Speculation income

Law :

Intra-day trading is the trading of shares within the same day. Generally, delivery is not taken in case of intra-day trading, and thus, these are said to be speculative transactions. As per Section 43(5) of the Income Tax Act, 1961, the said transactions shall be considered as speculation business transactions and the income therefrom would be either speculation gains or speculation losses.

Points to be noted

i).As per Section 43(5) of the Income Tax Act, 1961, Intra-day trading shall be considered as speculation business transactions and the income therefrom would be either speculation gains or speculation losses. 

ii).Income from speculation gains is taxed at the normal rates.

iii).Speculation losses can be set off only against speculation gains and not against any other head of income or non-speculation business income. 

iv).Short-term capital loss can be set off only against income from short/long-term capital gains.

v).Non-speculation business loss can be set off against the Long Term or Short Term Capital Gains made during the said year.

Query: 

Suppose, Mr.A trades in shares and income from share trading is only his income. He normally buys and sells on the same day without taking delivery or takes delivery and sells the shares afterwards but before one year.

Q 1). What will be the nature of income from this two types of  transactions?

Ans:  Income tax act distinguish between delivary and intraday

i).Intraday trading income is purely a speculated income (same as lottery or betting on horse race) ii).Delivary is an investment therefore capital gain rules will apply

Q 2).What is the tax implication and tax rate for both types?

As per the  taxation point, the income from speculation gains is taxed at the normal rates. Your tax liability would thus depend upon your net taxable income. If the income is treated as non-speculation business income/short-term capital gain(Delivary Trading) (Securities Transaction Tax not paid), the taxation is at normal rates. However, if the same is treated as a short-term capital gain and the STT is paid, the tax is chargeable at specified rate, plus education cess /higher education cess as applicable. 

Q 3).If loss can it be carried forward in both cases?

Ans:  As per the provisions of income tax act 1961

Speculation losses can be set off only against speculation gains and not against any other head of income or non-speculation business income.

carried forward up to 4 years only

Non-speculation business loss (Normal Business Loss) can also be set off against the Long Term or Short Term Capital Gains made during the said year.

Short-term capital loss can be set off only against income from capital gains, whether long term or short term.

Non-speculation business loss cannot be set off against salary income.

Carried forward up to 8 years

Q 4).Is tax audit there if turnover exceeds 1 crore. Because only the difference between sale and purchase value is debited or credited to day trading account. in this case what to do.?

Ans:

The 1 crore turnover is not calculated on your purchase and sale of shares. it has been derived from your profits and losses 

In case of your trading in FNOU even though your urnover is lesser than 1 crore you have to audit your books through CA

tax audit is required if turnover exceeds 100L