“SPECULATION INCOME VS NON SPECULATION INCOME”

TAX TALK-10.12.2012-THE HITAVADA

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.