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I derive income from derivatives trading. My profits are expected to be above ₹1 crore, whereas my business expenses are not much. My doubts are:

— Is it compulsory to classify derivative income as business income or is it possible to classify it under concessional capital gains tax of 15 per cent u/s 111A?

— What is the definition of ‘turnover’ for derivative income?

Nandan

In the case of stock market transactions, whether the income is chargeable as business income or capital gains will depend on the facts and circumstances of each case, taking into consideration the nature of the transaction, frequency and volume of transactions, etc.

Derivative trading transactions that you carry out would be regarded as transactions for earning short-term profits and income from such transactions would, therefore, be taxable as business income at applicable tax slab rates.

As per the “Guidance Note on Tax Audit under section 44AB of the Income Tax Act, 1961”, issued by The Institute of Chartered Accountants of India, the turnover in case of derivatives, futures and options is determined as follows:

(i) The total of favourable and unfavourable differences shall be taken as turnover.

(ii) Premium received on sale of options is also to be included in turnover.

(iii) In respect of any reverse trades entered, the difference thereon should also form part of the turnover.

The said guidance note is for tax audit purposes and thus, the turnover would be for a particular financial year or a part of the financial year ending on March 31 (for the first year).

In case of delivery-based transactions, where the transaction for the purchase or sale of any commodity, including stocks and shares, is delivery-based, whether intended or by default, the total value of the sales is to be considered as turnover.

If I purchase any immovable property in Kolkata from nine to 10 resident Indian persons having undivided shares therein, and the share of each does not exceed ₹50 lakh, do I have to deduct an amount equal to one per cent of such sum as income tax thereon to comply with Section 194-IA of the Income Tax Act?

B Das

According to income tax provisions, a purchaser of an immovable property (other than rural agricultural land) worth ₹50 lakh or more is required to deduct tax at the rate of 1 per cent from the consideration payable to a resident transferor.

Accordingly, the tax is to be withheld on the payments made after June 1, 2013, if the consideration for transfer of property is more than ₹50 lakh. In your case, we understand that the total consideration of the property is more than ₹50 lakh, therefore provisions of Section 194IA shall apply and you will be require to deduct tax at source from payments to be made to all the buyers.