Representation for Taxation of F & O Transactions and its compliance in the Income Tax Act-1961.
Respected Smt. Nirmala Sitharaman
The Hon’ble Finance Minister
Government of India
Subject: F & O Transactions and its compliance in the Income Tax Act-1961.
Reference: Your numerous initiative for providing ease of Business
At the outset, we appreciate the efforts and initiative taken by you in the recent past and wish you our whole hearted support in all your endeavors to make India a 5 Trillion economy.
We, www.TheTaxTalk.com is a taxpayer’s knowledge sharing portal working for creating awareness amongst the taxpayers and tax professionals. It is accessed and used by various taxpayers for ready reference and for resolving their queries and issues.
Representation for taxation of F & O Transactions
We appreciate the enactment of section 45(5A) the Income Tax Act-1961 specifically providing for the taxation of Joint Development Agreement (JDA). As a result of this, a lot of potential litigation and disputes have been put to rest.
There are few other areas where specific taxation provision would ensure easy and better compliances by the taxpayers besides reducing the cost of compliance. One such area is with regard to the taxation of Future & Option (F & O) Taxation where a slight amendment will ensure ease in compliance without any loss to the Government Treasury.
Present Taxation, Issue & its probable Resolution:
A Lot many taxpayers, salaried as well as non-salaried, are doing transactions in F & O segment of stock exchange. There is no specific provision for taxation of the F & O and as a result, the income as well as tax is required to be computed in accordance with the regular taxation provision.
Since the F & O transactions are well documented and have a strong digital trail, the possibility of tax avoidance & evasion looks remote.
In short, the transaction in F & O may be distinguished from other regular transactions.
There are few issues & it’s probable resolution which is summarized as under:
- Applicability of ITR Forms:
By its very basic nature, the F & O transaction is taxable as “Income from Business” and so a person has to compulsorily file the income tax return either in Form ITR-3 or ITR – 4. The benefit of ease of filing in ITR-1 or ITR-2 cannot be used by the taxpayers.
By specifically providing for taxation of F & O as “Income from other source”, the benefit of filing returns in simplified ITR form can be extended to numerous taxpayers.
- Applicability of Presumptive scheme of taxation:
All taxpayers having turnover less than Rs. 1 Cr (Rs. 2 Cr in some cases) has to compulsorily get the books of accounts audited if a minimum of 6% of the turnover is not offered for taxation.
As a result of this, even the smallest taxpayers doing just 5 or 10 transactions in F & O are getting covered by tax audit provisions if they suffer loss or income is less than 6%. On the other side, the taxpayers having higher income in F & O categories are opting for presumptive schemes by offering mere 6% as income despite having higher actual income.
Since, the F & O transactions are otherwise well backed by digital evidence and actual profit and loss is very well known, the rule of 6% applicability and audit may be relaxed.
By inserting specific provisions for taxation of F & O on actual income basis, the complications of computation of “Turnover” while filing ITR will also be eased out.
Further, it may also control the temptation of the taxpayers with high F & O income who offer income @ 6% despite higher actual profit by claiming higher deduction towards expenses like salary, telephone, mobile, conveyance, depreciation, etc.
- Ensuring reporting of F & O Transactions in AIS:
At present, only delivery based transactions in shares are getting reported in the Annual Information Statement (AIS). F & O Transactions are not part of SFT/AIS reporting. As a result, there are chances that the taxpayers may not report it in a last moment rush to file the ITR.
The reporting of F & O Transactions as well as profit and loss thereto are easily available with the stock exchange brokers and reporting by way of SFT may be made mandatory.
a) Audit by taxpayers doing few transactions in F & O is admittedly awkward.
b) Considering the increased number of taxpayers now doing F & O transactions, it would be better if specific provision is enacted in the Income Tax Law for its taxation.
c) F & O transactions may be excluded from the purview of audit and presumptive scheme of taxation as it is very well backed by strong documentary evidence.
We hope that you would be kind enough to consider the above suggestion and may do the needful for the better compliances by the taxpayers.
We wish you best in your great endeavor to make India a super economic power in years to come.
For Team Tax Talk
The Tax Talk
The Respected Chairman
Central Board of Direct Taxes