax Filing in FO segment.
      Please drop an e-mail to support@sasonline.in on how to download the same.

      Reply
  20. 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. (as mentioned in Audit requirement Note)

    pl clarify the above audit requirements. If my turnover is rs.150 lacs which is below Rs.2 cores and profit is less than 6% of the turnover . In this case shall i require to get my account audited.

    Reply
    • Hi,
      Since you have FO Trading profit less than 6% of turnover best to get an audit done

      Reply
  21. i have a/c with you ,what are the papers or ledgers required for audit for f&o turnover, under which name did you provide them?

    Reply
    • Hi, You can write to our support team on support@sasonline.in for PNL for Tax Filing for FO segment

      Reply
  22. Imparting more knowledge for your clients. Great work done.

    Reply
    • Thanks Sandeep!

      Reply
  23. THANK YOU SIR.

    Reply
  24. If I do only speculative trading i.e intraday (NOT F&O), still an audit is required?

    Do I need to use ITR4S or ITR3?

    What is the pesumptive income I need to show and when it needs to be declared, at the begining of the year?

    Can you please give example where there is loss of 10000/- in intraday trading?

    Reply
    • Hi,
      Intraday trading is considered as speculative Business so you have to file ITR4. Audit is applicable if either the turnover is more than 1 cr or if the net profit earned is less than 8% of the total turnover. *Audit is applicable only if your total income falls in a tax bracket. (so no audit if your total income is less than Rs 2.5 lac)

      Reply
  25. Hello ,
    thanks for the informative article.
    For FNO if the turnover is above 3 crores and loss from FNO is Rs 50000 , Is audit required ?

    Also are GTC trades considered delivery based or Speculative Assuming GTC trades do not result in actual Delivery at Square off.

    Thanks for the all help.

    Reply
    • Hi,
      Yes, audit is required

      Not sure what you mean regarding GTC trades not being delivery based . It does not matter which product is used to punch orders . If trade in intraday it is speculative

      Reply
      • Hello , Thanks for the information.
        I have a total FNO turnover of Rs 2.2 crores and a loss of
        46000 Rs for FY 16- 17 so i have to still go for audit ?
        If the Audit is done , i heard my taxes (even though im in loss ) would be in lakhs …is that true ?

        GTC is a SASONLINE feature where it gives 5 times margin exposure to buy a stock but the stock isnt delivered into your demat until you pay the rest of the margin money. Only intraday is termed as Speculative as i see your explanation. So GTC will be non – speculative and will come under the category of short term gains i think.

        Thanks for all the help !

        Reply
        • Hi,
          Audit is suggested if turnover is above 2 cr specially in case of profit being less than 6% of turnover or net loss

          Yes, since it is a delivery trade short term / long term is applicable depending on holding period

          Reply
  26. Dear Sir,
    In the flow diagram of turn over calculation, while calculating the turnover for the futures and options,
    Total turn over for futures (75×100) =7500
    but for option we have to add the P/L with the sell side premium,
    then the turn over for the option (10X75)750 + (30X75=2250)= 3000
    Total turn over for future and option = 7500+3000 = 10500.
    I hope this is correct.
    Thanks.

    Reply
    • In options the turnover is just the sell side premium i.e 2250

      Reply
  27. thank u sir …very usefull information about tax .

    Reply

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