This is in continuation to our complete tax guide article Part VIII – Getting Started With Trading – Tax Guide for Traders in India for traders to understand the taxation treatment of trading business in India.
In an attempt to make you task simple and easier while filing your income tax, we are writing these long list of Q&As to answer your many why`s and how`s of taxation for traders in India.
# Is there any loss that we can offset against salary income?
No, we cannot offset any trading losses against salary income.
# Can we deduct long term capital loss from stocks with business income for computing income tax?
No, we cannot net off the long term losses against any income or gains.
# Can we carry forward the long term capital loss?
No, we cannot carry forward any long term capital losses in the following years.
# Can we carry forward any profits in the following years to set off against any loss?
No, You cannot carry forward any profits for the following years, so you have to pay tax for the same in the same financial year.
# How long can you carry forward a short term capital loss?
Short term capital losses can be carry forwarded for a period of eight years against any short term term capital gain or long term capital gain, provided they are declared while filing the income tax returns.
# Can we carry forward the losses if not filed in the financial year?
To get the benefit of carry forwarding the losses, it has to be filed in your income tax before the due dates for the financial year to get any benefit. Otherwise, you cannot claim the benefit.
# Can we settle off trading losses from derivatives against business income or income from other sources?
Yes, trading losses from derivatives can be offset against business income, income from other sources or other heads except salaries and same can be carried forward and set off within eight assessment years.
# Can we set off day trading losses against capital gains?
No, day trading losses cannot be set off against the capital gains as they can only be carry forwarded and adjusted against the speculative profits within a period of four years and not against short or long term capital gains (Section 73(1) of Income Tax Act, 1961).
# Can STT be claimed as Business Expense?
If you an active trader (Trading F&O), then STT and other expenses (rent, electricity, software charges etc) & taxes can be claimed as a business expense. But if you are taking the net profit and loss from your contract note then same would be netted off so you can only claim other expenses. Suppose, You bought 100 stocks at Rs 1000 and all your costs (including brokerage, STT etc) adds upto Rs 300, then your actual buying price becomes 1003. If you sell this stock at 1020, the actual cost becomes 1017 (including all costs). Hence your net profit is Rs 1400 and not Rs 2000.
While in case of a capital gain (Short term or long term), STT cannot be claimed as a business expense.
#How much STT is charged on Equity trades?
If the trade is a equity delivery trade, than a tax of 0.1% on the turnover is levied on both the buy side and sell sides of each trade. However, if the trade is squared off (closed) within the same trading day, meaning it is a intra-day transaction, then the STT rate applicable is 0.025% on the sell-side trade(s) only.
# How the BTST – Buy Today Sell Tomorrow (selling equity before taking delivery) will be taxed?
Profits/loss from BTST will be a considered as speculative income or loss. It is still important to see the DP transaction statement, because if delivery is taken then it won’t be speculative anymore and will be considered as short term capital gain or loss.
# Is there any difference in taxation rules for intraday derivatives trading and derivatives trading with carryover position? Is F&O trading for intraday considered speculative?
Trading in derivatives has only single rule, that they will be counted as business income and will be added to salary and taxed accordingly. So, whether you carry your position or square it intraday, there is no difference. It is business income or loss and not speculative.
# Can income from rent be offset against trading losses or Can we set off trading losses against rental income?
Yes, rent income can be offset against the F&O and short term trading losses and not against the day trading losses (Speculative losses).
Taxation in Case of Husband & Wife Transfer
# If a housewife trades in F&O from the loan taken from her husband and makes profit. Will such profit be included in husband income or wife?
As the loan is given by the husband to his wife, so any profits made from trading future & options will be shown as the wife’s business income and taxed as per her tax slab.
# If a husband transfers shares from his wife accounts and the shares were bought and sold after one year, will profits be considered as Long Term Capital Gain?
Yes, any stock transfer from the wife accounts to her husbands account is considered to be as a Gift so the holding period will remain in-effected. Therefore, the taxation would be considered as Long Term Capital Gain.
Tax on Future and Options (F&O) Trading In India for Salaried
# Can we settle off the trading losses from derivatives against the salary?
No, the trading losses from derivatives or stocks cannot be adjusted against the salary income. Losses from derivatives trading cannot be deducted from salary income but can be offset against any other income (including day trading income) in same year and can be offset against any business income in next 8 years.
# Profits from F&O Trading for Salaried
If you are a salaried person, then profits from derivatives will be added to your salary income and will be taxed according to your tax slabs. While on the other hand, losses from derivatives trading cannot be offset against the salary income but can be offset against any business income in next 8 years.
# Can trading losses be adjusted against the savings bank interest?
Yes, trading losses can be adjusted against the saving bank interest. For savings bank interest, any interest above 10,000 is taxable. (Deduction of up-to Rs 10,000 interest income under section 80 TTA is available). No such deductions is there for Fixed Deposits.
Assuming, you have a interest income of Rs 30000 and loss of 50,000, you will get a 10,000 deduction under section 80TTA and can offset 20000 loss against interest income and can carry forward the remaining Rs 20,000 of the loss to the next year.
# Is there any limit to the business expense that can be claimed
No, there are no limits for the business expense that can be claimed but any amount that is claimed need to be justified and supporting proofs must be presented and justified that they are incurred for conducting the trading activity, if asked by the Income Tax department.
# Can laptop, computer or internet instrument cost be treated as business expense?
No, the purchase cost of assets cannot be treated as business expense as they are an asset and not an expense. But you can claim depreciation for assets (computer, laptop) during a course of time and offset it against the business income or profits to reduce your tax liability.
# Are dividends taxable?
Dividends are distributed to the investors after cutting down taxes by the distributing comapny. So they are tax free for the investors.
# Should we take the Net Profits (Gross Profits – Brokerages – Other Taxes) or Gross Profits while calculating the Profit / loss for income tax?
While calculating profit/loss for income, you can either do it based on gross or net profits. You can take the gross profits and show expenses like brokerage, turnover charges, other expenses and then deduct it from your gross profits or just take the net profit.
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