Income from F&O trading taxable

S C  Vasudeva

I am a salaried employee and an income taxpayer. I have a small stock portfolio with a value of about Rs 3 lakh, built over a period of several years. Recently, on the suggestion of a friend who is active on the stock market and based upon his advice, I have started trading in futures and options (F&O). The value of the shares is used by the stock-broking firm as the margin money for trading and I have not put in any additional funds. I have being doing 2-4 trades in a week and my net gain after paying securities transaction tax, stamp duty, brokerage, and other statutory levies etc was about Rs 45,000 till the end of March. Most of this gain was used to purchase more shares and I have not withdrawn any money from my demat account. I also intend to hold on to these shares for the long term. The demat account has a cash balance of about Rs 8,400 which I don’t feel the need to withdraw immediately. What is the tax implication for me? If I don’t withdraw the gains made by F&O trading, am I required to pay tax on it even if the amount is re-invested in stocks?

Is the cash balance in a demat account liable for tax?

Is there any rule, provision or time frame under which such gains and cash balance can be exempted from tax?

— nikhil joshi

The amount of Rs 45,000 earned by you from trading in futures and options should be treated as income from business. You are supposed to pay tax on the said income and the same will be a part of your total income. Once the income earned on the trading has been included in the total income, the cash balance cannot be brought to tax. There is no provision whereby such income can be claimed to be exempt from tax.

My estimated interest income for the financial year 2016-17 is Rs 5.10 lakh. As per my understanding, eligible deduction u/s 80C is Rs 1.50 lakh. I have to pay interest of Rs 2 lakh on loans. My estimated tax liability for the year ending March 31, 2017 is nil. My query is whether I can give form 15H to the bank for the current financial year for non-deduction of tax.

— kuldeep kumar 

Particulars given by you don’t indicate the purpose for which the amount was borrowed and the interest of Rs 2,00,000 is payable.  There being no income under head of “Income from Property”, in all probability, deduction in respect of the interest of Rs 2,00,000 would not be admissible under any of the heads of income. In view thereof, it would not be possible for you to file 15H with the bank for non-deduction of TDS as your total income would not be below taxable limit if the amount of interest is not deducted from the interest income. 

One of my friends (say Mr Y) retired as an officer from Govt. of India and is filing his income tax return regularly. Till now he was investing in a five-year fixed deposit for availing benefit under Section 80C. My queries are as under:

• Now Mr Y, due to age factor or otherwise is not interested to invest in five-year FDRs for availing benefit under Section 80C. He is not having PPF account of his own or of his wife. Can he invest in the PPF account of his son (say Mr U) who is major, earning and filing his own return, to avail benefit u/s 80C? If so, what formalities are needed to be completed?
• If Mr Y invests in the PPF account of his son Mr U, for availing benefit for himself then, what other means are left for Mr U to avail benefit under Section 80C in his own return?
• The total pension income of Mr Y is about Rs 3,80,000 and income from interest is about Rs 1,60,000, minus his investment of Rs 1,50,000 under Section 80C. Is he eligible to submit Form 15H to the bank(s) for not deducting TDS? — Balbir Singh Batra

Your queries are replied hereunder:

• Mr Y can deposit a sum not exceeding Rs 1,50,000 in the PPF account of his son Mr U.  However, there must be an existing PPF account which has been opened by Mr U as it is not possible for Mr Y to open a fresh PPF account in the name of his major son Mr U. Mr Y should be able to claim benefit of deduction under Section 80C of the Income-tax Act 1961 (The Act) in respect of the amount so deposited in the existing PPF account of Mr U. There is no other formality except that Mr Y should be able to prove that he has deposited the amount of Rs 1,50,000 in the existing account of Mr U.
• Mr U can avail the benefit under Section 80C of the Act by making a fixed deposit for 5 years or taking a life insurance policy on self, his wife or any of his child or buying National Saving Certificates, investing the amount of Rs 1,50,000 under any other scheme covered by the provisions of the said section so as to claim the maximum benefit under the provisions of Section 80C of the Act.  
• Mr Y would not be able to file Form 15H with the bank as his total income is above the taxable limit, as per figures given in the query, even after allowing deduction admissible under Section 80C of the Act.