TAX AUDIT
Querist :
Anonymous
(Querist) 26 September 2010
This query is : Resolved
A proprietory firm is wholesaler of cloth.During the year proprietor has done intraday trading,options and futures trading,some deliverybased trading.No accounts are prepared relating to shares transactions and proprietor is maintaining records on basis of stockbroker statements.Proprietor is seeking advice regarding any penalty implications relating to non maintenance of accounts relating to share business and how to avoid it like how to account for?
Also plz explain
how intraday trading,deliverybasedtrading,derivativetrading will be reflected in books>LIKE net profit will be shown.PLZZZZZ answer its really very urgent.
R.Ramachandran
(Expert) 26 September 2010
Dear Anonymous,
Even on the basis of the contract notes received from the brokers, an account can be maintained. If not already done, it should be done now. This is necessary for the purpose of income-tax return - since short term gains will attract 15% income tax (if the trading is through recognised stock exchanges and Securities Transaction Tax had been paid). In regard to intra-day profits, it would amount to trading (not investment) and therefore it would attract normal rate of tax (not special rate i.e. 15% mentioned above) i.e. either 10% or 20% or 30% depending upon the slab in which the taxable income falls.
soumitra basu
(Expert) 26 September 2010
You can maintain accounts on the basis of stockbroker statement.
s.subramanian
(Expert) 27 September 2010
I agree with Mr.Ramachandran.
Querist :
Anonymous
(Querist) 27 September 2010
If we maintain records of stockbrokerstatement and prepare profit statement on basis of it.Whether it will be sufficient?
in intraday trading,derivative trading plz give example of entries?
R.Ramachandran
(Expert) 27 September 2010
From your query it appears that you know how to maintain the account entries for the purchase of shares and sales (other than intraday and derivatives).
On the same lines, you have to make accounting entries while purchasing and selling in separate books maintained for intraday trading and derivative segments. Separate account books are necessary because unlike the investments in stocks - purchase of stock and selling it at a later point of time where the special tax rate of 15% is applicable, in the case of intraday trading it is treated as business profit and liable to be taxed as per applicable slab rate.
Therefore separate accounts would be advisable.
Querist :
Anonymous
(Querist) 27 September 2010
Dear Learned?
If i calculate profit on basis of jobbing statements and delivery sttaements and accordingly show in return.But does not maintain accounts.Whether it will attract penalty u/s 271B.I also trade in cloth and prepares proper books of account for that.As regards intradaytrading,deliverybased trading,derivatives trading it will be of great help if u can provide me with aome examples to understand accounting procedure?Also,derivativetrading has to be considered as non-speculative businessu/s 43 and hence that will fall under business.
R.Ramachandran
(Expert) 27 September 2010
We have told you to maintain account, you insist that you do not want to. IF you are simply calculating the profit can you say you are maintaining account? If the answer is "NO" definitely you would be exposing yourself to the penal provisions. Whether the Income Tax Authority invokes the penal provision or not is a different story.
