Introduction

With the increased knowledge among the people about Stock Market the transactions in the market have gone many folds during the last 5-10 years. But with this increase in the transactions if an investor fails to offer the transactions to tax then it may lead to loss of money to the investor in the form of taxes, interest & penalty. 

Intraday Transactions (Speculative Transactions): 

In Intra-day transactions, the investor earns from the price fluctuation of shares or other assets during a trading day. The investors do not take the delivery of the assets. The transaction is closed at the end of the trading day even if there is a loss in the transaction. These transactions are treated as speculative transactions.

The Intraday transactions of commodities do not fall under speculative transactions.

Taxability of Intraday Transactions

The turnover of Intraday Transactions is calculated by totaling the Positive & Negative Settlements. The total turnover is calculated to check whether Tax Audit is applicable or not.

The income earned by the way of Intraday transactions is charged under the head Profit and Gains from Business or Profession. These transactions are taxable under the subhead of Income from Speculative Transactions and have some different treatment when the investor incurs losses.

The loss is carried forward only for 4 Assessment years. The following is the calculation of profit or loss under the speculative transactions:

*POSITIVE SETTLEMENTS – INTRADAY:                                           +XXXX

**NEGATIVE SETTLEMENTS – INTRADAY:                                         -XXXX 

BROKERAGE EXPENSES – INTRADAY:                                              -XXXX 

NET PROFIT/LOSS FROM SPECULATIVE TRANSACTIONS:              XXXX

The profit earned is taxable under the normal slab rates applicable to the investors and losses if any are carried forward for 4 AYs.

Derivative Transactions (Non-Speculative Transactions): 

In derivative transactions, the investor earns from the price fluctuation of the underlying value of shares. The investors bet on the increase or decrease in the price of a particular share. If the investor bets for a price increase and the bet turns out to be true then the investor earns the difference of Price betted or Actual Price and Price paid and vice versa.

Taxability of Derivative Transactions 

The turnover of Derivative Transactions is calculated by totaling the Positive & Negative Settlements. The total turnover is calculated to check whether Tax Audit is applicable or not.

The income earned by the way of derivative transactions is charged under the head Profit and Gains from Business or Profession.

The derivative transactions include F&O transactions. Future and Options

Income Earned or Loss Incurred in Futures:

100 Buy Future TCS Rs. 1000
100 Sell Future TCS Rs. 1050

Profit: Selling Price less Buying Price

5,000: 1,05,000 less 1,00,000

Income Earned or Loss Incurred in Options:

200 Buy Puts TCS Rs. 100
200 Sell Puts TCS Rs. 80

Profit: Quantity x (Sale Value less Buy Value)

-4000: 200 x (80 less 100)

The following is the calculation of profit or loss under the non-speculative transactions:

*POSITIVE SETTLEMENTS – F&O:                                                               +XXXX

**NEGATIVE SETTLEMENTS – F&O:                                                             -XXXX
 
BROKERAGE EXPENSES – F&O:                                                                  -XXXX 

NET PROFIT/LOSS FROM NON-SPECULATIVE TRANSACTIONS:               XXXX

The profit earned is taxable under the normal slab rates applicable to the investors and losses if any are carried forward for 8 AYs.

The above treatments must be kept in mind by the investors while filing their Income Tax Returns.

* Positive settlements mean the trades which ended in a profits
** Negative settlements mean the trades which ended in a loss