The Hindu Business Line : Tax liabilities on futures and options

Such income would be treated as speculative income, since there would be no actual delivery of the shares and further since Section 43(5) provides that where there is no periodic or ultimate delivery, the transaction would be treated as speculative.

Section 43(5), however, provides that such transactions will not be treated as speculative, if the transaction is routed through a recognised stock exchange, is done through a registered broker or sub-broker, where the transaction has a contract note, which specifies the unique code number of such broker or sub-broker, as also your permanent account number and further where the transaction is done on a screen-based trading.

In your case, if you satisfy all these conditions, the transaction will be treated as regular business income, while if you do not satisfy any of these conditions, the income will be treated as speculative income.

You may note that there would be no difference in the treatment as regular business income or a speculative income, so long as there is a profit. If, however, there is a loss, a regular business loss can be set off against any source or any head within the same year except an income under the head “salaries” in view of the specific prohibition in Section 71.

A speculative loss can, however, only be set off against speculative income within the same year, since the set off against any other source or head within the same year is prohibited in terms of Sections 70 and 71 of the Act.

You may also note that a regular business loss can be carried forward and set off against business income within a period of 8 assessment years immediately succeeding the assessment year in which the loss was first computed.

A speculative loss can, however, only be carried forward and set off against speculative income within a period of 4 assessment years, immediately succeeding the assessment year in which the loss was first computed.

This is provided for in Sections 72 and 73 respectively.

I have sold a house in the year 2007-08, which was purchased by me four years ago and have earned a long-term capital gain of Rs 6.3 lakh.

I invested Rs 6.3 lakh on March 3, 2008, in fixed deposit for one month in a national bank and have now renewed it for three months.

In how many days should I purchase a house to avoid tax on the long-term capital gains? — Vasanth Kumar B.V.

On transfer of a residential house and on reinvestment in another residential house, an exemption can be claimed under Section 54.

This Section, among other conditions, would also require that the reinvestment should be by way of purchase or construction and in case of purchase, should be one year before or two years after the date of transfer and in case of construction should be completed before the expiry of three years from the date of transfer.

This Section would also require that if the reinvestment is not made before the due date for filing the return of income, the capital gains should be invested in a capital gains account scheme.

While there is no prohibition on your investing in fixed deposits, since you have transferred the residential house in the financial year 2007-08, the reinvestment though can be made at a later period, you would still have the requirement to invest the capital gains in a capital gains account scheme, which you would have to do on or before July 31, 2008, or September 30, 2008, depending on what your due date would be in accordance with Section 139(1) of the Act for filing your return of income.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)

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