Kotak Securities: Create an account and Log in, Download Holding Statement, Tax P&L Report, and Ledger

To understand your trading activity and the income tax compliances, you need certain documents like Tax P&L, Ledger, Holding Statement, etc. But, before you get any of these documents you first need to have a Kotak Securities Account and log in.

This article will guide you through the following:

How to Create and Log in to Kotak Securities?

Here’s how you can open a trading account online with Kotak Securities by following these steps:

  1. Visit the Kotak Securities website.

    You can access it from here.

  2. Fill in your details.

    Such as your Name, Mobile Number and City.

  3. Click on Open an account now

    As seen below:

  4. A sales representative from Kotak Securities will contact you on your registered number.

    They will take it from there.

  5. During the IPV there are documents required by the sales representative.

    These include:
    – Self-attested PAN copy;
    – Self-attested Aadhaar copy;
    – Passport size photo;
    – Bank account details that are to be linked with the Demat account;
    – And, the signature of the account holder will also be required.

  6. Once these documents are verified your account will open.

    You will receive a confirmation for the same.

  7. Kotak Securities login

    Once your account is activated you can navigate to the website and log in

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How to download Holding Statement for Kotak traders?

Here’s how you can download the Holding Statement from your account:

  • Step 1: Visit the Kotak Securities portal and log in by entering the required details.
  • Step 2: Click on Reports. Select the DP Holdings option from the dashboard
  • Step 3: Next, click on the download option. It is located at the bottom of the page
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How to download Tax Profit and Loss Report?

  • Step 1: Visit the Kotak Securities portal and log in to your account by entering the required details.
  • Step 2: Next, the top bar go to “Reports“. Select “Trades”
  • Step 3: The Trading report is now displayed. There is an option to download the report. To download click on the “Down arrow” and choose “Excel
  • Step 4: The file will be downloaded on your PC under the Downloads section.
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How to download Ledger for Kotak securities traders?

  • Step 2: Go to Services. Next, click on Account services
  • Step 3: Click on View my ledger
  • Step 4: Select the necessary filters and Click on Go. Click on NSE for details
  • Step 5: You can now view your Ledger Entries
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FAQs

How does the Tax profit and Loss Statement help me?

This statement represents your trading profits and losses and is used to calculate your Tax liability. Therefore, it is needed to file an ITR 3.

What is the difference between Trading and Demat account?

Demat accounts hold securities and certificates of stocks, shares, etc electronically while a Trading account lets you buy or sell those securities in the stock market.

Can I have 2 trading accounts?

Yes. An Individual can have as many trading accounts as they want. Additionally, you can link the same bank account with different trading accounts. However, you can’t have multiple accounts linked with the same broker.

Sovereign Gold Bond – Taxation on SGB

What is SGB – Sovereign Gold Bond?

SGB i.e. Sovereign Gold Bond are bonds that the government of India issues under the Sovereign Gold Bond (SGB) Scheme. SGB is government security denominated in grams of gold and is thus an alternative to holding physical gold. Investors such as Individuals, HUF, trust, university, and charitable institutions can invest in SGB. RBI i.e. Reserve Bank of India issues such bonds to the investors at an issue price with a fixed maturity.

The minimum investment is 1 gm and the maximum is 4 kg for Individuals and HUFs. It is 20 kg for trusts and other entities as per the government. The tenure for the issue of SGB bonds is 8 years. Premature redemption is only possible after the completion of 5 years of investment. Additionally, investors can sell the bonds in the secondary market at the existing market price of gold.

Income Head for Sovereign Gold Bond

Capital Gains on Sale of SGB

Income from Capital Gains would arise on the redemption of SGB or sale of SGB on the stock exchange. The definition of transfer of a capital asset as per Section 2(47) of the Income Tax Act covers both redemption and sale of SGB. While the redemption of SGB means its expiry on the date of maturity (including pre-mature redemption), transfer of SGB is its sale on a recognised stock exchange.

IFOS Income from SGB

The RBI on behalf of the government pays periodical interest on SGB. The rate of interest is 2.5% per annum on the amount of initial investment. Interest is credited semi-annually and the last interest is payable to the investor on the date of maturity along with the principal.

Interest on SGB is taxable under the head IFOS (Income from Other Sources). The taxpayer should report the interest under Schedule OS in the Income Tax Return.

Tax on Sovereign Gold Bond

Tax Treatment on Interest

The Interest on SGB is taxable at slab rates under the head IFOS (Income from Other Sources).

Section 193 for TDS on Interest on Securities specifically excludes deduction of tax on payment of interest on government security. Thus, TDS is not applicable for payment of interest on SGB.

Tax Treatment on Sale or Redemption

Individual Investor

  • Redemption of Sovereign Gold Bond – The definition of transfer of capital asset excludes redemption of SGB. Thus, the Capital Gain on Redemption of Sovereign Gold Bond by an Individual Investor is exempt from tax.
  • Transfer of Sovereign Gold Bond – If the individual investor transfers the Sovereign Gold Bond by selling it on the stock exchange, it is taxable as LTCG if held for more than 12 months at the rate of 20% with indexation benefit or 10% without indexation. However, if the SGB is held for up to 12 months, it is taxed at the slab rates applicable to the taxpayer.

Other Investors

In the case of investor other than individuals, the LTCG tax is at 20% with indexation benefit or at 10% without indexation benefit on transfer or redemption of SGB.

Applicable ITR Form in case of SGB

  • ITR Form: If you have invested into SGB and earned Interest, you should file ITR-1 (ITR for IFOS Income). However, if you have redeemed or sold SGB, you should file ITR-2 (ITR for Capital Gains Income).
  • Due Date – 31st July of the Assessment Year.

FAQs

What is the benefit of investing in SGB (Sovereign Gold Bond) over physical gold?

SGB is a government security that investors holds in demat form thus eliminating the risk and cost of holding physical gold. The investor need not worry about the purity of gold and need not pay making charges if they invest into SGB. The investment in SGB is safer than physical gold since SGB is a government security, pays periodical interest and assures market value of asset on maturity.

What would be the tax treatment if SGB is bought on the secondary market and held it till maturity?

If the investor buys SGB from the secondary market and redeems it after holding it until maturity, here is the tax treatment:
– Exempt if you are an Individual Investor
– Taxable at slab rates if STCG and at 20% with indexation benefit if LTCG if you are any other investor.

What is the rate of interest and how is it payable?

The bonds bear interest at the rate of 2.5% p.a. on the amount of initial investment. Additionally, the interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

How will I receive the redemption amount?

The interest and redemption amount will be credited to the bank account furnished by the customer at the time of buying the bond.

Can I receive the bonds in the Demat form?

Yes. The bonds can be held in the Demat account. A specific request for the same must be made in the application form itself. Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to Demat will also be available subsequent to the allotment of the bond.

Tax on Gifted Shares & Securities

A gift is a sum of money or movable property or immovable property received without consideration or inadequate consideration. Section 56(2) of the Income Tax Act lays down provisions for tax on gifted shares. A gift of monetary value exceeding INR 50,000 is taxable as Income from Other Sources (IFOS) at slab rates. The gift received from a relative, or on the occasion of marriage, as inheritance or in contemplation of death is exempt from tax.

Gift of Shares & Securities

Shares and securities is a movable property. Trading platforms like Zerodha have built a platform to gift stocks, ETFs, and gold bonds after the introduction of e-DIS (electronic delivery instruction slip) by CDSL. Thus, it is now possible to gift stocks to friends and relatives online.

Tax on Shares Gifted for Sender

  • On transfer of shares & securities:
    • The Gift Tax Act (GTA) was abolished in 1988 and thus sender need not pay tax on gifts.
    • As per Section 2(14) of the Income Tax Act, shares and securities are Capital Assets. The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of ‘transfer’ as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.
  • On the sale of shares & securities:
    • The sale of shares & securities is not taxable in the hands of the sender of the gift.
    • Clubbing of Income – If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.

Tax on Shares Gifted for Receiver

  • On transfer of shares & securities:
    • If the monetary value of shares & securities is up to INR 50,000, such gift is exempt from tax.
    • If the monetary value (FMV) of shares & securities is more than INR 50,000, such gift is an IFOS income and taxed at slab rates.
    • Shares & Securities received from a relative is exempt income since gift from relative is exempt as per Sec 56(2)(vii)
    • Shares & Securities received on the occasion of marriage or inheritance or in contemplation of death of payer is exempt income since such gifts are exempt as per Sec 56(2)(vii)
  • On the sale of shares & securities:
    Capital Gains tax would arise on the sale of shares. To calculate the tax on gifted shares, here are important points to consider:
    • Period of Holding – Calculate the holding period from the date of purchase by the previous owner i.e. sender of gift to the date of sale by the receiver of the gift.
    • LTCG – Equity Shares held for more than 12 months from date of purchase by the sender to date of sale.
    • STCG – Equity Shares held for up to 12 months from date of purchase by the sender to date of sale.
    • Purchase Date – The date of purchase by the previous owner i.e. sender of the gift
    • Purchase Value – The value of the purchase of the previous owner i.e. sender of the gift
    • Sale Date – The date of sale by the receiver of the gift
    • Sale Value – The value of the sale by the receiver of the gift
    • Tax Liability – Calculate tax liability as per the nature of the capital asset
Transaction Sender Receiver
Gift of shares & securities Not taxable Exempt Income or IFOS Income
Sale of shares & securities Not taxable Capital Gains

Clubbing of Income – If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.

Example – Tax on Gifted Shares

Rajiv purchased 2000 shares at INR 100 of ABC Ltd on 15th February 2020. He gifted 1000 shares to his mother, Shweta on 1st September 2020. FMV on 01/09/2020 was INR 200 per share. Shweta sold out these shares on 2nd March 2021 at INR 400. Calculate the tax liability.

Tax treatment for Rajiv (sender) – No tax liability since the gift of shares is not treated as a transfer of capital asset.

Tax treatment for Shweta (receiver)

  • On receiving a gift – no tax liability since gift from a relative is an exempt income as per Section 56(2)(vii) of Income Tax Act.
  • On the sale of shares. Here is the tax calculation:
    • Sale Date – 02/03/2021
    • Sale Value – INR 4,00,000 (400 * 1000)
    • Purchase Date – 15/02/2020 (as per previous owner)
    • Purchase Value – INR 1,00,000 (100 * 1000) (as per previous owner)
    • LTCG – 4,00,000 – 1,00,000 = INR 3,00,000
    • Tax on LTCG u/s 112A = 10% * 2,00,000 = INR 20,000

Reporting in ITR – Tax on Shares Gifted

The sender of the gift need not report the gift in the Income Tax Return. The receiver of the gift should report the gift under Schedule Exempt Income if the income is exempt or Schedule OS (IFOS) if the income is taxable. If the gift is taxable, calculate tax liability at slab rates.

On the sale of such shares & securities, report income as capital gains under Schedule CG. The taxpayer should file ITR-2 on the income tax website and pay tax at applicable rates.

Documentation

It is very important to maintain proper documentation for gift transactions. It is advisable for the sender and receiver to maintain a registered gift deed as proof of the gift transaction. In cases of scrutiny, the taxpayer can use this document to justify the genuineness of the gift transaction and avoid charges for tax evasion.

FAQs

I have 1 lac shares. If I gift 50% shares to my brother, can we both claim LTCG exemption of INR 1 lac on sale of such shares?

If you gift equity shares, it is not considered as the transfer of a capital asset, and thus income tax is not applicable. A gift from a relative is exempt and thus it would be exempt for your brother. When your brother will sell the shares, capital gains would arise.
You can both claim the benefit of LTCG exemption of up to INR 1 lakh u/s 112A. However, to determine the nature of the gains, the holding period & cost of acquisition is calculated as per the previous owner (sender).

I want to gift shares to my friend, is it taxable?

If the monetary value of the gift is up to INR 50,000, it is not exempt as per Sec 56(2)(vii).
If the monetary value of the gift is more than INR 50,000, it is taxable in the hands of the receiver as IFOS and taxed at slab rates.
However, if the gift is given on the occasion of marriage, it is exempt as per Section 56(2)(vii) of the Income Tax Act.

Can I save taxes by gifting shares to my wife?

Gift of shares and securities to a relative is not taxable in hands of the sender of the gift and exempt in hands of the receiver of the gift. If you gift shares to your wife, there would be no tax liability on the gift transaction. Further, if your wife sells the shares, Capital Gains would arise and tax should be paid at applicable rates. On gifting of shares, the income would get divided and both can enjoy exemption limits. Thus, taxes would be saved.

CAMS : Services, Features & Consolidated Capital Gains Statement

What is CAMS?

Computer Age Management Services (CAMS) is a SEBI agency under the R&T (Registrar and Transfer) category. It is a platform providing technology-enabled services and processing-related solutions to mutual fund houses as well as investors. It facilitates in building up an interactive and user-interactive delivery model to investors.

What does CAMS do?

Computer Age Management Services is under the collective ownership of NSE Investment Ltd, HDFC Group, Warburg Pincus LLC, and Acsys Investment Private Ltd to provide a variety of services. Below are a few services that it provides:

  • KYC verification & validation
  • System integration with bank
  • Online transactions through the MY CAMS app
  • Redemption & payout settlements
  • Customer service
  • Record Management Services
  • White label Call center
  • Brokerage computation & payout
  • Data management
  • Processing of transactions

CAMS has myCAMS an online application for the convenience of the investors. Using this, you can make a single Login User ID. However, the validity of the login credentials you generate will have only 48 hours. This is because the information you give is confidential and sensitive. Therefore, if you delay beyond two days, you will have to start the whole process again.

How does CAMS online work?

myCAMS is an online portal of CAMS. Here investors can easily retrieve their mutual fund statements by providing their PAN and registered email id. The user needs to access the ‘Mailback Services’ in order to get the statements.

Investors can find the details of NAV & the fees by scheme name in the app. The realized gain statements show data about long-term and short-term capital gain. Further, the Consolidated Account Statement shows details of all the mutual fund holdings of the person which are invested over multiple mutual fund houses i.e. AMCs, over a given period of time. It is a very popular mechanism to keep a track record of all the investments. However, they do not have any legal authorization to offer mutual fund recommendations or even distribute funds.

Features of CAMS

  • Quality: CAMS is an ISO 9001:2008 certified establishment. It is generally famous for its stringent quality check policies. Therefore with the help of six sigma levels of quality, they set up 50 lakh accounts annually.
  • Risk Management: CAMSonline follows a self-determining risk management method. For example, it regularly manages every possible operative risk with customized software to steady outcomes.
  • Access: CAMS has more than 250 locations with expanding plans. Their high reach has helped manufacturers to reduce expenditures. Which further eliminates the need to spend on in-house infrastructure. Thus you can visit CAMS service centers for infrastructure installation and maintenance services post the purchase.
  • Confidentiality: Customer info at CAMS is highly protected due to its sensitive nature and a matter of security. In order to ensure the security of customer’s information, the data is used only to serve customers. Further, the access is restricted to only the rightful owner.
  • Technology Driven: CAMS promotes locally developed technology solutions. That is on par with international standards leading to fast distribution and adaptability. In addition, the IT infrastructure of CAMS has the capability to support over 1 crore transactions per month.
  • E-KYC Facility: CAMS provides E-KYC to investors online and via mobile app. It is an instant and cost-free facility. Further, this provides the investor to complete their KYC online without any hassle.
  • Portfolio Mapping: Under CAMS service all the mutual funds that the investor has invested in are mapped to your investment portfolio. Therefore it is important to provide the same email ID for all your investments to ensure correct mapping.
  • Single User-Id: Once you register yourself under CAMS online service, you can use the registration details for all your future mutual fund transactions.

CAMS Online Registration Process

Registration through CAMSonline

  • Click on ‘New User Registration to create a new user.
  • In the ‘New User Registration screen, enter the registered email id and captcha. Further, click on Submit.
  • On successful completion of the registration process, a confirmation box is displayed on the screen.
  • New User Registration confirmation mail is sent to the user registered email id, along with the login credentials.
  • You can use this user id and password for the initial login in myCAMS ‘User Login’ screen.
  • Furthermore, when you log in for the first time, it will navigate to the ‘Change Password’. You can set your password.
  • Users may now re-login to myCAMS with the user id as the registered email id and the new set password.

Registration through myCAMS App

  • Download myCAMS mobile app from Google Play Store or iTunes app store and install the same.
  • Click on Register Now.
  • Enter your registered email id in the ‘New Registration screen’ .
  • Click on Submit.
  • You will receive a confirmation email along with the login password.
  • In the login screen of myCAMS mobile app, enter your registered email id as a User ID and the login password.
  • Click on ‘LOGIN’.
  • Change your password as per the instructions before proceeding.
  • Re-login to explore myCAMS services.

Steps to Download CAMS Capital Gains Statement

  1. Go to CAMS Investor Mailback Services  

    Go to the website CAMS Online. Click on ‘View More’ under the option ‘Statements’

  2. Capital Gain/Loss Statement

    Click on the option ‘Capital Gain/Loss Statement’.

  3. Enter the required details – Period, Email, PAN, Password

    In the case of the time period – choose the default option of the current FY and previous FY.
    Enter the e-mail ID registered in the investment folios. Moreover, PAN is optional but if you provide your PAN number then it will also include those investments under your PAN where you may have not registered your email id. Lastly, select “All Funds” and “e-mail an encrypted attachment” for the delivery option.

  4. CAMS Capital Gains Statement

    Enter the password for encrypting the mail. It’ll take approximately 30 minutes until you receive the mail once you submit the form.

You will receive two files in the mail. One for the current FY and one for the previous FY. Typically you would use the previous FY statement since you would be filing returns in June/July for the previous FY. Moreover, both the files can be opened with the same password you had set in earlier.

Sample CAMS Investment Gain/(Loss) Statement

FAQs

What should I do if some of my folios are missing in myCAMS user login portfolio valuation?

If in case any of your folios missing in the myCAMS login, please ensure that your email id is updated in all your Mutual Fund investments serviced by CAMS.

What is a Consolidated Account statement (CAS)?

Consolidated Account Statement is a single account statement that consolidates financial transactions. Further, It consists of all the mutual fund holdings of the person who invested over multiple mutual fund houses.

What happens if there are no financial transactions in a particular folio for the month?

CAS will include only the folios with financial transactions and hence these folios will not reflect in the statement.

Which statement should I download to report capital gains from mutual funds?

You should download the Capital Gain/Loss Statement from CAMS to view the data of mutual funds sold during the financial year. The CAMS CG Statement reflects the data of gain or loss on sale of each mutual fund along with details of the purchase and FMV i.e. Fair Market Value. You can use this statement to calculate and report the STCG and LTCG in the Income Tax Return.

Tax on Mutual Funds in India – Equity Mutual Funds & Debt Mutual Funds

What are Mutual Funds in India?

If you have invested in Mutual Funds, you need to file your ITR and pay tax on this income. Trading in various types of mutual fund schemes has become very easy due to the availability of online trading platforms. Under Income Tax, trading in mutual funds is classified as a Capital Gains Income.

  • Equity Mutual Funds – Equity-oriented Mutual Funds are funds that invest in equity instruments. Types of equity mutual funds include large-cap funds, mid-cap funds, small-cap funds, ELSS (Equity Linked Savings Schemes), Index funds, etc.
  • Debt Mutual Funds – Debt-oriented Mutual Funds are funds that invest in fixed income securities such as bonds, treasury bills, and other debt instruments. Types of debt mutual funds include liquid funds, short-term funds, income funds, hybrid funds, etc.

Income Tax on Mutual Funds

Capital Gains on Mutual Funds

Equity Mutual Funds – Since these mutual funds invest in equity-oriented instruments, the treatment is the same as equity shares.

  • Long Term Capital Gain (LTCG): Any gain arising on the sale of an equity mutual fund held for more than 12 months is considered as Long Term Capital Gain i.e. LTCG on mutual funds.
  • Short Term Capital Gain (STCG): Any gain arising on the sale of an equity mutual fund held for less than 12 months is considered as Short Term Capital Gain i.e. STCG on mutual funds.

Debt Mutual Funds – Since these mutual funds invest in debt instruments, the treatment is similar to other capital assets.

  • Long Term Capital Gain (LTCG): Any gain arising on the sale or redemption of a debt fund held for more than 36 months is considered LTCG.
  • Short Term Capital Gain (STCG): Any gain arising on the sale or redemption of a debt fund held for less than 36 months is considered STCG.

Tax on Equity Mutual Funds & Debt Fund Taxation

The taxability of Mutual Funds would depend upon the nature of income. Following is the tax treatment for Capital Gains on mutual funds.

Type of Mutual Fund Period of Holding Long Term Capital Gain Short Term Capital Gain
Equity Mutual Fund 12 months 10% in excess of INR 1,00,000 under Section 112A 15% under Sec 111A
Debt Mutual Fund 36 months 20% with Indexation Slab Rates

Dividend on Mutual Funds & Interest on Mutual Funds

  • Dividend Income from Equity Mutual Funds
  • Interest Income from Debt Mutual Funds
    • Income tax will be applicable on Interest Income under the head Income From Other Sources (IFOS) at slab rates.

ITR Form, Due Date, and Tax Audit Applicability for Investors of Mutual Funds

  • ITR Form: Traders having income on the sale of mutual funds should file ITR-2 (ITR for Capital Gains Income) on the Income Tax Website since income is treated as Capital Gains.
  • Due Date
    • Up to FY 2019-20
      31st July is the due date for traders to whom Tax Audit is not applicable
      30th September is the due date for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July is the due date for traders to whom Tax Audit is not applicable
      31st October is the due date for traders to whom Tax Audit is applicable
  • Tax Audit: Since the income on the sale of mutual funds is treated as Capital Gains, the applicability of tax audit under Section 44AB need not be determined.

Carry Forward Loss for Mutual Fund Investors

Following are the rules for set off and carry forward of losses for capital gains on mutual funds trading by the mutual fund investors:

  • Short Term Capital Loss (STCL) can be set off against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). The remaining loss can be carried forward for 8 years and set off against STCG and LTCG only.
  • Long Term Capital Loss (LTCL) can be set off against Long Term Capital Gain (LTCG) only. The remaining loss can be carried forward for 8 years and set off against LTCG only.

Example for Tax on Mutual Fund

Mr. Vijay is a salaried individual and has done mutual fund trading in FY 2021-22. His total salary income for a year is INR 8,70,000. Further, he has a Short Term Capital Loss of INR 30,000 from the sale of Debt Mutual Funds and Long Term Capital Gain of INR 2,50,000 from Equity Mutual Funds. Dividend Income of INR 50,000 in FY 2021-22.

Now in the above example, Vijay needs to file ITR-2 for FY 2021-22. Below is the calculation for total income and tax liability.

Particulars Amount (INR) Amount (INR)
Salary Income   8,70,000
Capital Gains    
Short Term Capital Loss (30,000)  
Long Term Capital Gain 2,50,000  
Less: Exemption u/s 112A (1,00,000)  
Taxable Long Term Capital Gain 1,50,000  
Total Capital Gains after set-off of losses (taxed @10%)   1,20,000
Income from Other Sources    
Dividend Income   50,000
Total Taxable Income   10,40,000
Tax at slab rate 96,500  
Tax at special rate 12,000  
Total Income Tax   1,08,500
Health & Education Cess @4%   4,340
Total Tax Liability   1,12,840
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FAQs

How do I report income from mutual funds trading in the Income Tax Return i.e. ITR?

A trader should file ITR-2 and report income from mutual funds trading as Capital Gains.
1) Tax on Equity Mutual Funds – Tax on LTCG is 10% in excess of INR 1 lac and tax on STCG is 15%.
2) Tax on Debt Mutual Funds – Tax on LTCG is 20% with indexation and tax on STCG is as per slab rates.
Further, the trader can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

Is Dividend on Mutual Funds taxable?

Yes. The dividend income earned on Equity Mutual Funds which was earlier exempt is now a taxable income.
1) Dividend on mutual funds up to FY 2019-20 was exempt from tax.
2) Dividend on mutual funds from FY 2020-21 is taxable at slab rates. The amount in excess of INR 5,000 is liable for deduction of TDS under Section 194K at 10%.

Can Mutual Fund Investor carry forward loss on the sale of mutual funds?

Yes. Income from mutual funds trading is a Capital Gains income. Any loss on such sale of equity mutual funds or debt mutual funds is a Capital Loss. The Short Term Capital Loss (STCL) can be adjusted against Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG). The LTCL can be adjusted against LTCG. Further, the mutual fund investor can carry forward the remaining loss for 8 years and set off against future incomes from Capital Gains.

Is there any deduction available to mutual funds investors?

Yes, an Equity-linked savings scheme or ELSS mutual funds are eligible for exemption u/s 80C. Deductions can be availed up to Rs. 1.5 Lakh per year. However, no deductions u/s 80C are available to taxpayers who have opted for the new tax regime.

Is TDS deducted on Mutual Funds?

Yes. FY 2020-21 onwards, the government abolished DDT (Dividend Distribution Tax). As a result, dividend income which was earlier exempt is now taxable. Further, the payer must deduct TDS under Section 194K at 10% on dividends paid on Mutual Funds in excess of Rs. 5000. However, there is no provision for deduction of TDS on the sale of mutual funds.

What Expenses Can a Trader claim in Income Tax Return?

Expenses a Trader can Claim

A trader can claim all the expenses directly connected to the trading business as a business expense. The expenses incurred should be wholly and exclusively in relation to business and professional income. Below is a list of expense that a trader can claim against trading income.

  • Rent Expense – If the trader has an office on rented premises, he can claim the rent paid as a valid expense. Further, he must save the rent receipts and rent agreement as valid proof.
  • Insurance Expense – Traders can claim insurance expenses on assets used for business purposes.
  • Repairs & Maintenance – The trader can claim expenses paid for repairs of the laptop, furniture, or any other equipment for business purposes as a valid business expense.
  • Office Supplies – Expenses such as stationery expense, printing expense, tea coffee expense, etc. is a valid income tax deductible.
  • Electricity Expense – The trader can claim electricity expense for the office as a business expense. If they are working from home, they can claim electricity expenses proportionally.
  • Membership Fees– If you pay any membership fee for a trading platform or for a platform related to trading, you can claim it as a business expense. For example, a trader can claim the membership fee paid for becoming a member of the trader’s club. However, if he pays the membership fees of a golf club for his recreational purpose, he cannot claim such expense.
  • Legal & Professional Fees– Any fee paid to a professional for their services is a valid income tax deductible. This includes tax return filing, tax audit, legal advice, consultancy services, etc.
  • Books & Subscriptions – If a trader pays for subscriptions to magazines or purchased books related to trading, he can claim it as a valid expense.
  • Depreciation – It means claiming the cost of the asset as an expense over the life of the asset. As per the Income Tax Act, we cannot claim the cost of the asset as an expense. However, you can claim the depreciation on the asset as an expense. For example, you have purchased a high-end computer for INR 10 lakhs. The depreciation rate is 60%. Hence, you can claim 6 lakhs as depreciation in the 1st year (10,00,000*60%). And can carry forward the remaining amount of INR 4 lacs to future years.
  • Mobile & Internet Expense – Traders can claim expenses incurred to pay mobile bills, telephone bills, and internet charges. It is deductible if the expense is incurred for business purpose.
  • Finance Costs – If you take a loan for your trading business, you can claim interest on loan as deductible expense.
  • Trading Expenses – All charges and expenses that the trader pays for the purpose of trading, he can claim as valid business expenses. This includes Brokerage, Turnover Fees, Clearing Charges, Exchange Transaction Charges, STT, Stamp Duty, GST, etc.
  • Other Business Expenses – The trader can claim any other expense that is directly related to the trading business.

Can I claim Tax paid as a Business Expense?

  • STTSecurities Transaction Tax is the tax that trader pays on trading in securities i.e. equity shares, equity mutual funds, ETFs, equity futures, equity options, etc. The trader can claim STT paid as a valid business expense if he/she reports such income as a business income.
  • Stamp Duty – Stamp Duty is an expense on the transfer of securities. Therefore, the trader can claim Stamp Duty paid as a valid business expense if he/she reports such income as a business income.
  • CTTCommodities Transaction Tax is the tax on trading in commodities. The trader can claim CTT paid as a valid business expense.
  • Input GSTCGST, SGST, IGST paid on trading expenses are deductible as a valid business expense if the trader does not have a GST Registration. If the trader has a GST registration, they can claim the credit of Input GST against Output GST.
  • Tax on Income – The trader cannot claim the tax on income such as Income Tax or tax on sales such as GST as a business expense.

Expenses that a Trader cannot claim in Income Tax Return

  • Personal Expenses – An expense incurred for personal purposes is not income tax deductible.
  • Fines & Penalties – As per Explanation 1 of Section  37 of the Income Tax Act, the taxpayer cannot claim any expense that is an offense or is prohibited by law as a business expense. For example, a taxpayer cannot claim Interest on late filing of ITR. The penalty for breach of a contract is deductible but the penalty for breach of the provision of law is not income tax deductible. Margin Penalty paid to broker/stock exchange is a deductible business expense.
  • Tax – Any form of Tax paid on the income earned is not deductible as an expense. For example Income Tax, Advance Tax, GST, etc.
  • Cash Payment – The taxpayer cannot claim an expense that he pays in cash for an amount exceeding INR 20,000. Additionally, there are exceptions to this mentioned under Rule 6DD of the Indian Income Tax Act
  • TDS not deposited – If tax is not deducted at source or not deposited, then such expense is not deductible. These expenses include interest, commission, rent, royalty, and professional or technical fees paid or payable to any person in India.

Points to remember for Trader who claims Business Expenses

  • The invoice should be in the name of the trader and the invoice date should fall in the relevant financial year.
  • If a trader incurs an expense for both personal and business purposes, he/she can claim a reasonable portion towards business.
  • The trader should preserve the bills, invoices, or any other proof of the payments made. You need to submit proofs during the process of Tax Audit by a Chartered Accountant. If the Income Tax Department issues a notice, these proofs justify expenses claimed.
  • If a trader uses some specified services, he/she should deduct TDS as per the applicable TDS section. For example, Mr. X, a trader obtained the services of a professional CA for auditing his books of accounts and filing ITR. Mr. X should deduct TDS u/s 194J on making payment to the Chartered Accountant. He should deposit the TDS and file TDS Return Form 26Q.
  • The trader should not pay expenses in cash. The cash payment made to a single person in a day should not exceed Rs. 10,000. Thus, pay expenses using modes other than cash
  • While calculating Income Tax on trading, the trader can claim deductions under chapter VI-A. This includes LIC premium u/s 80C, medical insurance premium u/s 80D, interest on an educational loan u/s 80E, etc.
  • If the income from business or profession is more than Rs.1,50,000 or the total sales or gross receipts is more than INR 25 lacs in any of the preceding 3 years, then you must maintain books of accounts to help the Assessing Officer to calculate the taxable income as per the Income Tax Act
  • If a trader opts for Presumptive Scheme u/s 44AD, they cannot claim expenses. This is because they need not maintain books of accounts.

A trader having Business Income should claim valid business expenses in the P&L Statement. They also need to prepare financial statements and file ITR-3. The trader also needs to calculate the trading turnover and determine the applicability of Tax Audit to file ITR.

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Which expenses can a trader claim on sale of shares?

Income from sale of shares is taxable under the head Income from Capital Gains. An investor or trader can deduct the expenses which are wholly and exclusively incurred on the transfer of shares, from the sales consideration. Thus, a trader or investor can claim expenses such as brokerage, stamp duty, sales commission, etc. in the Income Tax Return. Such expenses are deductible only for the purpose of calculating the Capital Gains. However, Securities Transaction Tax (STT) is not allowed as a deductible expense against capital gains as per the announcement in Budget 2008.

FAQs

Can I claim GST paid as a business expense?

If a business is not registered under GST, it can claim CGST, SGST and IGST paid on expenses as a valid business expense. However, if the business has a GST Registration, they can claim the credit of Input GST paid on expenses against the Output GST collected on sales. Since they are claiming the credit, they cannot claim the GST paid as an expense again.

Can I claim a margin penalty as a business expense?

A margin Penalty is a penalty levied on trades performed without sufficient margin. Margin penalty paid to the stock exchange/broker is not an infringement of law. Thus, it does not violate Explanation 1 of Sec 37 and is deductible as a business expense.

Will STT be treated as tax paid or as an expense?

STT was earlier allowed as a rebate from the tax payment. However, in Budget 2008, the Finance Minister removed the rebate and allowed STT to be claimed as a business expense. Further, it was clarified that the STT would be allowed as an expense only if the income is considered as a business income and not capital gains.

Tax Loss Harvesting for Stock Traders

Tax Loss Harvesting is the practice of selling your loss-making shares and mutual funds before the end of the financial year by converting these unrealised losses into realised loss. It helps reduce the tax liability.

What is Tax Loss Harvesting?

  • At the end of a financial year, some shares and mutual funds you are holding have an unrealised loss. Unrealised Loss means the stock has not yet been sold but if it is sold, there would be a loss since the average market value is less than the average buy value.
  • Similarly, by the end of a financial year, some shares and mutual funds you have sold have a realised profit. Realised Profit means the stock has already been sold at a profit (Market Value > Buy Value).

Let us understand how it works from this example:

  • The stocks that have an unrealised loss are sold and a loss is realized before the end of the financial year.
  • This loss can now be set off against other profits and therefore it will reduce the tax liability.
  • Thus, it is the harvesting of unrealised loss to save taxes.

If the trader wants to hold the stock, he can buy the stock again so that the portfolio remains unchanged. Generally, when looking at the difference, a trader would prefer to incur the transaction cost of entering into these transactions rather than paying higher taxes.

Example of Tax Loss Harvesting

Below is a snapshot of the P&L Statement of a trader as of 28.03.2020. The tab refers to short-term equity trades.

Before Tax Loss Harvesting

Realised Profit Rs. 3,85,000
Unrealised Loss Rs. 1,27,500
Total Income Rs. 3,85,000
Tax Liability Rs. 20,250
[15% of Rs. 1,35,000 (385000-250000)]

After Tax Loss Harvesting

The trader can sell 300 shares of Crest and 250 shares of Deepakfert to realise the loss of Rs.1,27,500

Realized Profit Rs. 3,85,000
Realized Loss Rs. 1,27,500
Total Income Rs. 2,57,500
Loss set off against Profit
Tax Liability Rs. 1,125
[15% of Rs. 7,500 (257500-250000)]

The trader can thus reduce the tax liability by doing Tax Loss Harvesting. Additionally, if the trader wants to keep the portfolio unchanged, he/she can buy 300 shares of Crest and 250 shares of Deepakfert again.

Taxation on Trading Income

The trader who plans to practice Tax Loss Harvesting should be able to calculate the income tax on trading income and the applicable tax rates. Based on the calculation of tax liability, the trader can decide whether to opt for it or not. The trader should analyse whether converting unrealised loss to realised loss will result in a reduction in taxes or not.

The taxpayer can treat the income from trading in equity shares or mutual funds as a Capital Gains Income or as Non-Speculative Business Income. This is based on the nature of trading.

Below are the applicable tax rates:

A. Trading Income considered as Capital Gains

  Equity Shares & Equity Mutual Funds Debt Mutual Funds and other Securities
LTCG 10% in excess of Rs. 1 lac 20% with the benefit of indexation
STCG 15% slab rates

B. Trading Income considered as Non-Speculative Business Income – Income is taxable at slab rates as per the Income Tax Act

An opportunity for Tax Loss Harvesting is available in the case of trading in equity delivery and mutual funds. It is not available in the case of equity intraday, equity F&O, commodity trading, and currency trading since the trader squares off the position on the same day (intraday) and on the last Thursday of the month (F&O).


Rules for Set-Off

The trader who plans to practice Tax Loss Harvesting should be able to analyse which loss can be set off against which profits as per income tax rules for set off and carry forward of losses. However, the decision whether to convert the unrealised loss to realised loss should be made after analysing against which incomes can this loss be set-off. Therefore, if the loss cannot be set off against any existing profits, then the trader should not opt for it.

Equity Trading Income considered as Capital Gains:

  • Long Term Capital Loss (LTCL) can be set off against only Long Term Capital Gains (LTCG).
  • Short Term Capital Loss (STCL) can be set off against both Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG).
  • LTCL and STCL cannot be set off against any other income.

Equity Trading Income considered as Non-Speculative Business Income:

  • The Non-Speculative Business Loss can be set off against any income except Salary Income.

Note: Traders having Salary Income cannot set off Non-Speculative Business Loss against such income. Thus, if there are no other incomes except Salary, the trader should not go for Tax Loss Harvesting.

FAQs

I have a Realised Short Term Profit of Rs. 3,00,000. However, there is an Unrealised Long Term Loss of Rs. 1,00,000. Should I opt for Tax Loss Harvesting by selling the shares to realize the loss?

If you opt for Tax Loss Harvesting by selling the shares held for more than a year, it would be a Realised Long Term Capital Loss (LTCL). Additionally, LTCL cannot be set off against STCG (Short Term Capital Gain). Thus, in this case, Tax Loss Harvesting is not beneficial.

I want to opt for Tax Loss Harvesting to save tax but I still want to hold the stock. What should I do?

A trader can opt for Tax Loss Harvesting by selling the existing holdings on which there is an Unrealised Loss. Thus, the loss can be adjusted with realised profit to reduce the tax liability. However, if the trader wants to continue holding the stock to keep the portfolio unchanged, you can buy the shares again on the next trading day. However, you must ensure that the transaction cost of entering into buy and sell transaction is less than the amount of taxes saved from Tax Loss Harvesting.

I have an unrealised loss from Equity Trading Income. But I also have a Salary Income. Will Tax Loss Harvesting help me save taxes?

The loss from equity trading cannot be adjusted with Salary Income. Thus, the trader should not opt for it since it would not reduce the tax liability.

Tax on Dividend Income & its Treatment

A dividend means the distribution of profits by a company to its shareholders. It is different from interest. While interest is paid regularly, the dividends are paid only when the Company decides to pay. It is usually paid when a Company is earning profits. The domestic company used to pay DDT – Dividend Distribution Tax on payment of dividends. Thus, domestic dividend income was exempt in the hands of the shareholder under Section 10(34) of the Income Tax Act. The dividend received from a Domestic Company is a Domestic Dividend while that received from a Foreign Company is a Foreign Dividend, and should be reported under the head income from other sources.

The tax treatment of foreign dividends is different from domestic dividends. Earlier, domestic dividend income was exempt from tax in the hands of the shareholder. After the introduction of Budget 2020, dividend income is now taxable in the hands of the shareholder at slab rates. Further, the domestic dividend is also subject to TDS at 10% in excess of INR 5000 u/s 194 & 194K. Foreign Dividend is taxable at slab rates. TDS is not applicable to such dividends.

Update on Tax on Dividend in Union Budget 2020 & Union Budget 2021

After the abolishment of the Dividend Distribution Tax under Budget 2020, from FY 2020-21, the dividend which was earlier exempt now became a taxable income. Under Budget 2020, the finance minister introduced TDS under Section 194 and Section 194K for deduction of TDS on dividend paid on equity shares and equity mutual funds. Under Budget 2021, the dividend paid to REIT / InvIT is now exempt from TDS.

It is difficult for the shareholders to estimate the dividend income accurately. Thus, Advance Tax liability would arise on dividend income only once the company declares and pays the dividend.

Below is a detailed understanding of the tax on dividend income in India from equity shares, equity mutual funds; and TDS applicability.

Tax on Dividend Income from Equity Shares

Upto FY 2019-20

As per Section 115-O, a Domestic Company paid a Dividend Distribution Tax of 15% on the dividend distributed to the resident shareholders. Therefore, the shareholder’s dividend income (up to INR 10 lacs) was exempt u/s 10(34). If the dividend amount exceeded INR 10 lacs, it was a taxable income and taxed at slab rates as per Section 115BBDA of the Income Tax Act. TDS was not applicable to dividends since the income was not taxable in the hands of the shareholder.

Foreign Dividend was a taxable income under the head Income from Other Sources i.e. IFOS since the company did not pay DDT on such dividend.

FY 2020-21 Onwards

Under Budget 2020, the removal of Section 115-O led to the abolishment of the DDT. Thus, a Domestic Company was not liable to pay tax on the dividends distributed on equity shares to shareholder residents in India. As a result, the dividends would be taxable in the hands of the shareholder at applicable slab rates. Since the income is taxable in the hands of the shareholder, TDS would be applicable. As a result, the finance minister amended the existing Section 194.

As per Section 194, a Domestic Company distributing dividends to a resident should deduct TDS at a rate of 10% if the amount exceeds INR 5000. The taxpayer should report such income under the head IFOS in the ITR filed on Income Tax Website.

Tax on Dividend Income from Mutual Funds

Upto FY 2019-20

As per Section 115-O, when a Domestic Company distributed dividends on Equity Mutual Funds, it was liable to pay Dividend Tax at 15%. Since the Company paid the tax, dividend income was exempt (up to INR 10 lacs) u/s 10(34) for the investor. Since the income was not taxable in the hands of the shareholder, there was no applicability of TDS.

FY 2020-21 Onwards

Under Budget 2020, the Finance Minister removed Section 115-O and abolished Tax on Dividend. Thus, a Domestic Company is not liable to pay tax on the dividend distributed on Equity Mutual Funds. Since the company does not pay DDT, the income on Equity Mutual Funds becomes taxable in the hands of the investor as per applicable slab rates. Since the income would be taxable in the hands of the investor, TDS would be applicable. As a result, the Finance Minister introduced a new Section 194K.

As per Section 194K, a Domestic Company distributing dividends on equity mutual funds to a resident shareholder should deduct TDS at the rate of 10% if the amount exceeds INR 5000. The taxpayer should report such income under the head IFOS in the ITR filed on Income Tax Website.

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FAQs

Is TDS deducted on dividend paid to a non-resident shareholder?

Yes. Domestic Company distributing dividends to a shareholder not resident in India should deduct TDS at the prescribed rates as per Section 195 of the Income Tax Act. In the case of a resident shareholder, the payer should deduct TDS at the rate of 10% under Section 194 or Section 194K.

Is TDS required to be deducted under Sec 194K on the sale of mutual funds?

Section 194K i.e. TDS on Income from Mutual Funds was introduced under Budget 2020. There was confusion about whether ‘Income from Mutual Funds’ would include capital gains on the sale of mutual funds or not. However, CBDT issued a clarification that the payer should deduct TDS under section 194K at a rate of 10% on Dividend Income only and not on Capital Gains on the sale of Equity Mutual Funds.

What is the prescribed limit of dividend for deduction of TDS under Sec 194K?

The prescribed limit to deduct TDS on dividend income is INR 5000.
Sec 194K – Domestic Company should deduct TDS on dividends from mutual funds at 10% if the dividend income per recipient exceeds INR 5000 in the financial year.
Sec 194 – Domestic Company should deduct TDS on dividends from equity shares at 10% if the dividend income per recipient exceeds INR 5000 in the financial year.

Calculation of Trading Turnover from Trading Income

Any person having income from trading in shares and securities should report it as income from business and profession. To determine the applicability of Tax Audit as per the Income Tax Act, we should calculate Trading Turnover for such income. It is important to note that tax liability does not depend on Turnover. The trading turnover calculation should be done only when the income from shares is considered as a business income and not when it is considered as capital gain income.

The method to calculate turnover for Income Tax on trading is different for each type of trade i.e. Equity Intraday, Equity Delivery, Equity F&O, Currency Trading, Commodity Trading, etc. To understand how it is calculated, we need to understand the meaning of Absolute Profit.

Absolute Profit for Trading Turnover Calculation

There are two methods for calculation of trading turnover – Tradewise method and Scripwise method. Ideally, tradewise method is the correct way of calculating turnover. However, scripwise method is widely used since it makes the turnover calculation easy.

It is important to note that the Profit/Loss shall be the same under both methods. However, there would be a large difference in the turnover calculation.

Tradewise Turnover

Absolute Profit means the sum of positive and negative differences. Under this method, absolute profit is the sum of the absolute value of profit and loss of each trade during the financial year.

For Example:

  • Trade 1
    • Trader buys 400 units of ABC Ltd at INR 100 on 25/01/2022
    • Trader sells 400 units of ABC Ltd at INR 90 on 26/01/2022
  • Trade 2
    • Trader buys 200 units of ABC Ltd at INR 45 on 25/02/2022
    • Trader sells 200 units of ABC Ltd at INR 50 on 26/02/2022
  • Absolute Profit
    • Loss from Trade 1 = (90-100) * 400 = Rs. -4,000
    • Profit from Trade 2 = (50-45) * 200 = Rs. 1,000
    • Absolute Profit = 4000+1000 = Rs. 5,000

Scripwise Turnover

Absolute Profit means the sum of positive and negative differences. Under this method, absolute profit is the sum of the absolute value of profit and loss of each scrip during the financial year.

For Example:

  • Trade 1
    • Trader buys 400 units of ABC Ltd at INR 100 on 25/01/2022
    • Trader sells 400 units of ABC Ltd at INR 90 on 26/01/2022
  • Trade 2
    • Trader buys 200 units of ABC Ltd at INR 45 on 25/02/2022
    • Trader sells 200 units of ABC Ltd at INR 50 on 26/02/2022
  • Absolute Profit
    • Net Loss from Scrip ABC Ltd = -4000 +1000 = -3000
    • Absolute Profit = INR 3,000

Method of Trading Turnover Calculation for Tax Audit Applicability

To determine the applicability of Tax Audit, below are the examples for calculation of turnover for different types of trading.

Calculate Trading Turnover for Equity Intraday Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Britannia 5 25/10/2021 5390 25/10/2021 5350 -200
Britannia 17 24/11/2021 4830 24/11/2021 4880 850

Trading Turnover for Equity Intraday Trading = Absolute Profit

Tradewise Turnover = 200 + 850 = INR 1050

Scripwise Turnover = INR 650

Calculate Trading Turnover for Equity Delivery Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Britannia 2 14/11/2021 5855 26/11/2021 5995 280
Britannia 9 10/02/2022 5740 10/03/2022 5600 -1260

Trading Turnover for Equity Intraday Trading = Absolute Profit

Tradewise Turnover = 280 + 1260 = INR 1540

Scripwise Turnover = -980 = INR 980

Calculate Trading Turnover for Equity / Currency / Commodity Futures Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Bank Nifty Futures 75 17/01/2022 10922 20/01/2022 10893 -2175
Bank Nifty Futures 40 05/02/2022 24624 05/02/2022 24851 9080

Trading Turnover for Futures Trading = Absolute Profit

Tradewise Turnover = 2175 + 9080 = INR 11255

Scripwise Turnover = INR 6905

Calculate Trading Turnover for Equity / Currency / Commodity Options Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Bank Nifty Options 80 10/01/2022 28.45 16/01/2022 51.8 1868
Bank Nifty Options 40 15/02/2022 134.2 15/02/2022 105.25 -1158

Trading Turnover for Options Trading = Absolute Profit + Premium on Sale of Options

Tradewise Turnover

Absolute Profit = 1868 + 1158 = INR 3026
Premium on Sale of Options = 4144 + 4210 = INR 8354
Tradewise Turnover = 3026 + 8354 = INR 11380

Scripwise Turnover

Absolute Profit = INR 710
Premium on Sale of Options = 4144 + 4210 = INR 8354
Scripwise Turnover = 710 + 8354 = 9064

FAQs

Is Trading Turnover same as Contract Turnover?

No. Trading Turnover is different than Contract Turnover.
Contract Turnover is the sum of the purchase value and sales value. It is not considered for income tax purpose. Trading Turnover or Business Turnover is the absolute profit i.e. sum of positive and negative differences. This turnover is considered to determine the applicability of the tax audit and the applicable ITR form.

I am an Intraday Trader. How do I calculate trading turnover to determine the applicability of a tax audit?

To determine whether a tax audit is applicable or not for equity intraday trading, calculate the trading turnover i.e. absolute profit. Absolute Profit means the sum of positive and negative differences. Check if tax audit is applicable as per Section 44AB after calculating the trading turnover.

I am an F&O Trader. How do I calculate trading turnover to determine the applicability of a tax audit?

To determine whether a tax audit is applicable or not for F&O trading, calculate the trading turnover i.e. sum of absolute profit and premium on sale of options. Absolute Profit means the sum of positive and negative differences. Check if tax audit is applicable as per Section 44AB after calculating the trading turnover.

What is the difference between Scripwise Turnover and Tradewise Turnover?

Tradewise turnover calculates absolute profit as the sum of the absolute value of profit and loss of each trade during the financial year. Scripwise turnover calculates absolute profit as the sum of the absolute value of profit and loss of each scrip (aggregate of all trades for every scrip) during the financial year. Under both the methods, the turnover amount will vary but the amount of profit/loss remains the same.

Income Tax on Intraday Trading

A taxpayer who has done Intraday Trading should file ITR and pay tax on this income. Intraday Trading means buying and selling stock on the same day. The trader squares off his trade on the same trading day and does not take actual delivery. The intention is to earn profits from the fluctuations in prices. Intraday Trading of Equity is considered to be a speculative Income.

Income Tax on Intraday Trading – Income Head, ITR Form, and Due Date

  • ITR FormITR-3 (ITR Form for individuals and HUFs having PGBP Income). Since Equity Intraday Income is a business income, the taxpayer must prepare financial statements and file ITR-3 on the Income Tax Website.
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  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable

Turnover for Intraday Trading

To determine whether the audit is applicable and not to calculate the tax liability, we must calculate Trading Turnover.

Turnover for Intraday Trading = Absolute Profit

Absolute Turnover means the sum of positive and negative differences. Trading Turnover Calculation can be either through scrip wise method or trade wise method.

Example

Rahul buys 100 shares of PNB at INR 85. He sells the shares at the end of the day at INR 88. On the next day, he buys 200 shares of Tata Steel at INR 500. At the end of the day, he sells the shares at INR 450.

  • Profit from Trade 1 = (88-85) * 100 = INR 300
  • Loss from Trade 2 = (450-500) * 200 = INR -10,000
  • Absolute Profit = 300+10000 = INR 10,300

Tax Audit on Intraday Trading

Trading Turnover up to INR 2 Cr

  • If the taxpayer has incurred a loss or the profit is less than 6% of Trading Turnover and total income is more than the basic exemption limit, Tax Audit is applicable.
  • If the taxpayer has a profit of more than or equal to 6% of Trading Turnover, Tax Audit is not applicable.

Trading Turnover more than INR 2 Cr and up to INR 10 Cr

  • If the taxpayer has incurred a loss or the profit is less than 6% of Trading Turnover, the Tax Audit is applicable.
  • If the taxpayer has a profit of more than or equal to 6% of Trading Turnover and has not opted for the Presumptive Taxation Scheme under Section 44AD, Tax Audit is applicable.
  • When the taxpayer has a profit of more than or equal to 6% of Trading Turnover and has opted for the Presumptive Taxation Scheme under Sec 44AD, Tax Audit is not applicable.

Trading Turnover more than INR 10 Cr

  • Tax Audit is applicable irrespective of the profit or loss.
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Tax Calculation for Intraday Trading

Income Tax on trading income is calculated at prescribed slab rates as per the Income Tax Act as per the table below.

Slab Rates if Intraday Trader opts for Old Tax Regime

Taxable Income (INR Slab Rate
Up to 2,50,000 NIL
2,50,001 to 5,00,000 5%
5,00,001 to 10,00,000 20%
More than 10,00,000 30%

Note: Surcharge is liable for the total income as per the prescribed surcharge slab rates. Cess is liable at 4% on (basic tax + surcharge).

Slab Rates if Intraday Trader opts for New Tax Regime

Taxable Income (INR) Slab Rate
Up to 2,50,000 NIL
2,50,001 to 5,00,000 5%
5,00,001 to 7,50,000 10%
7,50,001 to 10,00,000 15%
10,00,001 to 12,50,000 20%
12,50,001 to 15,00,000 25%
More than 15,00,000 30%

Advance Tax for Intraday Trading

A taxpayer whose tax liability on the total taxable income from all the sources during the financial year exceeds INR 10,000 is liable to pay Advance Tax. Income for Intraday Trading is a speculative business income taxable at slab rates. Thus, an Intraday Trader is liable to pay Advance Tax as follows:

Advance Tax for Intraday Trader who does not opt for Presumptive Taxation

If an Intraday Trader does not opt for presumptive taxation under Section 44AD and has intraday profits, he/she must pay Advance Tax in four installments as per the table below:

Advance Tax Liability Due Date
15% of Tax Liability On or before 15th June
45% of Tax Liability On or before 15th September
75% of Tax Liability On or before 15th December
100% of Tax Liability On or before 15th March

Advance Tax for Intraday Trader who opts for Presumptive Taxation

If an Intraday Trader opts for presumptive taxation under Section 44AD and has intraday profits, he/she must pay the entire amount of Advance Tax in a single installment on or before 15th March.

New Tax Regime for Intraday Trading

Traders having income from intraday trading can opt for the new tax regime under Section 115BAC of the Income Tax Act. If the intraday trader opts for the new tax regime, here are the important points to note:

  • Tax liability should be calculated as per the slab rates introduced in the new tax regime
  • Trader cannot claim Chapter VI-A deductions
  • The trader cannot set off any brought forward business loss
  • The trader cannot carry forward the business loss to future years
  • Form 10IE must be filed on the income tax website
  • A trader having business income and opting for the new tax regime have an option to switch back to the old regime. However, if they opt for the new tax regime once again, they cannot opt for the old regime for the entire lifetime.

Carry Forward Loss for Intraday Traders

An equity Intraday Trader can claim and set off and carry forward the losses if a tax audit has been conducted by a professional chartered accountant in practice. This loss can be carried forward to future years and set off against future profits to reduce the income tax liability.

Loss from Equity Intraday Trading is a Speculative Business Loss. It can be set off only against Speculative Business Profits. The intraday trader can carry forward a speculative loss for 4 years.

If the Intraday Trader has opted for the new tax regime, they cannot set off brought forward business loss against business incomes. Further, they cannot carry forward the business loss to future years.

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FAQs

How to calculate turnover for intraday trading?

Turnover for Intraday Trading is the Absolute profit i.e. the sum of positive and negative differences. Based on the turnover calculation, the intraday trader can determine the applicability of the Tax Audit. The turnover can be calculated either scripwise or tradewise.

Can I adjust the loss from intraday trading against other incomes?

The loss from equity intraday trading is considered to be a Speculative Business Loss. It cannot be adjusted against any income except Speculative Profits. The intraday trader can carry forward the remaining loss for 4 years and adjust with future speculative profits.

Do I need to pay Advance Tax on my Intraday Profits?

Income from Intraday Trading is a speculative business income taxable at slab rates. If the tax liability of the intraday trader from all sources of income during the financial year exceeds INR 10,000, he/she is liable to pay Advance Tax in four quarterly installments as per the applicable due date.