After the lockdown many people were at home and had started investing in stock market and started earning in stock market but later many people left after making losses. However, during such period majority of salaried employees were trying to earn side income from stock market wherein they have entered into investing, F&O transaction and even intra day transaction.
In today’s article we shall discuss about taxability of speculative business transaction and hence the topic for today’s article has two parts: Speculative business income and Section 44AD of the Income Tax Act.
First, let’s understand what is a speculative transaction and what will be covered under such business income.
Sub section 5 of Section 43 of the Income Tax Act defines speculative transaction as under:
“speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips
Thus, speculative transaction does not include actual delivery of stocks or commodity. Hence, intra day transaction of share or securities can be considered as speculative transaction.
However, many people get’s confused whether F&O i.e. future and option transaction can also be considered as speculative transaction?
As per the proviso to sub section 5 of section 43, it excludes F&O transaction as under:
“Provided that for the purposes of this clause—
an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or
(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),
shall not be deemed to be a speculative transaction:“
Thus, considering the above definition it can be said that intra day transaction in shares and securities will be considered as speculative business transaction.
Now that we have come to a conclusion that what is intra day transaction let’s discuss whether such intra day transaction can be shown under presumptive taxation scheme u/s 44AD of the Income Tax Act or not.
Section 44AD deals with presumptive taxation scheme for businesses hence let’s see if such section disallows any such speculative business from taking benefit of presumptive taxation scheme:
“(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
(b) “eligible business” means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.”
Sub Section 6 of section 44AD deals with persons who are not eligible for section 44AD which are professionals, persons in the business of commission or brokerage and person who is into the business of agency.
Further, the definition of eligible business also excludes any business covered under section 44AE from applicability of section 44AD.
Thus, other than above there is no provision which excludes any other business or person from opting for presumptive taxation scheme under section 44AD of the Income Tax Act.
Hence, it can be concluded that person carrying on speculative business such as intra day trading are also eligible for section 44AD.
They have to just show minimum 6% or 8% profit and their total turnover needs to be below Rs. 2 crore and they need not maintain books of accounts.
To understand how to calculate turnover for speculative business transaction CLICK HERE: How to calculate turnover in case of intra day and future and option trading for Income Tax purpose? – Taxontips
Many people had confusion that they cannot take benefit of presumptive taxation for speculative business transaction for which there could be many reasons such as loss of speculative business is separate from loss of other normal business and since speculative business if different from normal business it will not be covered u/s 44AD.
However, based on the above discussion it can be said that people can very well take benefit of presumptive taxation for intraday trading business but if they incur a loss or earn profit below the prescribed percentage they need to get books of accounts audited for 5 years.
Guidance on above article for Indian Income Tax by:
Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo
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