Category: Tax

This post is written by CA Karan Batra, who is the Founder and CEO of Chartered Club. He can be reached at [email protected]

The Gains from trading in Future and Options (F&O) are not considered as Capital Gains but are considered as Business Income. These gains are considered as non-speculative business gains and therefore income tax on these gains is levied as per the income tax slab rates.

To levy income tax – the first thing which is required to be done is computation of income. Once the income is computed, the tax would be levied on the income so computed. The lower the income, the lower is the tax payable and the higher the income, the higher is the tax payable.

There are 2 ways to compute the Income from F&O Trading:-

1. Normal system of computation i.e. Income = Sales – Purchase – Other Expenses – Depreciation
2. Presumptive system of computation i.e. Income = Assumed percentage of Sales

These 2 systems have been explained below in detail.

Normal System of Taxation

Under the normal system of taxation, the income is computed as per the following formula:

Income = Sales – Purchase – Other Expenses – Depreciation

This can be explained with the help of an example.

Example: During the complete year 2017-18, Mr. A traded in Nifty several times. His total purchases were worth Rs. 70 lakhs and Sales were 80 lakhs. Apart from these, he also incurred several expenses related to his business which are:-

1. Subscription plan for receiving stock market tips: Rs. 3,000
2. Telephone and internet expenses: Rs. 20,000
3. Salary paid to employee(s): Rs. 2,00,000
4. Fee paid to CA for tax return filing: Rs. 10,000
5. Other business expenses: Rs. 15,000

Therefore, his total other expenses are Rs. 2,48,000 (Rs. 2,00,000 + Rs. 20,000 + Rs. 3,000 + Rs. 10,000 + Rs. 15,000)

In addition, the depreciation on assets during the year was Rs. 1,25,000

In this case, the Income of Mr. A would be as follows:-

Income = Rs. 80,00,000 – Rs. 70,00,000 – Rs. 2,48,000 – Rs. 1,25,000

               = Rs. 6,27,000

Under this system, the income is computed on actual basis and the taxpayer is required to maintain a record and invoice for each and every expense which he has made. Moreover, he is also required to maintain all the books of accounts, Profit & Loss A/c. as well as the Balance Sheet.

It gets very difficult for a small business owner to maintain so many records and to keep a copy of all the invoices.

Therefore, for small traders – there is another option wherein no records are required to be maintained and the tax is to be paid on an assumed basis. This scheme is called Presumptive Tax and is explained below.

Presumptive Scheme of Taxation – Section 44AD

Under the Presumptive scheme of taxation, the law gives the small traders an option to declare his income as a percentage of total turnover.

The law says that the small trader can disclose his income at any level above 6% of Turnover. The small trader would be required to disclose his total turnover and the income which he would like to disclose (Min 6%). Earlier the minimum required to be disclosed was 8% but this was reduced to 6% from Financial Year 2016-17 onwards. As the payment is always received in bank in case of F&O Transactions, they can disclose the income as 6% of Turnover.

In case the small trader feels that his income is less than 6%, he would be required to shift to the Normal Scheme of Taxation and prepare all books of accounts and keep copies of all invoices.

The presumptive scheme of tax is only applicable to traders whose annual turnover is less than Rs. 2 Crores.

However, in case of F&O Trading, as the value of contracts traded is huge – the manner of computation is a bit different and the same has been explained below.

Computation of Turnover in case of F&O Transactions

In case of F&O transactions, the total of all contracts sold would not be considered as the total turnover.

In case of F&O transactions – the turnover would be computed by taking into account the total of all favourable and unfavourable trades. This can be explained with the help of the following example:-

Mr. B enters into the following 2 transactions during the year:-

1. Purchased 1 Lot of Nifty for Rs. 8,00,000 and sells the same for Rs. 8,50,000, thereby earning a profit of Rs. 50,000.
2. Purchased 1 Lot of Reliance Industries for Rs. 9,50,000 and sold for Rs. 9,40,000, thereby incurring a loss of Rs. 10,000.

In the above case, the total turnover would be considered as Rs. 60,000.

Which of the above 2 systems is better?

The normal scheme of taxation may turn out to be better in some cases whereas Presumptive Scheme of taxation may turn out to be better in other cases.

Therefore, it is very difficult to state which option is better. The trader should himself assess as to which system is better for him.

In case you have any query regarding the tax treatment of F&O trading, or you have any special case of F&O trading gain/loss, please share it share. It might help other investors or tax-payers to get their issues resolved.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Budget 2018 has reintroduced the long-term capital gain tax on equity shares and equity mutual funds. There were speculations about its comeback, but I never expected it to materialise, at least in this budget. Personally I believe cons of having it outweigh pros of having it, but it doesn’t matter at all. What really matters is how harsh this LTCG tax is and why there was no panic selling in the markets today. Let us try to find out.

Firstly, this is what the Finance Minister Arun Jaitley announced in his budget speech today – “I propose to tax such long term capital gains exceeding Rs. 1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January, 2018 will be grandfathered. For example, if an equity share is purchased six months before 31st January, 2018 at Rs. 100 and the highest price quoted on 31st January, 2018 in respect of this share is Rs. 120, there will be no tax on the gain of Rs. 20 if this share is sold after one year from the date of purchase. However, any gain in excess of Rs. 20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018. The gains from equity share held up to one year will remain short term capital gain and will continue to be taxed at the rate of 15%.

In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs.20,000 crores in the first year. The revenues in subsequent years may be more.”

What seems a simple thing to read carries many ifs and buts behind it, and the most important here is the “Grandfathering Clause”. We’ll try to clear all these ifs and buts here, so let us take it one by one.

What is this ‘Grandfathering’ clause?

As per Wikipedia, “A grandfather clause is a provision in which an old rule continues to apply to some existing situations, while a new rule will apply to all future cases”.

In our case, whatever gains we have earned on our investments in equity shares or equity mutual funds (including balanced funds) till January 31, 2018 will be grandfathered, or will not be taxed at all. So, whether you sell your equity shares or equity mutual funds tomorrow, or between now and March 31, 2018, or even anytime after March 31, 2018, you will not have to pay any LTCG tax on your gains earned till January 31, 2018, if your holding period is more than 12 months.

So, please keep in mind, there is no need to panic in this situation, as there is nothing which is going to affect your gains till 31 January. There is only one thing that could affect your gains (future gains) adversely in this situation and that is your panic behaviour and nothing else. You should take your ‘sell’ decisions only if you think that other investors will panic and markets will move down sharply from here. Even in this case, your previous gains are not taxable and you would be able to protect your gains from probable future losses.

When will this 10% LTCG Tax come into effect?

It will come into effect from April 1, 2018 onwards. It is still a proposal and not applicable for the gains you book on or before March 31, 2018.

So, should we book our gains before it gets applicable with effect from April 1, 2018?

Absolutely NOT, there is no point doing it for this reason. Your long term capital gains earned till January 31 are 100% safe from this tax and it makes absolutely no difference to that portion of LTCG, whether you sell it tomorrow, or after April 1, or even after 2 years from today.

How would our long term capital gains be taxed if we sell them on or after April 1?

There will be 2 portions of your LTCG when your actually book your gains on or after April 1 – first, LTCG earned till January 31, 2018 and second, LTCG earned between February 1 and the date you sell your holding(s). First portion will be tax exempt, and second portion will be taxed at 10.4%, including 4% health and education cess.

What will be our cost of acquisition for the gains made after January 31, 2018?

There is a formula for determining your cost of acquisition for the shares or mutual funds bought on or before January 31, 2018, LTCG gains earned after January 31, 2018 and gains booked after holding them for more than 1 year. Here you have the formula:

The cost of acquisition will be HIGHER of:

a) Actual cost of acquisition, and

b) LOWER of:

(i) Fair Market Value of the shares/units as on January 31, 2018

(ii) Actual consideration received at the time of transfer

Let us take a look at the table below to understand it with four different scenarios:

How much LTCG is tax exempt?

LTCG upto Rs. 1 lakh per financial year is not liable to any tax, and you will have to pay 10% tax only on your long term gains over & above Rs. 1 lakh of exempt LTCG.

Like debt mutual funds, is there any indexation benefit available for calculating LTCG tax?

No, as the LTCG tax rate of 10% is considered to be on a lower side, indexation benefit to incorporate inflation effect has not been provided for in the budget.

Dividend Distribution Tax (DDT) @ 10% on Equity & Balanced Mutual Funds

Finance Minister Arun Jaitley has decided to tax your dividend income also which you get on your investments in equity mutual funds or balanced mutual funds. Here is what he announced in the budget:

“I also propose to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%. This will provide level playing field across growth oriented funds and dividend distributing funds.”

The onus of paying it to the government will not be on you. It will be the responsibility of the mutual fund which has announced to pay you this dividend, and it will be in the form of dividend distribution tax of 10%. This 10% will be deducted from the dividend announced and then dividend will be paid to you.

What’s your view on this reintroduction of LTCG tax and dividend distribution tax? Do you think it is going to have a substantial impact on our markets? Please share your views here. Also, if you have any query regarding any of the points mentioned in this post, please share it here.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

If you trade in shares and unfortunately suffered any kind of loss while doing it in the previous financial year, FY 2016-17, then you should not miss the opportunity to carry it forward and set it off against your profits in the current financial year or any of the future financial years, up to eight years.

Actually, I came across one of my clients who had suffered a loss of around Rs. 1.72 lakh during FY 2015-16 and failed to file his ITR by 5th of August last financial year, the extended deadline for filing ITR for the previous assessment year. However, his fortunes turned favourable in the financial year ended March 31, 2017 and he made a decent profit of over Rs. 8 lakhs.

But, as he missed to file his ITR in a timely manner, he now cannot adjust his profits against his losses of previous assessment year and will have to pay around Rs. 53,000 as additional income tax which he could have easily saved by filing his ITR for FY 2015-16 on time.

This is one of the many silly mistakes which individuals make while filing their ITRs. Using wrong ITR form for filing your ITR could be one such mistake. So, here in this post, I would like to help our readers choose the right ITR form, applicable to them as per their source(s) of income.

Sources of Income

As we all must be aware, broadly there are five sources of income and the ITR form which we are supposed to fill depends on our sources of income. So, let’s quickly check these sources of income first.

I – Income from Salary

II – Income from House Property

III – Income from Other Sources

IV – Capital Gains

V – Income from Business or Profession

Which ITR form is for you?

For individuals, the number of ITR forms have been reduced to only four this financial year – ITR 1, ITR 2, ITR 3 and ITR 4 (SUGAM), as against six in the previous financial year – ITR 1, ITR 2, ITR 2A, ITR 3, ITR 4 and ITR 4S (SUGAM).

Here you have the table suggesting applicability of ITR form as per your income from diverse sources:

ITR 1 – For Individuals having Income from Salary/Pension, one house property, other sources (interest etc.) and having total income upto Rs. 50 lakh

Though it is easy to understand from the language itself whether ITR 1 is applicable to you or not, I would like to mention here when it is not applicable to you. ITR 1 is not applicable to you in case:

* Your total income > Rs. 50 lakh

* You have more than one house property

* You have earned income from sale/purchase of any of your capital assets, like shares, mutual funds, ETFs, bonds, gold etc.

* You have income from any of your business activities or professional services

In all these cases, you need to fill either ITR 2 or ITR 3 or ITR 4 (SUGAM).

ITR 2 – For Individuals and HUFs not carrying out business or profession under any proprietorship

As against ITR 1, ITR 2 is applicable to you in case:

* You have income from more than one house property

* You have income from sale/purchase of any of your capital assets

* You have income as a partner of a partnership firm

* You earn any kind of foreign income

* You have agricultural income > Rs. 5,000

ITR 3 – For Individuals and HUFs having income from a proprietary business or profession

As against ITR 1 and ITR 2, ITR 3 is applicable to you if you earn income from any of your business activities or professional services, apart from any other source of income mentioned above.

ITR 4 (SUGAM) – For Presumptive Income from Business or Profession

ITR 4 (SUGAM) is applicable to you if you run your business on a presumptive income basis as per section 44AD & 44AE.

So, if you haven’t filed your ITR yet for the previous financial year, just do that as soon as possible as the deadline of 31st July is near and ITR filing is one such work which should ideally be done on time.

If you have any query regarding ITR filing for FY 2016-17 / AY 2017-18, please share it here, we will try to respond to it in a timely manner, or you can contact us on +91-9811797407 for any of your ITR filing related requirements.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

While filing your Income Tax Return (ITR), you come across a column where you need to fill the Ward/Circle under which your return gets processed. Though it is very easy to find out this information, not knowing how to find it could waste a lot of your time. However, please note that it is not mandatory for you to fill this info while filing your ITR. If you leave it blank, the system will automatically route it to the assessing officer on the basis of your PAN details.

So, here is the link to land on the page of the income tax department where you can easily find your ward/circle just by entering your PAN number – Link

Know Your Income Tax Ward / Circle / Jurisdictional Assessing Officer

Assessing Officer of this ward/circle will take care of your ITR and he/she has the authority to scrutinize your tax return in detail, issue notice(s) if any further info regarding your ITR is required and issue refund/demand notice wherever applicable.

Download Form 26AS

E-filing Video

Pay Self-Assessment Tax Online

Filing ITR – FY 2015-16 – ITR 1 (Sahaj), ITR 2, Form 26AS, Jurisdictional Ward

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

We are fast approaching July 31, the due date of filing income tax returns (ITRs) for the previous financial year i.e. FY 2015-16 or assessment year 2016-17. If you have not filed your income tax return till now and you think you are filing it late, don’t be disheartened. I think more than 80% ITRs get filed during the last ten days before the due date. But, don’t be lazy anymore, file it today itself and stay relaxed.

In the next 2-3 days, I’ll try to write a couple of posts covering some important aspects of ITR filing. In this post, I have covered various ITR forms which are applicable to you as an individual or your HUF depending on various sources of income you have.

Which ITR form is applicable to you?

ITR 1 (SAHAJ) – For Individuals having Salary Income or Pension Income, Interest Income from various investments and/or Rental Income from only one house property.

If you have a self-occupied house property and there is a home loan for which you are paying EMIs, you can claim benefit under section 24 for the payment of interest on your home loan. However, if you have more than one house property, whether self-occupied, let-out or vacant, this form is not applicable to you. Moreover, if you have agricultural income of more than Rs. 5,000 and/or income from capital gains, whether taxable or tax-exempt, then also you cannot use this form. In all such cases, you are required to use either ITR 2 or ITR 2A. Please note, HUFs cannot use ITR 1.

ITR 2A – For Individuals or HUFs having Income from various sources including Salary, House Property and/or Income from Other Sources, but other than Income from Business or Profession, Capital Gains and Foreign Assets.

In case you have more than one house property and/or have agricultural income more than Rs. 5,000, then you can use this form.

This is an extended version of ITR 1, seeking a little more information as compared to ITR 1, but a lot less than ITR 2. If you have taxable income from short term capital gains either on equity shares or mutual funds or income from foreign assets or any kind of business income, then you cannot use this form. Use either ITR 2 or ITR 4 instead.

ITR 2 – For Individuals or HUFs having Income from various sources including Salary, House Property, Capital Gains and/or Income from Other Sources, but other than Income from Business or Profession.

If you have Income from Capital Gains or if you have income from more than one house property or if your income from other sources is negative or if you have income from any of your foreign assets, then you need to use this form to file your ITR.

ITR 3 – For Individuals or HUFs being Partners in Firms, but not carrying out any Business or Profession in the name of any Proprietorship Firm.

This form can be used by an individual or HUF even if he/she has taxable income from other sources or has income from foreign assets or agricultural income more than Rs. 5,000.

ITR 4S – For Individuals or HUFs or Partnership Firms having Income from a Presumptive Business. In other words, if your business income is taxable on some presumptive or predefined basis, then this form is applicable to you.

You cannot use this form if you have more than one house property or have taxable income from capital gains or agricultural income of more than Rs. 5,000 or income from foreign assets.

ITR 4 – For Individuals or HUFs having Income from a Proprietorship Firm, apart from any other source of income.

Checklist of Documents required to file ITR

* Form 16 (For Salaried Employees)

* Form 26AS

* Bank Statement for FY 2015-16 i.e. from April 1, 2015 to March 31, 2016

* 80C Investment Proofs

* Other Receipts for Claiming Tax Benefits, such as 80D, 80CCD (1B) etc.

* Home Loan Annual Statement having Interest & Principal Bifurcation

* Last year’s ITR

* Balance Sheet, P&L Account and other Audit Reports wherever applicable

* Other Applicable Documents

I’ll try to cover the following topics in the next 2-3 days.

Know Your Jurisdictional Assessing Officer and/or Assessment Ward

Download Form 26AS

E-filing Video

Pay Self-Assessment Tax Online

Tax Treatment of Derivatives Trading

In case you think there is something more interesting to cover, please suggest.

I just ended up paying MCD property tax (also called house tax) for our residential property in South Delhi. As there were various links which I required to calculate the tax, make online payment, print the payment receipts and check previous years’ tax payments, I thought of writing this post to help property owners in Delhi in this process.

First of all, June 30, 2016 is the last date for availing 15% tax rebate benefit which MCD offers to the property owners in Delhi on lump sum tax payments. So, if you haven’t paid your property tax till date, do it now to avail this 15% rebate.

If you are paying your property tax for the first time, it might be a time consuming job for you. But, if you have gone through such an exercise in any of the previous years, then I think it should not take more than 5 minutes for you to do it again with the help of various links I am going to share here in this post.

3 Municipal Corporations in Delhi – As of today, Delhi has got divided into three municipalities – South Delhi Municipal Corporation (SDMC), North Delhi Municipal Corporation (NDMC) and East Delhi Municipal Corporation (EDMC). But, only SDMC and EDMC are allowing their residents to pay their property tax online. Due to its ongoing website maintenance work, NDMC has suspended its online payment facility for some time. But, residents falling under North MCD can still avail tax rebate by making their tax payments through the offline mode visiting the MCD office in their respective areas.

Know Your Jurisdiction – In order to calculate & pay your tax, you need to first know the municipality under which your colony falls. Here is the link to the website of MCD through which you can get to know your jurisdiction. As mentioned above, there are three municipalities in Delhi and you’ll find the list of colonies under these three zones – SDMC, NDMC and EDMC.

Calculating Property Tax – Here is the link to the Delhi Government’s website through which you can calculate and pay your property tax – Link.

Click on Calculate Your House Tax on the link pasted above and choose your municipality under which your area falls – South Delhi Municipal Corporation or East Delhi Municipal Corporation. You will find various terms & conditions listed there, which you can read if you have time to do so. Just check the T&C box there and click on the tab to pay your property tax for the current financial year 2016-17.

Property ID – For you to pay your property tax online, you need to have a Property ID or Ledger Folio Number, which gets provided by the respective municipal corporations to their residents. You can find your Property ID on your previous years’ property tax challans/receipts.

However, even if you don’t have a property id or ledger folio number, you can still pay your tax directly through these links – SDMC, NDMC and EDMC.

UPIC Cards – To make the process easier, SDMC had started allotting Unique Property Identification Codes (UPIC) to the property owners in December 2015. While making your property tax payment this year, you’ll find an additional charge of Rs. 35 for a UPIC card. These UPIC cards will be issued to you this year and get delivered to your address in the coming days.

Use Factor & Property Tax Rates – Now you need to enter your Property ID in the space provided and it will take you to the page where you need to enter your personal details and property details. Residential and self-occupied properties will attract lower tax and commercial and let out properties will attract higher tax.

Also, you’ll have to pay a higher tax if your property falls in a posh urban area as compared to a rural area. Colonies/Areas have been categorised in eight different categories, from A to H, based on their locations and amenities available around. Property owners in Category A areas will have to pay a higher property tax as compared to Category B areas and likewise.

Here are the links to find the Use Factors and Property Tax Rates as per the end use of the property and its location – SDMC, NDMC and EDMC.

Finally, the property tax you need to pay will depend on the Annual Value of your property. Here is the formula for calculating the annual value:

Annual Value = Covered Area * Unit Area Value * Age Factor * Use Factor * Structure Factor * Occupancy Factor

Don’t get intimidated with this formula. You are not required to memorise this formula or do any manual calculations. You just need to put some basic details of your property and the system will do the harder work on its own. It will calculate the annual value, the amount of rebate, online payment rebate and all other figures as soon as you provide the inputs.

30% Rebate to Senior Citizens, Women, Physically Challenged & Ex-Servicemen – There are certain tax rebates which these corporations offer to certain categories of property owners. Here is the table having those categories of property owners:

Once the tax gets calculated, you just need to select the payment method and pay the tax and you are done. After the tax is paid, you’ll be asked to close the page as soon as possible. But, you would like to have a receipt/acknowledgement for the tax payment made. Don’t worry, here is the link to print your payment receipt – Payment Receipts Link

I hope this post makes it easy for you to pay your property tax online in Delhi. Please share it here if you have any query regarding property tax calculation or its payment or if you have any suggestion to make it an easier process for the property owners in Delhi.

The Finance Ministry issued a circular earlier today about tax return forms, and for a change, it is good news all around.

They have made six announcements and they are all positive ones. They have stated that they won’t be asking people to furnish details of their foreign travel along with tedious details of how much money they spent etc. This was something that was proposed last month and would have been quite a burden on everyone.

They  have however asked for your passport number in the tax return, and I think this is only fair. You already give your PAN out obviously, and giving out your passport number in addition to that should not be a problem at all, not to those who have paid taxes properly anyway.

The number of people who under report their incomes or don’t pay taxes at all is ridiculously high in India, and I can imagine the tax department running some simple reports on this data to find people who are under reporting their income.

The other exciting news is the simplification of the form themselves. The new forms haven’t been shared yet but they are supposed to the simpler than the existing ones, I will write about this in detail when the forms are actually out. Since the forms aren’t out and the software to process these forms isn’t ready either, the deadline to file taxes have been extended to 31st August.

Finally, there was a proposal to ask people to give details of their bank accounts along with the money in them but now they have reduced that to say you can just mention your bank account numbers and that is a fair ask as well.

I think these changes are a win for the people who gave their feedback to the ministry on the things like the foreign travel requirements, and raised a ruckus on social media as well.