Income Tax: Income from futures and options is business income if trading is regular

August 25, 2020 4:30 AM

The nature of compensation received by you is not clear from the facts stated. Life insurance compensation is exempt from tax.

If classified as business income and transacted on a recognised stock exchange, the income derived from trading of derivatives are taxable as non-speculative business income for income tax purposes, and the individual has to file ITR 3.If classified as business income and transacted on a recognised stock exchange, the income derived from trading of derivatives are taxable as non-speculative business income for income tax purposes, and the individual has to file ITR 3.

By Chirag Nangia

Are losses due to futures and option trading short-term capital loss or long-term capital loss? How can we set off such loss and which ITR form will be filled in case of a salaried person?
—T R Venkat
Income from futures and option trading is classified either as ‘business income’ or ‘income from other sources’. If the transactions are of regular frequency, then it is business income. If these are one-off transactions, then such income/ loss is ‘income from other sources’. If classified as business income and transacted on a recognised stock exchange, the income derived from trading of derivatives are taxable as non-speculative business income for income tax purposes, and the individual has to file ITR 3. You can claim deduction for broker-age, commission, etc., if income is offered to tax as normal business income.

If turnover from derivative transact-ions is less than Rs 2 crore, then income from such transactions may be taxed on presumptive basis at the rate of 6% of turnover (or 8% of turnover, if electronic clearing system is not used). Here, file ITR 4. Losses from non-speculative business income may be set off against income from any other source (except salary). Excess loss may be carried forward and set-off from business income in eight subsequent years. If considered as income from other sources, then such gain loss may be reported in ITR-1/ ITR-2 by individual taxpayers.

I have received compensation after my husband’s death. Should I file returns on that amount? Also, as I did not get my refund last year, should I file return this year?
—M Hasan
The nature of compensation received by you is not clear from the facts stated. Life insurance compensation is exempt from tax. As per circular no. 573, any lump sum payment made gratuitously or by way of compensation by employer to the widow/ legal heirs of an employee who dies while in active service, is not taxable as income. Moreover, gratuity received by widow/ legal heirs on death is also exempt subject to certain limits.

Furnishing of ITR is mandatory if your total income exceeds the maximum permissible amount not chargeable to tax, irrespective of the status of receipt of previous year refunds. Disclose exempt incomes in Schedule EI. Contact the I-T department for non-receipt of income tax refund of previous years.

The writer is director, Nangia Andersen India. Send your queries to fepersonalfinance@expressindia.com

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