TAXABILITY OF INCOME FROM F & O, INTRA-DAY & DELIVERY BASED SHARE TRANSACTION

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F & O

Query 1]

Sir, I opened PPF A/c in my son’s name when he was dependent on me. The account is still continuing. He is no longer dependent on me. But I am still making annual subscription to keep it alive. Do I get any Income-tax relief on my Income Tax? Will it make any difference if he is still dependent on me? How does it compare with the life insurance premium paid by me on my son’s L I C policy? [CVK]

Opinion:

  1. You can claim deduction U/s 80C towards the contribution done by you in the PPF A/c of your son subject to overall maximum cap of Rs. 1 Lacs. The deduction shall be available even if the son is not dependant on you.
  2. Even the life insurance premium of your son paid by you enables you to claim deduction u/s 80C subject to same overall max cap of Rs. 1 Lacs.

Query 2]

I am a retired senior citizen and have been submitting NIL return regularly. Please guide me in the event of following issues: 

I have received my 1/4th share amount of Rs. 15,75,000/- in June 09 from the sale proceed of an old house of my Grand Grand-Father gifted to him in 1895. Above mentioned amount is there in the savings account of my Bank.

Please guide:

  1. If I purchase any land or property of the same amount, will it be fully exempted from income tax?
  2. Is there any other type of investments possible to get total exemption from tax?
  3. If I do not purchase land or property and do not make any investment, one of my friend has told me that it is exempted under law if I get the valuation of the sold house as of 1981 by a Govt. registered surveyor to arrive at the amount of tax payable by me. Please guide me suitably. [P.C. Mishra, Raipur]

Opinion:

  1. The income element involved in Rs. 15.75 Lacs is taxable as Long term Capital Gain in your hand. Long term capital gain shall be calculated by deducting cost of acquisition (after indexation) & cost of improvement (after indexation)from the amount of full value consideration (i.e. Rs. 15.75 Lacs or 1/4th of the value adopted by the Registrar of stamp duty for levy of stamp duty, whichever is higher).
  2. You can save tax on long term capital gain (LTCG) as under:

    i) Exemption Under Section 54EC:

    Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.

    ii) Exemption Under Section 54:
    Invest the amount of Long term Capital Gain on sale of house for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.

  3. The valuation from the Government approved valuer doesn’t ensure that the amount received shall be exempt under the Income Tax Act-1961. Long term capital gain can be calculated by taking the market value of the property as on 01.04.1981. You can take the help of the Govt. Approved valuer to assess the market value of the property as on 01.04.1981.

Query 3]

Sir, I am 59 years old retired person (Semi Govt. employee). I don’t have pension income. I have invested Rs. 5 Lacs in NSE & BSE. I trade in cash, F & O and Intra-day.

  1. In cash market (intra-day), I have Rs. 25,000/- profit & Rs. 35,000/- Loss. The Net Loss is Rs. 10,000/-.
  2. In short term delivery trading, I have Rs. 15,000/- Loss & Rs. 40,000/- profit. The Net profit is of Rs. 25,000/-
  3. In F & O, I have incurred loss of Rs. 70,000/-.

I have some question regarding above transactions: –

  1. How I should file my return? How should I show all this in return? What documents should I need to attach with the income tax return?
  2. Can I club all profit and loss (i.e.., Intra-day, short tem & F &O) in one head? Or I need to file under different head of income?
  3. Can I carry forward loss to the next years?
  4. In different case, if the total income from share market is Rs. 2,00,000/- & loss of Rs. 40,000/-, then do I need to pay short term gain tax?
  5. Whether the standard limit for no tax is also available for short term capital gain also? [Tejas Jain, Akola]

Opinion:

  1. Intra-day transaction in shares is considered as a speculative transaction & income therefrom is taxable under the head “Income from Business”. Loss from intra-day transactions is considered as a speculative Loss and cannot be set off against any other income except speculative profit.
  2. Income from delivery based transactions could either be categorized under the head “Income from Business” or under the head “Income from Capital Gain” depending upon various factors. The prominent factors that play an important role in determining whether it is a business assets or capital assets are:

    (a) Volume/Nature of transactions. (b) Intention/Logic behind investments. (c) Holding period of shares (d) Investment of own funds or a borrowed fund. (e) Other business activities of the assessee. etc

  3. Transaction in Future & Options is no more considered as a speculative transaction. Profit / Loss from F & O is normally taxable under the head “Income from Business”.

With above, point-wise reply to your query is as under:

  1. You may be required to file the return of income using ITR-4. You need to show the above income in ITR-4 by classifying the same under respective heads of income as mentioned above in (a) to (c). No documents are required to be attached with the return of income. You have to keep the documents/records with yourself.
  2. Income from Intra-day and F & O can be clubbed together under the head “Income from Business”. However, if there is a loss from Intra-day transactions, it cannot be set off against income from F & O. Speculation loss can be set off against speculative profit only. Income from delivery based share transactions, as mentioned above, could either be Business Income or could be Capital gain income. If the transaction is treated as business, the loss can be adjusted against profit in F & O or against intra day profit. If however delivery based share activity is considered as investment based activity, transactions will result in capital gain and loss in such transaction cannot be set off against business income.
  3. Loss can be carried forward for set off against profit in subsequent years. For this, ensure to file the return of income on or before the Due Date.
  4. Taking delivery based net share profit of Rs. 1.60 Lacs, Intra Day profit of Rs. 25,000/-, Loss in F & O of Rs. 70,000/-, no tax liability will be there whether delivery based transaction in share is considered as business or investment activity.
  5. The basic exemption limit is available against Short Term capital gain as well.

F & O

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