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Taxability of Future in income tax

Today we will discuss the taxability of future in income tax. In this blog we will discuss the taxability of  mark to market gain and actual gain the future transaction. Also the nature of the gain whether speculative or non speculative.

Types of gain in Future

In future there are two types of gain speculative and Actual gain.

Actual gain –

Future transaction will be roll over after the expiry of the contract and a fresh contract will be start. If the contract expire on the 26th march than till 26th march profit and loss will be known as  Actual gain or loss.

Mark to market –

After roll over of the future between the new contract date and contract value as on 31st march will be treated as mark to market like between 26th march and 31st march it will be treated as Mark to market gain.

Taxability of future in income tax

Actual loss – It can be claimed in income tax

Mark to market loss –  It can be claimed in income tax

Mark to market gain – It is notional profit, cannot claimed in income tax

Future transaction is Speculative or Non Speculative

There is conflict in section 43(5) and 73 whether the future derivative transaction is speculative or not.

As per section 43(5) , provides the definition of the speculative profit but in 43(5)(d) it excludes the future transaction.  As per section 43(5)(d)  Any derivative transaction occurred in stock exchange (NSE/BSE) will be treated as speculative if  settled without delivery.

As per Section 73 Speculation loss can be carried forward for a period of 4 years and set off of speculation business loss can be taken only against speculation profit. As per Explanation of  Section 73 (4) Company doing purchase and sale of share will be treated as speculation business loss.

Our Opinion

As per our opinion if there is future  gain and loss occur in the same year than treat at it as non speculative transaction will be claimed in section 43(5). If there is carry forward of speculation loss than treat as Speculation loss as per Explanation of  Section 73 (4).

Section 43(5) has no application over section 73.  (CIT v/s DLF Commercial Developers Ltd.).



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