Hello friends, in today’s article we will discuss about step number 9 which is tax planning so if you are earning you have to pay taxes. Now how you can plan taxes i.e., save from money within the legal terms that I’m going to discuss about in this step. In this step we are going to do in 2 parts otherwise the article will be very big. In this part, I will discuss about the tax treatment so how the tax treatment is done on your income or on your profit or on your capital gain. In next part, I will tech you how you can do some tax planning and other tax filing and tax audit requirement.
My name is CA Arun Tiwari and you all are most welcome to my article which is based on our You Tube channel which is Mark2Market and this is the series F & O shots. We are on the second last step were I’m telling you that how you can start your F & O journey with some good hedging strategies and we are talking about the Tax. So, how are the tax treated when you are earning income or you make profit on stock market.
So, if you talk about the taxation on investment there are 2 type of income that you can earn. 1st is the capital gain and 2nd are business profit. In income tax, as a chartered accountant I’m telling you, the gain from investment can be classified as capital gain or profit or gains from business and profession. Now, next question arises that what kind of profit taxable as a capital gain.
Generally, whatever you earn from shares and stock where you took delivery i.e., when the shares are credited into your demat account so any shares which you are buying or selling which goes into your demat account and you can sell form there then it means a delivery-based investment. So, if the share stayed in less then 12 months in your demat account then it will be considered as short-term capital gain and on that you have to simply pay 15% without any deduction. There will be basic exemption that means so if you have no other income then Rs.250000 exemption will be available. Now if you are holding the shares for more then 12 months then it will be long term capital gain. Now the rule has changed, earlier there was no tax on long term capital gain however now they have introduced the taxation on long term capital gain also which is 10%. So whatever the profit you are making then after the expenses like STT, brokerage and after deducting that you have to pay 10% on that amount and no indexation benefit will be available to you on such gain. Here, government has provided the exemption of Rs.100000. It means you have to pay taxes only when your long-term capital gain is more then 100000. For example: you earned 150000 as long-term capital gain then on 1st 100000, there will be no tax and on the remaining, you have to pay tax @ 10%. So, this is the simple explanation which I’m providing.
Next thing, if you are in the business of buying or selling of stocks, generally it is a business profit that you have to consider. There are lot of people always getting confused that whether they should consider the gain as business profit or capital gain, even in case of delivery-based stocks, it can be a business income. The only thing, you have to declare you stocks as stock in trade and once you declare the stock as stock in trade, you have to keep that phenomena always. Its not possible that this year, you are declaring your income from shares as business profit and next year as capital gain. As per income tax department, once you are a business man you always are a business man and once you are an investor then always you are an investor. So whether if you are taking delivery based stocks then you can declare as a capital gain or business profit and once you declare you have to continue with that. So, check the calculation from both side, the way in which tax is lower, you can choose that one.
Now, apart from delivery based, if you are doing non delivery based, it means where the shares does not touch your demat account, you just buy it and then sell it on the same day that means intraday, so in business profit also, there will be 2 type of profit and loss. One is normal profit and loss and second is speculated loss. If you are doing the trading and in trading you are not taking the delivery, it is a speculating. So, intraday are speculative profit and loss and apart from intra day like if you are doing the future and options or in currency or equity or commodity where you are not taking the deciliter but you are holding the position. So, in intra day we generally do not hold position more then one day, hence on future and options, it will be a normal profit and loss and you can pay tax under business and profession. You have to calculate separately profit and loss on speculative and pay taxes.
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So, what is the difference between the normal profit and loss account and speculative profit and loss account. In normal profit and loss account, you can take all the related expenses like paying somebody for advisory then the same shall also be allowed because in capital gain, not all expenses are allowed so whatever the net profit is coming, you have to pay as per your slab rate. If there is a loss then you can set off your loss, because its like if there is a profit then government was charging tax to you and if there is a loss then government allowed you to set off your loss. Hence, loss from other income can be set off with any other income except with income from salary.
So, losses, you can set off or you can carry forward. Suppose, you made 10 lakh of losses and only 800000 other income is allowed to set off so 200000, you can carry forward and set off in future. Speculative profit and loss is a separate category although her and you have to pay taxes as per slab and set off is only allowed you against speculating income and you cannot marry with another business. So friends, few of you might scratching your head but this is not so complicated, we will review this article one more time in next article. Again ill always advise you to consult a proper chartered accountant before filing return. So, part 2, we will discuss about the tax planning in next article. So, always pay some money and get your return file properly because what happen, if you miss your return, then government will not give the refund just because you not asked you but if you miss the taxes, then interest or late fee or penalty shall be start charging you. As a chartered accountant, I can say that paying 2000 to 3000 bucks is not too high if you want to file your returning inan proper manner. Here we are ending our article and lets meet in part 2 of tax saving.