Now-a-days traders have so many options to trade in the form of Equity Cash Intraday/Delivery , Equity Stock/Index Futures&Options,Currency Futures&Options , Commodity Futures&Options to make more money through a variety of products. But Inspite of making profits with so much of skill and hard work Traders are obligated to pay income taxes on top of what they already forego in the form of brokerage , STT , Stamp Duty etc.,
It's not easy to make profits in the markets after incurring all these charges and if you make profits after all these charges you need to plan better so that out of the remaining profits very less will go towards taxes.
We are here to ensure you pay the least possible taxes at the same time complying with all the tax regulations and you know what? we do this for you at a very minimal professional fees that you can afford maybe just a charge of one month's data feed i.e as low as Rs.500.
Before you give us the job of filing returns for you we just thought you would like to know on how your trading income is classified for tax purposes.
Investments for more than one year (365 Days) are considered to be long term and profits arising out from selling a stock after holding it for 12 months will be treated as a long term capital gain (LTCG) 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.
Enjoy 100% of the profits you made out of your long term investments.
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 2nd day from date of purchase i.e. Wednesday).
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 Activity.
As per section 43(5) of the Income Tax Act, 1961, profits earned by trading equity for intraday or non-delivery is categorized as Speculative 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.
Income from trading Futures & Options (F&O) on a recognized exchanges (Equity, Commodity or Currency) will be considered as Non-Speculative Business Income. These income must be added to your total income and taxed according to your new respective tax slab.
As these incomes are considered as 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.
An investor can treats his short term income from equities as capital gains and pay a flat tax of 15% while a trader has to declare his income from short term equity trades as business income and is obligated to pay tax as per his taxation slab which in case of higher tax slab individuals can mount up to 30%.
Give us the Basic details on what type of trader you are and we will decide which is the best thing for you i.e to file your case as an investor/trader.
Speculative business losses (Equity Intraday Trading Losses) can be carry forward for a period of 4 years and can be set-off only against any speculative gains and not against non-speculative (F&O) gains,
Non-Speculative Business Losses (F&O Trading Losses) can be set-off against any other business income ( bank interest income, rental income, capital gains) except salary income in the same year and balance if any can be carry forward for the next 8 years and can set-off only against any non-speculative gains made in that period.
File promptly so that your current year losses can save you taxes on futures profits.
Mandatory Tax Audit for Traders
Any trader will have to undergo the audit of accounts if the Turnover for the financial year is greater than Rs. 1 crore (provided his annual income is more than 2.5 lacs). So, if your total income (trading + Salary or other business) is lesser than Rs 2.5 lacs, you don’t need an audit even if the turnover for the year is greater than 1 crore.
In case of Options,
Suppose you bought BankNifty 19,000 CA @ 100 and sold it @ 300, then turnover will be 25 x (300-100) = 5000.
In another case, suppose you bought BankNifty 19,000 CA @ 100 and sold it @ 50, then total turnover will be 25 x (100-50) = 1250.
Lastly. suppose you bought BankNifty 19,000 CA @ 100 and it expires worthless, then the total turnover will be 25 x (100-0) = 2500.
Suppose, Mr. Srinivasan bought 100 shares of Tata Motors at 400 and sold 100 shares at 380 then his trading volume will be Rs 78000 but his settlement turnover will be just Rs 100×20= Rs. 2000. So, All such settlement profits and losses summed up together if exceeds Rs 1 crore, only then is the audit required.
Advance Tax on Trading
More generally referred to as ‘pay-as-you-earn’ tax structure. When you have a business income you have to pay most of your taxes before the year ends on March 31st. Advance taxes are required to be paid by individuals as well as corporate, so there are no exceptions. So, if you think at the end of the year, you will have taxable income say apart from salary, then advance tax has to be paid.
As per our tax laws, any business income earned in India will attract the tax to be paid in advance as
– 30% by 15th September
– 60% by 15th December, and
– 100% by 15th March.
So, if your tax liability comes out to be more than Rs. 10,000 in a financial year then you need to pay it in advance as per the % structure mentioned above.
This is very simple to calculate and pay if we talk of business income which is assured. But the issue comes with the business income or capital gains from trading as the income which was positive say till end of 15th September may turn out to be less if the trader incur losses in the subsequent months. The net income at the end of the month may be less or even negative.
Do we need to pay advance taxes in case of short term capital gains & profits from trading futures?
Yes, if you have any short term capital gains then advance tax is required to be paid on the booked profit but on the other hand if the gain is notional i.e. you are still holding the stock, there is no need of advance tax.
In case of Futures, since it is considered as a business, you will have to pay advance tax on the estimated profits and say if you had a net loss in the year end then you can claim refund of the advance tax paid.
The problem arises when you didn`t had any profits in the first few months and later your profits rises in the last few months.Therefore, Payment of advance tax depends on your projected ‘Total Income’ and not income from trading only.
So, you can pay advance tax by Sept 15th for what was earned till that period and you can make the balance tax payment by March 15th. So if you have booked profit from stocks, you can pay advance tax only on that profit.
Also, if you have paid more tax than what was supposed to be paid as per your total business income for the financial year, you can claim a tax refund.And yes, not paying may have a penalty of 12% annualized interest for the period by which it was delayed.
You can visit Advance Tax Calculator on Income tax Department website to calculate the tax to be paid.
What about Advance Tax for Salaried?
If you are salaried, you need not pay advance tax on your salary income as your employer deducts tax at source (TDS) from your salary regularly and pay it in advance to the government.
But if you have any other income apart from salary then you are required to take care of your advance tax laibility. So, any income from capital gains on shares or house property, interest on fixed deposits are required to be included and advance tax is required to be paid after adjusting for expenses or losses, if any.
So, advance tax for salaried are payable only on their other income and not on salary.
Can we choose the tax only at the end of the year as it is difficult to estimate the earning from trading?
If our tax liability comes out to be more than Rs. 10,000 in a financial year then we need to pay it in advance as per the % structure mentioned above.
But what if we don`t? Then it will attract the interest of 1% per month on the non paid tax.
If you want to avoid paying interest get in touch with us and we will help you in projecting your income for the year so that you can pay the required advance tax and avoid paying interest.
Salaried Traders
If you are a salaried person, then profits from derivatives 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.
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.
STT, or Securities Transaction Tax, is a tax levied on securities trades (excluding commodities or currency trades). Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied.
If the trade is a equity delivery trade, than a tax of 0.1% on the turnover is levied on both the buy side and sell sides of each trade. However, if the trade is squared off (closed) within the same trading day, meaning it is a intra-day transaction, then the STT rate applicable is 0.025% on the sell-side trade(s) only.
In case of companies, income tax is a flat 30% and no tax slabs exist.
No, we cannot offset any trading losses against salary income.
# Can we deduct long term capital loss from stocks with business income for computing income tax?
No, we cannot net off the long term losses against any income or gains.
# 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.
It's not easy to make profits in the markets after incurring all these charges and if you make profits after all these charges you need to plan better so that out of the remaining profits very less will go towards taxes.
We are here to ensure you pay the least possible taxes at the same time complying with all the tax regulations and you know what? we do this for you at a very minimal professional fees that you can afford maybe just a charge of one month's data feed i.e as low as Rs.500.
Before you give us the job of filing returns for you we just thought you would like to know on how your trading income is classified for tax purposes.
Classification of Trading / Investment Income
Income from trading or investment activity can be classified into four different sets:-- Long Term Capital Gain
- Short Term Capital Gain
- Speculative Business Income
- Non-Speculative Business Income
Long Term Capital Gain
Stocks sold after holding for more than 365 days – Tax FreeInvestments for more than one year (365 Days) are considered to be long term and profits arising out from selling a stock after holding it for 12 months will be treated as a long term capital gain (LTCG) 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.
Enjoy 100% of the profits you made out of your long term investments.
However In Budget 2018, with the withdrawal of Sec 10(38), there is a proposal of a parallel introduction of Section 112A to tax LTCG on sale of
- Equity shares,
- Units of equity oriented funds or
- Units if business trusts
at a concessional rate of 10% on the gains in excess of Rs. 1 lakh without providing the benefits of indexation or the benefit of computation of capital gains in foreign currency in the case of non-residents.
To simplify this change made recently , It doesn't impact your taxes for this year and all your long term capital gains will be exempt from tax.
Short Term Capital Gain
Stocks sold after holding for more than one but less than 365 days – 15% TaxAny 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 2nd day from date of purchase i.e. Wednesday).
Speculative Business Income
Equity Intra-Day or Non-Delivery Trading – Taxed as per Tax SlabAny 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 Activity.
As per section 43(5) of the Income Tax Act, 1961, profits earned by trading equity for intraday or non-delivery is categorized as Speculative 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.
Non-Speculative Business Income
Futures & Options Trading – Taxed as per Tax SlabIncome from trading Futures & Options (F&O) on a recognized exchanges (Equity, Commodity or Currency) will be considered as Non-Speculative Business Income. These income must be added to your total income and taxed according to your new respective tax slab.
As these incomes are considered as 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.
Are You an Investor or a Trader?
The first and foremost decision that any market participant has to make before filling Income tax is to declare whether he / she is an investor or a trader? Income tax regulations in India treats the activity of a trader and investor in different ways and have in-turn different taxation treatment and obligations.An investor can treats his short term income from equities as capital gains and pay a flat tax of 15% while a trader has to declare his income from short term equity trades as business income and is obligated to pay tax as per his taxation slab which in case of higher tax slab individuals can mount up to 30%.
Give us the Basic details on what type of trader you are and we will decide which is the best thing for you i.e to file your case as an investor/trader.
Set-off & Carry forward the Business Losses
To carry forward the losses in the subsequent years, the perquisite is that they should be filed in the same year the losses were incurred, else you cannot carry forward them in the subsequent years.Speculative business losses (Equity Intraday Trading Losses) can be carry forward for a period of 4 years and can be set-off only against any speculative gains and not against non-speculative (F&O) gains,
Non-Speculative Business Losses (F&O Trading Losses) can be set-off against any other business income ( bank interest income, rental income, capital gains) except salary income in the same year and balance if any can be carry forward for the next 8 years and can set-off only against any non-speculative gains made in that period.
File promptly so that your current year losses can save you taxes on futures profits.
Mandatory Tax Audit for Traders
Any trader will have to undergo the audit of accounts if the Turnover for the financial year is greater than Rs. 1 crore (provided his annual income is more than 2.5 lacs). So, if your total income (trading + Salary or other business) is lesser than Rs 2.5 lacs, you don’t need an audit even if the turnover for the year is greater than 1 crore.
How to Calculate the Turnover for Tax Audit?
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
In case of Options,
Suppose you bought BankNifty 19,000 CA @ 100 and sold it @ 300, then turnover will be 25 x (300-100) = 5000.
In another case, suppose you bought BankNifty 19,000 CA @ 100 and sold it @ 50, then total turnover will be 25 x (100-50) = 1250.
Lastly. suppose you bought BankNifty 19,000 CA @ 100 and it expires worthless, then the total turnover will be 25 x (100-0) = 2500.
Difference between Trading Turnover and Settlement turnover for audit?
To understand the difference between the trading and settlement turnover calculation for audit, Refer to the illustration.Suppose, Mr. Srinivasan bought 100 shares of Tata Motors at 400 and sold 100 shares at 380 then his trading volume will be Rs 78000 but his settlement turnover will be just Rs 100×20= Rs. 2000. So, All such settlement profits and losses summed up together if exceeds Rs 1 crore, only then is the audit required.
Advance Tax on Trading
More generally referred to as ‘pay-as-you-earn’ tax structure. When you have a business income you have to pay most of your taxes before the year ends on March 31st. Advance taxes are required to be paid by individuals as well as corporate, so there are no exceptions. So, if you think at the end of the year, you will have taxable income say apart from salary, then advance tax has to be paid.
– 30% by 15th September
– 60% by 15th December, and
– 100% by 15th March.
So, if your tax liability comes out to be more than Rs. 10,000 in a financial year then you need to pay it in advance as per the % structure mentioned above.
This is very simple to calculate and pay if we talk of business income which is assured. But the issue comes with the business income or capital gains from trading as the income which was positive say till end of 15th September may turn out to be less if the trader incur losses in the subsequent months. The net income at the end of the month may be less or even negative.
Do we need to pay advance taxes in case of short term capital gains & profits from trading futures?
Yes, if you have any short term capital gains then advance tax is required to be paid on the booked profit but on the other hand if the gain is notional i.e. you are still holding the stock, there is no need of advance tax.
In case of Futures, since it is considered as a business, you will have to pay advance tax on the estimated profits and say if you had a net loss in the year end then you can claim refund of the advance tax paid.
The problem arises when you didn`t had any profits in the first few months and later your profits rises in the last few months.Therefore, Payment of advance tax depends on your projected ‘Total Income’ and not income from trading only.
So, you can pay advance tax by Sept 15th for what was earned till that period and you can make the balance tax payment by March 15th. So if you have booked profit from stocks, you can pay advance tax only on that profit.
Also, if you have paid more tax than what was supposed to be paid as per your total business income for the financial year, you can claim a tax refund.And yes, not paying may have a penalty of 12% annualized interest for the period by which it was delayed.
You can visit Advance Tax Calculator on Income tax Department website to calculate the tax to be paid.
What about Advance Tax for Salaried?
If you are salaried, you need not pay advance tax on your salary income as your employer deducts tax at source (TDS) from your salary regularly and pay it in advance to the government.
But if you have any other income apart from salary then you are required to take care of your advance tax laibility. So, any income from capital gains on shares or house property, interest on fixed deposits are required to be included and advance tax is required to be paid after adjusting for expenses or losses, if any.
So, advance tax for salaried are payable only on their other income and not on salary.
Can we choose the tax only at the end of the year as it is difficult to estimate the earning from trading?
If our tax liability comes out to be more than Rs. 10,000 in a financial year then we need to pay it in advance as per the % structure mentioned above.
But what if we don`t? Then it will attract the interest of 1% per month on the non paid tax.
If you want to avoid paying interest get in touch with us and we will help you in projecting your income for the year so that you can pay the required advance tax and avoid paying interest.
If you are a salaried person, then profits from derivatives 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.
Due Dates for Filing Income Tax Returns in India
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.
STT, Brokerage & other Expenses for Traders
Business expenses including Brokerage Charges, Internet Charges, Advisory Fees, Research Reports, Computer & electronics Depreciation, Electricity Bill, Telephone, Software & Data Feed Charges, Newspaper, Books, STT and rent, etc can be used to reduce the taxable income from Speculative/Business Income. You can mention any other expenses that is incurred for undertaking your trading activity under the section “Other Expenses”. So, for any expenses you mention maintain the supporting documents for any future reference.STT, or Securities Transaction Tax, is a tax levied on securities trades (excluding commodities or currency trades). Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied.
If the trade is a equity delivery trade, than a tax of 0.1% on the turnover is levied on both the buy side and sell sides of each trade. However, if the trade is squared off (closed) within the same trading day, meaning it is a intra-day transaction, then the STT rate applicable is 0.025% on the sell-side trade(s) only.
Income Tax Slab – FY 2017-18
| For Men/Women below 60 years of age | For Senior Citizens (Age 60 years or more but less than 80 years) | For Senior Citizens (Age 80 years or more) | |||
|---|---|---|---|---|---|
| Income Level | Tax Rate | Income Level | Tax Rate | Income Level | Tax Rate |
| Rs. 2,50,000 | Nil | Upto Rs. 3,00,000 | Nil | Upto Rs. 5,00,000 | Nil |
| Rs. 2,50,001 – Rs. 500,000 | 5% | Rs. 3,00,001 – Rs. 500,000 | 5% | Rs. 5,00,001 – Rs. 10,00,000 | 20% |
| Rs. 500,001 – Rs. 10,00,000 | 20% | Rs. 500,001 – Rs. 10,00,000 | 20% | Above Rs. 10,00,000 | 30% |
| Above Rs. 10,00,000 | 30% | Above Rs. 10,00,000 | 30% | ||
Important Q&As while filing Taxation for Traders in India
# Is there any loss we can net off against salary?No, we cannot offset any trading losses against salary income.
# Can we deduct long term capital loss from stocks with business income for computing income tax?
No, we cannot net off the long term losses against any income or gains.
# 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.
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