LOSS FROM F & O IS NOT A SPECULATIVE LOSS

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LOSS FROM F & O

Query 1]

I stay in my own house & pay Rs. 400/- p.m to the society for maintenance of common facilities, Corporation tax of Rs. 2,100/- p a and NIT Ground Rent of Rs. 2,111/- p a .for the flat.

I acquired another flat in February 2010 out of the cash gifts received from my sons from time to time and derive an income of Rs. 20,000/- per month as Lease rent. I pay Rs. 1,500/- towards common facilities of this flat to the society, corporation tax of Rs 2,600/- p a, NIT Ground Rent of Rs. 1,000/- p.a.

I am a house wife and have an income of around Rs 1,00,000/- per annum from fixed deposits as Interest from Nationalized banks. What is my tax liability for the FY: 2010-11? Any tax planning aspect that needs to be taken care of before March-2011? I am a woman senior citizen aged 70 years. [Mrs. M Murthy]

Opinion:

  1. No income tax implications shall be there on the house property used by you for your own residence. Also, no deduction shall be available against the corporation tax. Maintenance charges, NIT Ground rent etc paid by you for the house property used for own residential purpose.
  2. Income from the second house property leased out by you would be chargeable to income tax on the basis of its annual value. Treating the rent of Rs. 2,40,000/- receivable by you as the fair market rent, the following two deductions would be available as deduction against the lease rent:
    a] Rs. 2,600/- corporation tax paid by you &
    b] Rs. 71,220/- [i.e., 30% of Rs. 2,3,7400/-] towards Repairs & Maintenance. The deduction is an ad-hoc deduction that is available against the house property income & it shall be available even if you haven’t actually incurred any expenditure towards Repairs & Maintenance.
  3. No additional deduction shall be available towards the fixed monthly maintenance charges paid by you to the society & NIT Ground Rent.
  4. With above basic proposition, your statement of income & tax shall be as under:
STATEMNT OF TOTAL INCOME & TAX Rs. Rs.
INCOME FROM HOUSE PROPERTY
Gross Annual Value 240000.00
Less: Corporation tax 2600.00
Net Annual Value 237400.00
Less: Deduction
   – U/s 24(a)- Repairs & Maintenance [@30%] 71220.00
   – U/s 24(b)- Interest on Borrowed Capital 0.00 166180.00
INCOME FROM OTHER SOURCES
Interest on Bank F.D.R 100000.00
  Gross Total Income       266180.00
Less: Deduction under Chapter VI-A
           – U/s 80C (towards LIC/PPF etc) 0.00
           – U/s 80D, U/s 80G, etc 0.00
  Total Income       266180.00
Tax on Total Income 2618.00
Add: Education cess 79.00
Total payable 2697.00
  1. You can save entire tax if you invest minimum of Rs. 26,180/- in the tax saving instruments like LIC/PPF/ULIP etc.

Query 2] Please refer to the Tax Talk dated 14.02.2011 whrein it is mentioned that the F &O loss is not speculative loss & hence can be setoff against Regular Income. Till now, I was under the impression that F & O loss is to be treated as speculative loss only. It will be of great help if you highlight any case law or so, which will help to plead F & O Loss as regular business Loss and not speculative loss. [CA. AJ]

Opinion:

Finance Act 2005 has introduced clause (d) in section 43(5) so as to specifically. EXCLUSE from the purview of speculative profits all the trading in derivatives carried out in a recognized stock exchange. Resultantly, profit/Loss arriving in derivates trading is not treated as a speculative Profit/Loss.

LOSS FROM F & O

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