Following are certain transactions which have been specifically excluded from being treated as Speculative transactions.
It is a contract entered into by a person in the course of his
manufacturing or merchandising business, in respect of raw materials or
merchandise, to guard against loss. Such loss may occur due to future
price fluctuations in respect of his contracts for actual delivery of
goods manufactured by him or merchandise sold by him. These are,
basically, contracts to cover business losses w.r.t raw materials or
merchandise through actual delivery.
This is a contract in respect of stocks and shares entered into by a
dealer or investor to guard against loss in his holdings of stocks and
shares through price fluctuations.;
This is a contract entered into by a member of a forward market or
stock exchange in the course of any transaction in the nature of jobbing
(all transactions are squared off during the same day) or arbitrage
(purchase of commodity or security in one market for immediate sale in
another market) to guard against loss which may arise in the ordinary
course of his business as such member. A forward market is an
over-the-counter marketplace that sets the price of a financial
instrument or asset for future delivery.
An eligible transaction (carried out electronically on screen-based
systems through a recognized broker as per relevant statutes and which
is supported by a time stamped contract note indicating unique client
identity number and PAN) in respect of trading in derivatives referred
to in Securities Contracts (Regulation) Act, 1956 and carried out in a
recognised stock exchange is known as trading in derivatives.
It is an eligible transaction (carried out electronically on
screen-based systems through registered member or intermediary as per
relevant statutes and which is supported by a time stamped contract note
indicating unique client identity number, unique trade number and PAN)
in respect of trading in commodity derivatives carried out in a
recognised association, which is chargeable to commodities transaction
tax under Chapter VII of the Finance Act, 2013.
How is Speculative business and Loss from Speculative Business treated
If a taxpayer is carrying out many businesses along with a
speculative business, such speculative business of a taxpayer must be
deemed as distinct and separate from any other business carried out by
the same taxpayer.
Treatment of speculative business as a distinct and separate business
is necessary for the purpose of setting off the loss provisions. As per
Section 73, losses from speculation business can be set off only
against profits from speculative business unlike loss from other
business which can be set off against the profits of any business.
Further, loss from a speculation business carried forward to a
subsequent year can be set off only against the profit and gains of any
speculative business in the subsequent year. Along with treating
speculative business as separate and distinct business, profits and
losses resulting from speculative transactions must also be treated as
separate and distinct from other profits and gains of business and
profession. Loss from speculative business cannot be carried forward for
more than 4 assessment years succeeding the year in which loss is
incurred. Further, if depreciation and capital expenditure on scientific
research, if any, incurred in speculative business is being carried
forward, such depreciation/capital expenditure shall be set off first.
For more information on this, visit TAXAJ
Posted by Aashima
(Team TaxaJ)