Futures & Options
There is always been confusion regarding treatment of Income from Future & Options and Share Trading. We have already covered taxation on share trading activities in India. Now this time we are covering taxation aspects in case of Income from Futures & Options (F&O).
Taxable as Business Income
Income from Futures & Options (F&O) is treated as an income from business and profession under income tax act, 1961. Thus, any profit or loss arising from Futures & Options will be assessed under the head of Income from Business and Profession irrespective of assessee being engaged in any other business or not.
Since F&O income is treated as Normal Business Income not speculative income, Rate of Tax shall be same as normal rates applicable to an Individual.
Tax Audit Requirement
Since income from F&O is treated as normal business income, here assessee can opt to for presumptive taxation under section 44AD by showing profit at least 8% of gross turnover. This will escape assessee from maintaining any books for account under section 44AA.
In case assessee shows income from F&O less than 8% of gross turnover then he is required to maintain the books of accounts as per section 44AA and get them audited under section 44AB.
Books of accounts to be maintained u/s 44AA are namely:
- Original Bills for expenses and payment vouchers for petty expenses.
- Ledgers and Journal, if the accounts are maintained as per mercantile system of accounting,
- Cash Book
- Carbon copies of serially numbered bills and carbon copies or counterfoils of receipts issued in respect of sums exceeding Rs.25.
Tax Audit limit for FY 2013-14 is Rs.1 crore i.e. if gross receipt from business (F&O) or the total sales, turnover for the previous year relevant to assessment year exceeds Rs.1 crore in the (earlier Rs.60 lacs) then its mandatory to get books of accounts audited.
Calculation of Gross Turnover
Both, the positive difference (profit) and negative (loss) difference should be summed up to calculate the turnover for the purpose of determining the liability to tax audit under Section 44AB of the Income Tax Act, 1961. Premium received on sale of options is also to be included in turnover. The difference in reverse trades entered shall also form part of the turnover.
Expenses for carrying on the business can be claimed as business expenses such as postage, conveyance and telephone, incurred, even one can also claim depreciation on assets used for carrying on business or profession.
Due date for return Filing
If assessee is required to get his books of accounts audited under provision of section 44AB or 44AD then the due date of filing ITR would be 30th September of the assessment year (for FY 2012-13 due date would be 30th September 2013).
In any other case the due date of filing ITR would be 31st July of the assessment year (Like for FY 2012-13 due date would be 31st July 2013).
Set-off and Carry forward of Loss
Loss from trading in derivatives (futures and options) is treated as normal business loss not as a speculative loss as per exception to Section 43(5) of the Income Tax Act, 1961. Alternatively, it may also be treated as capital loss.
The classification is to be made by considering the nature, frequency and volume of transactions.
Non-speculative business loss can be set off and carry forward for eight years against any head of income i.e. capital gains, income from house property etc. except salary.
On the other hand Capital loss can be set off and carry forward for eight years only against capital gain income. To be precise short term loss can be set off against long term as well as short term capital gains while long term capital loss can only be set off against long term capital gains.