Your Queries (Income Tax): Tax audit of business income from derivative trading if turnover above Rs 1 cr

By Chirag Nangia

A central government employee has made F&O trading loss of Rs 9 lakh on a derivative turnover of Rs 1.82 crore. Does he have to do a tax audit?
—Anushka
Income from futures & option trading is classified either as ‘business income’ or ‘income from other sources’. If the transactions are of regular frequency, then such gains/ losses are classified as ‘business income’. In case these are one-off transactions, then such income/ loss may be considered as ‘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 (i.e. normal business income) and shall be subject to tax audit if turnover is more than Rs 1 crore.

This threshold shall be increased to Rs 5 crore in case of a person whose (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment.

I have inherited a property which is still in the name of my grandfather. The valuation of the property in 1981 was Rs 1 lakh. In 2005, Rs 5 lakh was spent on renovation of the house. Now I intend to sell it and buy a plot. What will be my capital gains liability?
—Subhendu Kumar

Since you have inherited the property from your grandfather, cost of acquisition shall be the higher of the actual cost to your grandfather or FMV as on April 1, 2001. Further, the cost incurred on renovation by you shall be treated as ‘cost of improvement’. Both these costs shall have to be subtracted, after indexation, from the sale value of the property to arrive at the taxable capital gains.

If net sale consideration is invested for buying a house (one year before or within two years from date of transfer) or for construction of a house (within three years from the date of transfer) then proportionate capital gains shall be exempt under Section 54F. The exemption is allowed only if an assessee does not own more than one residential house property on the date of transfer. You may claim exemption under the said section depending upon the eligibility.

The writer is director, Nangia Andersen India. Send your queries to [email protected]