Do you deal in stock market?

No matter whether you are

trading full time or part time,
occasionally or regularly,You
must know these tax Rules.
Taxation for Equity Traders & Investors
 Agenda
✦ Futures & Options
✦ Intra-day/Day trading stocks (equity)

✦ Difference Between Speculative Income &

Non Speculative Income

✦ Stocks / Mutual Funds

✦ Long Term Capital Gain
✦ Short Term Capital gain

✦ Loss
✦ Case studies
 Future & options (Non Speculative)
✦ If you are playing in the F&O market, you are considered as a trader.

✦ It doesn’t matter whether you are actively trading or occasionally.

✦ Your income or loss from trading in future & options will be considered as BUSINESS INCOME.

✦ While calculating the income, you are eligible to deduct expenses which are directly related to
earning this income, for example, rent of the premises used for the trading, mobile or telephone
expenses, internet charges, broker’s commission, demat account charges, depreciation on laptop
etc.

✦ Business income will be taxable at the applicable income tax slab rates.
 If there is Loss:
✦ Loss from trading can be set off against any-other income
except salary income.

✦ For instance, if you have rental income of Rs 6 lakh and

loss from F&O of Rs 2 lakh, then your total taxable income
would be Rs 4 lakhs.

✦ If Such loss cannot be set off against income in current

year, it can be carried forward for the next eight years.
But the point to be noted here is that the carried forward
loss can be set off against only business income in
subsequent years and not any other income.
 Intra-day / Day trading stocks (equity) (Speculative)

✦ A person doing intra-day trading is also considered as trader.

✦ Income from intra day transactions in shares is treated as speculative business income as the
transaction is settled without delivery.

✦ You have to show this income under the head BUSINESS INCOME. Business income may be
classified as speculative or non-speculative.

✦ The recognition between the two is important since losses from speculative & non speculative
businesses are treated differently under income tax
 If there is Loss:
✦ Loss from intra day transactions is called speculation loss.

✦ A speculative loss can be set off only against another

speculative income.

✦ Thus if you incur losses in intra day trading, then unlike future
& Options, it cannot be set off any other income such as rental
income, bank interest etc.

✦ However, if a loss cannot be set off against the speculative

income in current year , you can carry forward such loss to be
set off against the speculative income of any next 4
subsequent years
 If dealing as Investor (Stocks / Mutual
Funds)

If you sell the shares within a period of one year from

the date of its acquisition, it is called as short term
capital gain (STCG) and if sell after a period of one
year it is called as long term capital gain (LTCG).
 Short Term Capital Gain

Gains arising from

a) Sale of listed securities – Sold within 12 months
b) Sale of unit of a Equity Oriented Fund with in 12 Months
the returns are treated as short-term capital gains and
taxed at 15 per cent. Note, equity schemes must invest
at least 65 per cent in stocks.

Example:
If you have invested 1 Lakhs in Stock / MF on ( 2/9/19), Sold it for 1.3 Lakhs on (5/5/20).
On Profit of 30 Thousand, Tax @ 15%, You need to pay Rs 4,500 STCG Tax

MF Stock Tax
Rs 50,000 Rs -30,000 Rs 20,000
Rs 3,000
Long Term Capital Gain

If equity investments are sold after a year, the returns

are treated as long-term capital gains.
Long term capital gains of over Rs 1 lakh in a financial
year are taxed at 10 per cent.

Example:
If you have invested 1 Lakhs in Stock / MF on ( 2/4/18), Sold it for 3 Lakhs on (3/4/19)

Investment: Rs 1,00,000
Sold: Rs 3,00,000
Profit: Rs 2,00,000
Exempt: Rs 1,00,000
Tax on: Rs 1,00,000
Tax Amount: Rs 10,000
Short Term/ Long Term Capital Loss, Set off
Set off of Capital Losses:The Income Tax does not allow loss under the head
capital gains to be set off against any income from other heads – this can be only
set off within the ‘Capital Gains’ head.

Long Term Capital Loss can be set off only against Long Term Capital Gains. Short Term Capital
Losses are allowed to be set off against both Long Term Gains and Short Term Gains.

Carry Forward of Losses: Fortunately, if you are not able to set off your entire capital loss in the same
year, both Short Term and Long Term loss can be carried forward for 8 Assessment Years
immediately following the Assessment Year in which the loss was first computed. If capital losses
have arisen from a business, such losses are allowed to be carried forward and carrying on of this
business is not compulsory.

Prior to 31.03.2018, there was no tax on long term gains on shares & equity funds, therefore long term
gains on shares & equity funds were considered as a dead loss. Therefore, the same was not allowed to
set off or carried forward.

Mandatory Filing of a Return:To keep a track of your losses, the Income Tax Department has laid out that
losses for a year cannot be carried forward unless that year’s return has been filed before the due date. Even
if it’s a loss return, you do not have any income to show – do file your return before the due date.
When to get the Audit done?

An audit is mandatory in the following case :

Turnover of your business exceeds Rs 2 crores. (This limit has been increased from Rs 1 crore to Rs 2 crore
from FY 2016-17 onwards.) Turnover here means the absolute sum of settlement profits & losses for F&O per
scrip and the sell side value of option contract.

OR

When you declare profits less than 8% of turnover and your total income exceeds Rs 2,50,000.

The due date for filing the ITR in case of business to whom audit is applicable is 30th Sep if not extended by
the government.

If you do not maintain books of account or get the audit done, then you are liable for penalty under the
Income Tax Act. The maximum penalty that can be charged for not maintaining books of account is Rs
25,000. In case of failure to get the audit done, the penalty is 0.5% of turnover maximum up to Rs 1.5 lakhs.

Trading Turnover here means:

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.

Turnover calculation is easy in case of delivery based trades. But in case of intraday equity
and F&O, it can either be done scrip wise or trade wise. Scrip wise means you have to
consider the profit or loss made on that particular scrip in the financial year as turnover, and
you sum up the absolute values of individual P&L of all the scrips to have a consolidated
turnover for the year. Trade wise means you have to consider the total sum of profit and loss
of each trade that you have done during the financial as your turnover.
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 Case 1
I am Software Employee, have incurred a loss worth Rs
3 lakhs while trading in F&O? I also have salary income
of Rs 9 lakhs and interest income of Rs 2 lakhs. Do I
need to disclose the loss in my income tax return?

Answer
Yes. It is quite common to not to report loss in your
income tax return since no tax is payable on it. But
declaring loss in return has got some benefits for you.
You can set off such loss against your income from
other heads except salary income.
Thus it can be set off against your interest income. You
can show the income as below: Balance loss of Rs 1
lakhs can be carried forward to next 8 years.

Balance loss of Rs 1 lakhs can be carried forward to

next 8 years to be set off against any business income.
Note carry forward loss can be set off against only
business income and not any other source of income.
 Case 2
I am a doctor and earning consulting fees of Rs. 10
Lakhs with a hospital, I also have a medical practice
whereby I earn Rs 12 lakhs. Besides, I also trade in
Futures & Options. I incur loss of Rs 3 lakhs. Please
advice how business income and tax liability can be
computed ?

Answer
Loss from f&o can be set off against the other business
income Computation of income will be as follows :

Income from Business & Profession Rs 22,00,000

(Rs 10L + Rs 12 L)
Less: Loss from F&O Rs 3,00,000

Total Income Rs 19,00,000

 Case 3

I am a retired individual and doing intra day transactions in

share market. I have incurred a loss of Rs 4 lakhs through
intra day transactions in share market. I also get pension
income of Rs 2 lakhs and interest income of Rs 5 Lakh Can
such loss be set off against my income?

Answer
No. Loss from intra day transactions in share market is a
speculative business loss. As per income tax act, speculative
business loss can be set off against only speculative income.
Thus it cannot be set off against your interest income or
pension income. However, you can carry forward such losses
to be set off against the speculative income ifany in next 4
subsequent years.
 Case 4
I am dealing in intra day transactions as well as F & O. I have incurred loss in my intra day
transactions of Rs 4 lakhs while there is profit in F& O trading of Rs 2 lakhs.Also I have
income from other business Rs 5 Lakh. Can I set off my loss from intraday transaction
from profit of F & O?

Answer
NO. Loss from intra day transactions is called as speculation loss. A speculative loss can
be st off against only speculative income As the income from F & O and other business is
non speculative income, it cannot be set off against it. However, you can carry forward
such loss to be set off against the speculative income if any in next 4 subsequent years.

Would your answer be different in the above case if instead of loss from intra day
transactions, there is loss from F&O of Rs 4 lakhs, income from intra day transactions Rs
2 lakhs and other business income Rs 5 lakhs ?

Answer
YES.Loss from F & O is non speculative loss.Non speculative loss can be set off against
both speculative And non speculative income So, loss from f&o of Rs 4 Lakh can be set
off against both income fromintra day and other business income.So the net income
would be 3 lakhs.
 Case 5
I am a salaried individual having salary income of Rs 6 lakhs and
also do sometimes trading in equity shares. During last year I sold
the stock of 3 companies. All the stocks were held by me for a
period less than one year. In one case I made a short term capital
gain(STCG) of Rs 20,000 and in other two cases, I made a loss of
Rs 1 lakhs. How Should I report this in my return? Can is set off my
loss of Rs 1 Lakh against my salary income?

Answer
Short term capital loss can be set off against only short term and
long term capital gain income, it cannot be set off against salary
income , rental income , interest income etc.

Balance STCL of Rs 80,000, can be carry forward to be set off

against the STCG or LTCG to next 8 years
Thank You