“SPECULATION INCOME VS NON SPECULATION INCOME”

TAX TALK
BY CA. NARESH JAKHOTIA
Chartered Accountant

“SPECULATION INCOME VS NON SPECULATION INCOME”

Query 1]
Sir, I am a working with a private sector bank. I am also doing shares
investment / trading to some extent. Please guide & elaborate the
provision for calculation of the profit from such trading activity -
whether intra-day transactions in the share market considered while
calculating short-term gains/losses? If yes, how this income is
different from other income i.e., advantage vis a vis disadvantage?
Whether the loss can be set off against salary income? Whether F & O
also give rise to speculative income/loss? Please elaborate as the
dealing in shares is done by many people in regular course.
[ranjit8r9@gmail.com]
Opinion:
For the mass benefit, we are covering in detail the income tax
implication with regard to investment profit/loss & intra day
transactions profit / loss from shares transactions.

1.      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.
However, if based the on facts and circumstances of your case, you can
prove that though delivery was not actually taken it was within your
normal business transaction, it could be treated as non-speculation
business income or a short-term capital gain.
2.      As regards taxation, 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 (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, viz. 15% plus education cess /higher education cess as
applicable.
3.      Speculation losses can be set off only against speculation gains
and not against any other head of income or non-speculation business
income.
4.      As far as the set off provision is concerned, it may be noted that
a] Non-speculation business loss (Norma Business Loss) can also be set
off against the Long Term or Short Term Capital Gains made during the
said year.
b] Short-term capital loss can be set off only against income from
capital gains, whether long term or short term.
c] Non-speculation business loss cannot be set off against salary income.
5.      Profit / Loss in derivatives (futures and options) is treated as
non-speculation business even though delivery is not effected in such
transactions.

Query 2]
Sir, despite repetitive request to the bank, I am not getting the TDS
certificate from the bank in respect of my tax deducted in the month
of May-2012 & July-2012. I came to know that the same can be viewed in
26AS in the income tax site but the amount is not there in 26AS also.
Please guide as to the alternative available with respect to this? [
ritashok1@rediffmail.com]
Opinion:
1.      The person deducting the tax at source is duty bound to:
a.       Deposit the tax deducted at source within prescribed time to
the Government Treasury.
b.      File the Quarterly TDS return in respect of the Tax Deducted
c.      Issue the TDS Certificate to the Deductee within a prescribed time.
2.      For non compliance of each and every part mentioned above,
there is a separate penalty and consequences under the Income Tax
Act-1961 as under:
a] For non issuance of TDS Certificate within a prescribed time,
penalty is imposable u/s 272A (2) @ Rs. 100/- per day during which the
failure continues. However, the amount of penalty cannot exceed the
amount of tax deductible/deducted.
b] For non filing of TDS Return also, there is a penalty provision of
Rs 100 per day. The recent Finance Act-2012 has imposed a fee of Rs.
200/- per day for late filing of TDS Return. Besides, a penalty of Rs.
10,000/- to Rs. 1,00,000/- is there for non filing or inaccurate
filing of TDS return. The amendment is w.e.f  01.07.2012.
3.      Without Quarterly TDS Return being filed by the Deductor, you
will not be entitled for the Tax Credit in respect of TDS done from
payment made to you. Also, unless and until the TDS return is filed by
the Deductor, deductee will not be able to view the TDS Credit in Form
No. 26AS.
4.      There is a general grievance that in many cases the Bank and
other Tax Deductor are either not filing the quarterly TDS return (or
are not issuing the TDS certificate) despite many requests & reminders
by the Deductees.
5.      In such cases, Deductee can follow the following approach:
i.        Write a letter to the Deductor incorporating:
a] The details of payments done and the tax deducted therefrom.
b] Provision of Section 203 which requires the Deductor for issue of
tax certificate within one month from the date of tax deduction
ii.     Keep the proof of letter issued to the Deductor
iii. If despite this, the certificate is not issued, write a letter to
Joint Commissioner or Addl. CIT of TDS wing who has jurisdiction over
the Deductor mentioning the detailed facts elaborated above.
5.      We advise all our readers to regularly track all the tax deducted &
deposited in your account [i.e. Tax Credit in Form No. 26AS] by
registering your PAN at www.incometaxindia.gov.in. In the absence of
availability of TDS in form No. 26AS it would be difficult for the
Assessing Officer to grant the TDS Credit.