Treatment of share trading losses

Last Updated at: September 29, 2019
761
Treatment of share trading losses

It is to the common knowledge of the corporate denizens as to how the sale of listed equity shares is taxed, that is to say, short-term gains are taxed at 15% while long-term gains are exempted. But the question arises as to what happens when one faces losses together with its treatment. A company will not always earn profit, and it must also be borne that organizational functions are undertaken with a view of earning a profit by assuming the risk of losses.

Treatment of losses

In the Stock market, one’s activities will be classified into various heads and forms. But the most important of all are intra-day stock trading activity, mutual fund investments, and Futures and Options (F&O) Transactions.  

The point being, all these heads under which an act is brought has different taxes on share trading. While investments made for the longer term are treated as capital assets, intra-day trades and F&O activities are considered as business. On account of the treatment of long-term investments, capital gains tax rules are applied. Intra-day trades and F&O activities might be considered as a business but they are treated differently.

Get FREE legal advice now

As per the Income Tax Act, the losses incurred are allowed to be set-off from other incomes. Reporting these losses can lower taxable income but they also come with their benefits. However, certain rules must be followed which are,

  •         Speculative losses can be set off from speculative income.
  •         Non-speculative losses can be set off from other sources of income such as salary, rental income or interest income.
  •         Intra-day trading being considered as a speculative business can only be set-off from intra-trading income.
  •         Any losses which are not adjusted in the same year will require the same to be carried forward. Such losses can be claimed in two ways. First, it can be claimed against speculative income in 4 years. Second, against non-speculative income which can be carried forward for 8 years.

It is also pertinent to note that F&O activities are treated as a non-speculative business. As such, losses from F&O activities need to be claimed against non-speculative gains. If not adjusted, then it being non-speculative, can be carried forward for 8 years.

Any gains derived by a salaried employee will be reported as a business in tax return which makes many taxpayers hesitate. There are instances wherein many have not even reported their business and worry over their tax returns. But the losses as such also comes with certain benefits and in majority of cases, they help businesses in taking that extra step.

It is cautioned that stock activities are reported to the Income Tax department from financial institutions and as such it becomes pertinent to file these in tax returns failing which will result in a notice for non-compliance.

Frequently Asked Questions

How can I claim my income tax refund after due date?

Physically submit a signed ITR-V form to an income tax processing centre within 120 days of filing ITR.Learn More about Income Tax filing


What is the current ESI contribution rate?

The present rate of contribution for ESI stands at 4.75% and 1.75% for employers and workers, respectively.More info on ESI registration


What is Form A in Fssai?

The simple form for registration under the Food Safety and Standard Authority of India is called Form A.More information on FSSAI


Can I use ISO logo?

Anyone who has been issued an ISO certification can use the ISO logo on their product or service premise.More on ISO Certification


Can I get Form 16 without TDS?

In short, the answer is yes. A person can get Form 16 even in the absence of Tax deducted at source.Details on TDS Return Filing


What is the fee for MSME registration?

There is no fee for registering a small or medium sized business within the Udyog Aadhar Memorandum.Learn more about SSI/ MSME Registration

Treatment of share trading losses

761

It is to the common knowledge of the corporate denizens as to how the sale of listed equity shares is taxed, that is to say, short-term gains are taxed at 15% while long-term gains are exempted. But the question arises as to what happens when one faces losses together with its treatment. A company will not always earn profit, and it must also be borne that organizational functions are undertaken with a view of earning a profit by assuming the risk of losses.

Treatment of losses

In the Stock market, one’s activities will be classified into various heads and forms. But the most important of all are intra-day stock trading activity, mutual fund investments, and Futures and Options (F&O) Transactions.  

The point being, all these heads under which an act is brought has different taxes on share trading. While investments made for the longer term are treated as capital assets, intra-day trades and F&O activities are considered as business. On account of the treatment of long-term investments, capital gains tax rules are applied. Intra-day trades and F&O activities might be considered as a business but they are treated differently.

Get FREE legal advice now

As per the Income Tax Act, the losses incurred are allowed to be set-off from other incomes. Reporting these losses can lower taxable income but they also come with their benefits. However, certain rules must be followed which are,

  •         Speculative losses can be set off from speculative income.
  •         Non-speculative losses can be set off from other sources of income such as salary, rental income or interest income.
  •         Intra-day trading being considered as a speculative business can only be set-off from intra-trading income.
  •         Any losses which are not adjusted in the same year will require the same to be carried forward. Such losses can be claimed in two ways. First, it can be claimed against speculative income in 4 years. Second, against non-speculative income which can be carried forward for 8 years.

It is also pertinent to note that F&O activities are treated as a non-speculative business. As such, losses from F&O activities need to be claimed against non-speculative gains. If not adjusted, then it being non-speculative, can be carried forward for 8 years.

Any gains derived by a salaried employee will be reported as a business in tax return which makes many taxpayers hesitate. There are instances wherein many have not even reported their business and worry over their tax returns. But the losses as such also comes with certain benefits and in majority of cases, they help businesses in taking that extra step.

It is cautioned that stock activities are reported to the Income Tax department from financial institutions and as such it becomes pertinent to file these in tax returns failing which will result in a notice for non-compliance.

Frequently Asked Questions

How can I claim my income tax refund after due date?

Physically submit a signed ITR-V form to an income tax processing centre within 120 days of filing ITR.Learn More about Income Tax filing


What is the current ESI contribution rate?

The present rate of contribution for ESI stands at 4.75% and 1.75% for employers and workers, respectively.More info on ESI registration


What is Form A in Fssai?

The simple form for registration under the Food Safety and Standard Authority of India is called Form A.More information on FSSAI


Can I use ISO logo?

Anyone who has been issued an ISO certification can use the ISO logo on their product or service premise.More on ISO Certification


Can I get Form 16 without TDS?

In short, the answer is yes. A person can get Form 16 even in the absence of Tax deducted at source.Details on TDS Return Filing


What is the fee for MSME registration?

There is no fee for registering a small or medium sized business within the Udyog Aadhar Memorandum.Learn more about SSI/ MSME Registration

FAQs

No FAQs found

Add a Question


No Record Found
SHARE