The Hindu Business Line : Taxing income from F&O

Section 43(5) of the Income- Tax Act says that trading in derivatives is not a speculative transaction. This does not shed enough light on the question posed by you as indeed by many others not only in this forum but at other places as well.

One thing, however, is clear - the income from the futures cannot be long-term capital gains as it is. It has to be short-term, if you are an investor in which case you get away with a 10 per cent shortterm capital gains tax. If, however, you are proved to be a dealer, your income would be taxable as business income at the applicable slab rates.

As for options, when you exercise the option to buy the share you naturally get migrated to the cash segment from that point on and the holding period of shares would be computed accordingly to find out whether what you have earned is short-term or long-term capital gain when you dispose of the shares by exercising the option. But this distinction would become redundant if the department is able to brand you as a dealer in shares because in that case you would be assessed for income from business in doing which the distinction between short-term and longterm is wholly irrelevant.

SHORT-TERM GAINS

My husband sold his shares obtained in IPO after two months of allotment. Is he required to pay a 20 per cent tax on this?

Shantala, email

Shares sold within two months of acquisition give rise to short-term capital gains, on which the rate of tax is a flat and concessional 10 per cent assuming the sale was done through a recognised stock exchange in India; else it would attract a 20 per cent tax.

DOCTRINE OF MERGER

What will be the effect of a non-speaking order dismissing special leave petition (SLP)?

Will the doctrine of merger operate?

Monica Sood, email

Admitting or dismissing a SLP for consideration is different from allowing or dismissing a SLP after hearing both the sides following the due judicial process.

The fact that the apex court has dismissed the SLP without recording reasons shows that it has been dismissed off in limine without going into the merits of the case maybe because the court might have felt that the petitioner had not exhausted the appellate and other remedies. Since the apex court has not pronounced on the merits of the case, there is no scope for doctrine of merger to come into play.

CREEPING ACQUISITION

Can shares be allotted to promoters and promoter group on preferential basis if their existing shareholding in the company is more than 55 per cent of the total shareholding?

Krishna, Vijaywada

In 2002, the Securities and Exchange Board of India (SEBI) removed preferential allotments from the exempted category of further acquisitions of shares that do not trigger the public offer requirement.

In case of holdings in excess of 55 per cent but not more than 75 per cent, the leeway to acquire 5 per cent during a financial year as creeping acquisition is not available.

Therefore, while the promoter group can go ahead and get themselves allotted shares on preferential basis, they will have to make a public offer to acquire at least 20 per cent of the share capital of the company.

TAX SLABS

What is my tax liability on my income of Rs 4,36,440? Tanusree Ray, email I take it that you are not more than 65 years of age. Accordingly, you are entitled to a tax-free income of Rs 1.45 lakh, whereafter the regular slab rates take over.

On the Rs 5,000 following your tax-free limit, you pay 10 per cent; on the next Rs 1 lakh you pay 20 per cent; and anything in excess of Rs 2.5 lakh attracts a 30 per cent tax. All these add up to Rs 76,432. To this, you have to add a 3 per cent education cess.

S. MURLIDHARAN

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