Any profits/loss in respect of future and options therefore shall be taxed as normal business income. (REUTERS)

My wife does intra-day trading with money I gave her. How income tax is computed

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Question: My wife deals in future and options in shares and also does some intraday transactions on stock exchanges. The money for this purpose was by given by me. I want to know how the income tax liability in respect of these transactions is calculated. I am confused as someone said that these are treated as speculative transactions and is taxed in some other ways. Please guide me. Naresh

Answer: If interest is charged on the loan, the profits/loss shall become taxable in her hands. However, if no interest is charged on the loan given, the tax officer can apply Section 60 of the Income Tax Act and club her income with your income.

As far as taxation of her income from various transactions is concerned, we will have to bifurcate her transactions in two parts. Since the transactions of future and options are not done as investments the profits/loss on these transactions cannot be taxed under the head capital gains. Moreover, as per provisions of Section 43, derivative transactions in future and options in securities are not to be treated as speculative business and therefore would be treated as normal business transactions. Any profits/loss in respect of future and options therefore shall be taxed as normal business income.

Since no delivery is involved in intraday transaction such transactions are treated as speculative transactions. The profits in both types of transaction is taxed alike at the slab rate applicable to you. However, in case the result of intraday trading transactions is a loss, the same cannot be set off against profits from future and options transactions. Such loss will have to be carried forward for four years to be set off against speculative income of those years. In reverse situation, the loss from future and option transaction shall be allowed to be set off against the profits of intraday transactions. Please note that you may have to get your accounts audited in case the profits from such transactions is less than 6% of the aggregate value of such transactions.

Balwant Jain is a tax and investments expert and can be reached at jainabalwant@gmail.com

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