I have been trading personally for a very long time and the tax filing times have always been the most painful part, sitting with a CA and accounting for profits, losses, expenses and others. There are a bunch of reasons for writing this post:. Om Prakash Jain a brilliant Chartered accountant who is a Zerodha client and also runs TaxIQ will be assisting us in putting up the blog and also in answering queries.
We will together try to keep the post and the answer to the queries as simple as possible. We would appreciate if the post and the queries are pertaining to Income tax and related topics while trading stocks, futures and options, currency and commodity. Do note that this is our view and recommend you to consult your CA before taking any decision. Irrespective of the nature of trades you carry out your income tax returns have to be filed before July 31 for individuals and September 30 for companies.
In case your turnover exceeds Rs. Under section B, failure to submit the tax audit in time has a penalty of 0. These slabs are on your total income as an individual which is the sum of all your incomes, this may include salary, rental, trading profits and etc.
First most important thing to do for every trader is take a stance on your trading activity because the tax liability would change based on this. Any profit you make by sale of shares that you have held for more than 1 year is considered as long-term capital gain and if this transaction is done through recognized stock exchanges for which the STT Security Transaction Tax is already paid, is exempt from Income tax under section 10 Any income from buying and selling shares even if more than a year is considered as a business income.
This gets added to your income and then taxes paid according to the above mentioned slabs. But since it is a business income you can show expenses in terms of internet, advisory charges etc, any charge that you have incurred for the business of trading and reduce your income liable to be taxed.
An interesting thing to note is that if you do the same transaction without stock exchange off the market transaction , i. This is a loop hole that exists in the system presently.
Any gain made by sale of shares through a recognized exchange is considered as a short term capital gain if bought and sold within 1 year. Please note that it is considered short term capital gain only if you take delivery of the shares to your demat account and then sell the shares. This will have to be added to your other income and you will be charged taxes based on the slabs mentioned in the table above.
Since it is a business income you can show business expenses to reduce the taxable income, for the business of trading some of the expenses can be broadband charges, rental charges, advisory charges, computer charges, electricity bill, professional fees and etc.
Note that as a trader you are probably paying higher taxes than an investor, but this is the right approach to take. Any short term loss arising from the sale of shares can be net off against any short term capital gain or long term capital gain in the future upto 8 years provided you have declared the loss while filing the income tax.
What this means is that if you made a loss of Rs , doing short term trading and you made Rs , in a property transaction, your net tax liability would be only on Rs , While day trading the rules stay the same if you have declared yourself as an investor or trader. Any profits or losses from day trading is called Speculative; either Speculative Profits or Speculative Losses. Profits from intraday trading is considered as a business income, so this will have to be added to your other income and pay the tax accordingly.
So if you have earned a profit of Rs 1lk from day trading and Rs 4lks from your salary and other sources, your total income would be Rs 5lks and taxes has the be paid accordingly.
But you can show the expenses you incur towards trading to reduce the net tax outgo. Speculative losses or loss from intraday trading can be carry forwarded for the next 4 years provided you have declared the same while filing your returns within due date. Important to note with speculative losses is that it can be net off only against any other speculative profit you make within the next 4 years and not against any other profits Section 73 1 of the Income Tax Act, So assuming while trading this year you made profit of Rs 1lk from short term trading and Rs 1lk loss from intraday trading, you cannot net off both these.
You will have to pay taxes for the Rs 1lk profit and carry forward this loss of Rs 1lk for intraday and net it off against any other intraday profit you make in the next 4 years. Any profit made from trading derivatives is considered as a business profit. You would have to add this income with all your other income and pay tax according to the slabs mentioned above. But since trading income is now considered as a business income, you can show all expenses that you incur to earn this income and reduce your net tax outgo.
Expenses like computer depreciation, internet bills, advisory bill, software tool, salary you pay to people whom you have hired and more. Any loss is a business loss and this can be net off against any income other than salary either in the same year or if you file your losses in time anytime in the next 8 years. This loss would include the trading loss and sum of all expenses that you have incurred towards trading.
What this means is that if you have had a Rs 10lk loss trading derivatives and earned Rs 20lks in any other business other than your salary , your taxable income would be only Rs 10lk Rs 20lk — Rs 10lk. Calculation of turnover is to determine if you need your books audited or not, so audit by a CA is required if:. Turnover is being calculated here just to determine if you need a tax audit or not. Back in Mr. Chidambaram our Finance Minister made the long term capital gain tax zero to attract investments in the country and to make up for this revenue loss to the exchequer STT was introduced.
Until the assessment year , STT was given as a rebate and was omitted from the assesment year What this meant to traders like us was that until , any STT paid could be deducted from our tax liability, but today paying STT gives us no such advantage.
Hence the trading community has been pushing the finance ministry to reduce STT or atleast give a rebate like before. I have tried my best to keep this blog simple and do away with all the financial lingo that chartered accountants use.
To end this very serious topic with a little rhyme and humor:. Post your questions here, Om and I will try to answer it at the earliest. Please note that the post and the answers to the queries are our personal view and advise you to consult your chartered accountant before taking any decision. Love playing poker, basketball, and guitar. Is there a consolidated statement for the year that i can obtain from Zerodha or should i attach my trading account statement or should i attach all the individual contract notes that i have received in that financial year Number of contract notes in one year would be too high.
Bank statements would anyways be required while filing your returns and this also will be used to determine the payins and payouts made from your trading account. We provide a profit and loss statement for your trading account, but you will still need the contract notes and other statements. All the contract notes will be accessible to you on our backoffice whenever you want for as long as you want.
That said we are still improving on our reporting structure so that all your income tax needs can be pulled out from our backoffice in a click of a button. Dear sir The bank account is linked with trading account is also used for other general household expenditure on daily basis.
Shalu sharma RS Housewife Thanks. When you are trading, you move funds to trading account and then withdraw it back. So reconciliation is quite simple. Can you check this module http: Dear i am intraday trader in stock market. From to till i never submitted it return as i think i have each year loss. So is their any requirement to submit any document to Incometax dept.
I have no profit any year. From i am Senior Citizen, pensioner of state Govt having annual pension near 2 lakh each year. Is their penalty for ,,,? How to really calculate turnover ,which I required for only Audit which is costly for me now , as I am in loss. Please suggest too much confusion my mind. Go and file for the last 3 years immediately if there was any income. Like I replied earlier, taxes is not just for trading, it is for all your income.
Intraday trading is considered as a speculative Business. Again, audit is applicable only if your total income falls in a tax bracket.
Turnover calculation is wrong, I have explained in the post above. Can you really file Income tax return for the previous years. My brother got similar notice for AY: He tried to file the return,but was not allowed to do so as last date for filing return for FY: You would have to go meet the ITO income tax officer and see how it goes.
Hi Nithin, My father is a pensioner. His annual pension is In intraday he made profit of and in delivery based equity he made profit of So, his total taxable income will become His total turnover is less than 1 crore. If he purchases ELSS mutual funds worth rs. In this case will he be required an audit or not? If he shows business expenses worth , then his total taxable income will be Suggest you to go through this: Do go through the link I have provided. Very good article and a detailed explanation.
Nag, check this detailed module on taxation: What has to be done in case of audit, check the last chapter of the module. Make sure to start from the first chapter. Thanks for detailed info on income tax. But I read at maximum places that losses of business can be set off up to RS only.
There is no Rs limit. Trading is like any normal business, you can setoff any other business loss with it for any amount. You mentioned that it is also important to file losses when filing returns. Is there a provision to accommodate them now?More...