General, Income Tax, Investment, Stock Market, Tax

How a Loss from Shares and Derivatives Trading can save Income Tax on Your Income

how-a-loss-from-shares-and-derivatives-trading-can-save-income-tax-on-your-income

Derivative trading (F&O) and Intraday Trading in share market have lately become the hot topic among the youth in India. With the technology advancement and increase awareness in the share market have literally make derivative and intraday trading possible for each and everyone without the help of an expert. Now anyone can do the trading on the smartphone or on the laptop/PC. Another reason for the increasing trend in derivative and intraday trading is its an easy and fast way of earning money. However, the fact is that most of us end up making losses.

Loss always brings disappointment and frustration on our face. However, If I say that this loss can also bring a smile on the face, will you trust me? If I say, this loss can also save your tax liability arising on your other source of income which can help you get payday loans, Try logbookloans.co.uk. Do you agree with me? If I say, this loss can save tax on your future year’s Income from Derivative and Intraday trading. Will you accept that?

Yes That’s true, This loss can also be a boon sometimes. Let us understand how this loss can help you save your tax as per income tax act.

As per income tax act, It is mandatory to disclose all source of income in the Income tax return, and as per the act, the Income also means loss.

Loss from Future and Option Trading

Future and Option (F&O) trading is considered as a non-speculative business under income tax act, and any loss arises during the year from F&O is called as non-speculative business loss. Now, this loss can be set off in the current year with the profit you earned from:

  1. Other business
  2. Rental income from Property
  3. Income from Intraday trading
  4. Profit from the sale of Shares
  5. Profit from sale of Property
  6. Profit from sale of Other capital assets
  7. Interest Income

If you are happy with that, then hold your breath, there is another benefit which is offered by the Income tax department to you. If you cannot set off the F&O losses in the current year with any other profit or income, you can carry forward this loss for next 8 years to adjust with any income from a non-speculative business you earn in the next 8 years. Let us understand this with the below example:

Let us say Ram has a Kirana Shop and his profit from his Kirana business is Rs. 5,00,000. He earned a rental income of Rs. 4,00,000 from rent. He also earned interest income from FDs Rs. 2,00,000. He earned a huge loss of Rs. 15,00,000 on Future & Option trading during the year. Let’s assess Ram’s Income for the year

Taxable Income of Ram

Income from Business          5,00,000
Income from Rent          4,00,000
Interest Income          2,00,000
Total Income        11,00,000
Loss from Non-Speculative Business        15,00,000
Total Taxable Income/ (Loss)          (4,00,000)
Tax Liabilities                      –

 

The Loss of Rs. 4,00,000 can be carry forward for the next 8 years and can be adjusted against the profit earned in the next 8 years only from Non-Speculative business

It is important to note that loss from F&O trading cannot be adjusted with the salary income of neither of the current year nor of future years.

Loss from Intraday Trading:

Unlike F&O trading, Intraday trading is considered as Speculative business. Intraday trading is considered as buy and sell of share without taking the delivery of shares. Any loss that arises from Intraday Trading is considered as speculative loss. This loss can set off only against the profit of other speculative business and can not be set off against any other income. Also, In case this loss cannot be set off against profit from other speculative business then the loss can be carry forward for 4 years and can only be set off against speculative income in earned in next 4 years.

Let’s take the above example again and keep the loss of Rs. 15,00,000 from Intraday trading. Let’s assess Ram’s Income

Taxable Income of Ram

Income from Business          5,00,000
Income from Rent          4,00,000
Interest Income          2,00,000
Total Income        11,00,000
Loss from Speculative Business        15,00,000
Total Taxable Income/ (Loss)        11,00,000

 

The Speculative loss of 15,00,000 can be carry forward for the next 4 years and can be adjusted against the profit earned in the next 4 years only from Speculative business.

It is Important to note that these benefits of F&O and Intraday trading loss can only be utilized when the Income tax return is filed within the due date. You will be deprived of the benefit if you don’t file the Income tax return or file the return after the due date.

 

 

 

 

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CA Rachit Jain

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