4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 1/8

Part VIII – Getting Started With Trading – Tax Guide for Traders in

India

Tweet 1

1

(Updated as on Nov 2014)

Traders today have so much of compelling options to trade in the stock

market varying from stocks, futures, or options to manage their capital

more wisely and achieve their trading objectives. But on the other side,

they are obligated under income tax regulations to file their returns in

right manner and pay taxes on their trading profits. So, it becomes

important for any trader to understand the taxation treatment of

trading business in India on a whole so that they can plan their trading

16Followers

7Likes

0Followers

Search

JOIN OUR

NEWSLETTER

Email address:

Your email address

Full Name:

Your first name

Sign up

MOST POPULAR

How to Trade Bank Nifty

Futures? (891)

Part VIII – Getting Started With

Home About Start Here Resource Get Inspired Contact

2Like

Share 9,790

1

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 2/8

activity accordingly and achieve their goals.

In an attempt to make you task simple and easier while filing your

income tax, we are writing these series of posts to help you understand

how we traders are obligated under the law to take care of filling of our

trading activity.

 

Taxation on Trading Stocks

Stock hold for more than 12 months – Long TermCapital Tax

Profits arising out from selling a stock after holding it for 12 months will

be treated as a long term capital gain which as per the section 10 (38) of

the income tax act is exempt from tax (provided such a transaction is

done through a recognized stock exchange for which Security

transaction tax (STT) is paid).

While on the other hand, any loss arising from selling the stock after 12

months will not be adjusted against any short or long term

capital gain from any source.

Suppose, Mr. Shrinivasan has bought 1000 shares of Tata Motors at Rs.

260 on April 9th 2013 and he sold it at Rs. 500 on Sept 17 2014, then

the total profit arising from this investment of Rs. 2.4 Lacs will be

exempt from tax and he can enjoy the 100% profits and don`t have to

pay any income tax on it.

While on the other hand, if he has bought 1000 shares of DLF at Rs. 230

on April 9 2014 and sold it at Rs. 167 on Sept 17 2014, then the total

loss of Rs. 63,000 arising from this investment will not be adjusted

against the profit made from Tata Motors or any other source.

Short Note:

Investments for more than one year are considered to be long term and

attract no tax on profits provided they are done on a stock exchange for

which STT is paid. Enjoy 100% of the profits you made out of your long

term investments.

 

Stocks hold for less than 12 months –  Short Term

Trading – Tax Guide for (387)

What is BankNifty Index (CNX

Bank Nifty Index) & How to (386)

Part VI – Getting Started With

Trading – How to… (351)

Part VII – Getting Started With

Trading – How to (179)

th

th th

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 3/8

Capital Tax

Any profit arising out from selling a stock after holding it for less than

12 months will be treated as a short term capital gain and will be taxed

at 15% provided you take the delivery of shares in your demat account

(Exchange has a settlement time of T+2 working days, so any stock that

you bought on Monday comes in your dmat account only on the 2 day

from date of purchase i.e. Wednesday).

While on the other hand, any loss arising out of the short term trading

can be carry forwarded to a period of 8 years against any short term

capital gain or long term capital gain, if these loses are declared while

filling the income tax returns.

Suppose, Mr. Shrinivasan has bought 1000 shares of Tata Motors at Rs.

260 on April 9 2013 and sold them at Rs. 420 on Mar 04 2014, then

he has to pay a short term capital gain tax of 15% (i.e. Rs. 24,000) on his

profit of Rs. 1.6 Lacs.

While on the other hand, if he has bought 1000 shares of DLF at Rs. 230

on April 9 , 2013 and sold them at Rs. 140 on Mar 04 2014, then the

total loss of Rs. 90,000 arising from this investment can be netted

against the profits made from Tata Motors or any capital gain arising

within the period of 8 years.

Important Note:

Any short term capital loss arising can be carry forwarded to a period of

8 years against any short term capital gain or long term capital gain, if

these loses are declared while filling the income tax returns in

respective years.

 

Day Trading (Intraday Trading) – Speculative Tax

Any transaction where you buy and sell the shares on the same day is a

Day Trade. Any profits and losses arising from any such transaction will

be considered as speculative and will be added or netted of against your

income from business/profession.

So, any profit from day trading will be considered as a business income

and will be added to your other income under the head income from

business / profession and will be taxed according to your total income

slab.

nd

th th

th th

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 4/8

While on the other hand, any loss from the day trading will be

considered as a business loss and can be carried forward against only

speculative profit within the period of next 4 years.

Important Note:Any loss due to speculative activity cannot be adjusted against short or

long term profits.

 

Taxation on Trading Future & Options

If you are trading futures & options on a recognized stock exchange,

then according to the provisions of Section 43(5) of the Income Tax Act,

1961, the gains or losses from an eligible transaction in ‘Options’ and

‘Futures’ will not be treated as a speculation gain or loss, and it will be

taxed as Income from Business/Profession.

Any profit arising out from trading derivatives will be added to your

total income and taxed according to your new respective tax slab. As

this income is considered as a business income, so you can offset it with

business expenses you incur to earn it like depreciation, internet bills,

advisory fees, software charges, and more.

In case of any loss from trading derivatives, same can be offset against

income from other sources or other heads except salary. The balance, if

any, can be carried forward and set off against business income within

eight assessment years immediately succeeding the assessment year in

which the loss was first computed.

For Example, In the year 2013-14, Mr. Shrinivasan has a annual salary

of Rs. 10lacs and he has incurred a total loss from derivatives of Rs.

1lacs and his income from other sources (apart from salary) is Rs.

1.2lacs then his taxable income will be Rs. 10,20,000 (10lacs + 1.2lacs –

1lac) and will be taxed according to his tax slab of 30%.

 

Mandatory Tax Audit

Any trader will have to undergo the audit of accounts if the Turnover

for the financial year is greater than Rs. 1 crore.

 

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 5/8

How to calculate the turnover for taxation

Turnover is being calculated to determine if you need a tax audit or not

For Intraday equity — absolute sum of settlement profits

and losses per scrip

For Delivery equity — sell side value of the stock

For F&O (Equity, Currency, Commodity) — absolute sum of

settlement profits & losses for F&O) per scrip and the sell

side value of option contracts

Suppose, you bought 1 lot (25 units) banknifty futures at Rs. 17700 and

sold it at 17800, then you made a profit of Rs. 2500 and say on some

other day, you had a loss of Rs. 1500, then the total turnover will be

summed up as 2500+1500 = Rs. 4000. So, all such settlement profits &

losses added together (absolute) summed together forms up as

turnover.

 

Short Notes:

Salaried Traders

If you are a salaried person, then profits from derivates will be added to

your salary income and will be taxed according to your tax slabs. While

on the other hand, losses from derivatives trading cannot be offset

against the salary income but can be offset against any business income

in next 8 years.

 

Supporting Documents required

Profit & loss statement

Contract notes

Depository Statements

Bank Statements

 

Due Dates for filing your returns

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 6/8

Any individual trader carrying out trading activity be it long, short or

day term are obligated under the income tax law to file their returns

before July 31 and it is September 30th for companies.

In case your turnover exceeds Rs. 1 crore in a financial year, then the

book of accounts needs to be audited and the due date for filling

returns is September 30. Under section 271 B, failure to submit the tax

audit in time has a penalty of 0.5% of turnover or Rs 1.5 lakhs,

whichever is lesser.

 

Important Q&As

Can we carry forward the losses if not filed in the financial year?

To get the benefit of carry forwarding the losses, it has to be filed in

your income tax before the due dates for the financial year to get any

benefit. Otherwise, you cannot claim the benefit.

Can we carry forward any profits in the following years to set off

against any loss?

No, You cannot carry forward any profits for the following years, so you

have to pay tax for the same in the same financial year.

Can we settle off the losses from trading derivatives or stocks against

the salary?

No, losses can only be offset against income from other sources or

other heads except salaries. Same can be carried forward and set off

against business income within eight assessment years.

 

Disclaimer

Please note that the post series are our personal view and we advise

you to consult your chartered accountant before taking any decision.

KNOWLEDGE IS POWER!

Fee

db

ack

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 7/8

JOIN OURNEWSLETTER

Enter Your Name

Enter Your Email

SUBSCRIBE FOR FREE

Signup now and you will

get onceaweek update

when we do awesome

things around here!

No spam. Just fun. I promise

& if you don’t like being a part

of the tribe, you can

unsubscribe at anytime.

Related Posts

Starting Small How to Trade Bank Nifty

Futures?

Weekly Wrap-Up &

Review – Bank Nifty

moved Choppy with

Negative Bias

Part VI – Getting Started

With Trading – How to

Trade Futures Market?

Follow Us

About   Latest Posts

Just Trading

JustTrading.in is a

private community of traders who come

together to collaborate, learn and grow their

4/26/2015 Getting Started With Trading – Tax Guide for Traders in India

http://justtrading.in/gettingstartedwithtradingtaxguidefortradersinindia/ 8/8

Just Trading November 16, 2014 Taxation

No Comments

← How to Trade Bank Nifty Futures?

Biggest Winners & Draggers of the Bank Nifty Index in2013-14 Bull Run →

(Visited 387 time, 31 visit today)

Tagged on: Day Trading      Taxation      Trading

Leave a Reply

Enter your comment here...

Connect with

Us

Disclaimer Proudly Build In

India!

trading skills and knowledge in a supportive

environment to make Trading A Successful

Business.

Facebook Twitter

Home About Start Here Resource Get Inspired Contact