Accounting and Taxation of Securities Organized by Belgaum Branch of ICAI

Accounting and

Taxation of securities

By CA Kinjal Shah

(B.Com., FCA, DISA(ICAI), M.Com., CAMS)

-Organized by Belgaum branch of

SIRC of ICAI

February 23, 2024

CONTENT

●

What are Securities?

●

Types of securities

●

Accounting treatment

●

Taxation of securities

●

Case studies

●

Other important points

2

What  are Securities?

Section 2(h) of Securities Contracts

(Regulation) Act, 1956:

“Securities” include—

●

Shares, scrip’s, stocks, bonds, debentures, or a pooled

investment vehicle

●

Derivative;

●

units or instrument issued by collective investment scheme;

●

Mutual fund units;

●

Pool investment vehicle units or instrument;

4

Section 2(h) of Securities Contracts

(Regulation) Act, 1956:

●

any certificate or instrument which possesses any debt or

receivable

●

Government securities;

●

rights or interest in securities;

●

Such other instruments as may be declared by the Central

Government to be Securities

“Securities" shall not include

●

any scrip or instrument with insurance in-built in the

product.

5

Types of Securities

7

Securities covered

●

Equity shares

●

Mutual funds

●

Exchange traded funds (ETFs)

●

Debt securities

●

Gold securities

●

Real estate investments (REITs)

●

Infrastructure investment trusts (INVITs)

●

Derivatives

8

Equity Shares

●

Ownership units in a company

●

Represent a claim on company assets and profits

●

Traded on stock exchanges

●

Prices fluctuate based on supply, demand, and company

performance

9

Mutual Funds

●

Pooled collection of assets that invests in stocks, bonds, and other

securities

●

Mutual Funds invest in various asset classes such as Equities, Debt,

or a combination of different asset classes.

●

Can be classified as

- Equity Mutual Funds

- Debt Mutual Funds

- Hybrid Mutual Funds.

●

Taxation rules of Mutual Funds differ based on the underlying

investments

10

Exchange Traded Funds (ETFs)

●

Similar to Mutual Funds as they have pooled investments but can be

traded on stock exchanges like Equity shares.

●

Currently the types of ETFs traded in India – Index ETFs, Sectoral

ETFs and Gold/Silver ETFs.

●

Index ETFs track the movement of indices such as the SENSEX or the

NIFTY. Sectoral ETFs invests solely in stocks from a specific sector

or industry such as Technology funds.

11

Debt securities

●

Represent a loan between an issuer (borrower) and an investor

(lender)

●

Investors received periodical interest on debt securities

●

Debt securities can be listed or unlisted

●

Examples of listed Debt securities are debentures, Government

Securities, corporate bonds, tax-free bonds, etc

●

Examples of unlisted debt securities are Non-convertible

debentures, debt securities raised through private placements

12

Gold Securities

●

Currently, there are multiple ways to invest in gold, even

though traditionally, the physical form has been most popular.

●

Gold is also purchased as financial products such as digital gold,

Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds.

13

Real Estate Investments

●

Real Estate investments refers to real property that consists of land

and improvements, which include buildings, fixtures, roads,

structures, and utility systems.

●

In recent years, another type of Real Estate investment has gained

significant popularity in India.

●

These are Real Estate Investment Trusts or REITs. At present, there

are two key types of REITs available in India – Listed REITs and

Unlisted REITs.

●

REITs are companies that own, operate, and manage income-

generating real estate assets.

●

REITs pay investors in various forms such as interest, dividend,

loan repayment.

14

Infrastructure Investment Trusts (Invits)

●

A type of investment vehicle that allows investors to invest in

infrastructure assets such as roads, bridges, power plants, and

renewable energy projects.

●

Listed on stock exchanges, and investors can buy and sell units in

them just like they would buy and sell shares of stock.

●

Invits pay investors in various forms such as interest, dividend, loan

repayment.

15

Derivatives

●

Derivatives are financial instruments* whose value depend upon or

is derived from some underlying assets.

●

The underlying assets can be real assets such as commodities, gold

etc. or financial assets such as index, interest rate etc.

●

A derivative does not have its own physical existence. It emerges

out of the contract between the buyer and seller of the derivative

instrument

*Financial Instruments means any contract that gives rise to a financial

asset of one entity and a financial liability or equity instrument of

another entity.

16

Types of Derivatives

●

Forwards

●

Futures

●

Options

●

Swaps

17

Forwards

●

Holder is charged to perform the contract.

●

Forwards are not traded on stock exchanges. They are available

over-the-counter (OTC) and are not market-to-market.

●

Example: A farmer plans to grow 5000 Kgs of wheat this year. He

can sell his wheat for whatever the price is when he harvests it, or

he could lock in a price now by selling a forward contract that

obligates him to sell 5000 kgs of wheat to a company after the

harvest for a fixed or specified price. By locking in the price now,

he can actually eliminate the risk of falling wheat prices.

18

Futures

●

Standardized agreement: Buy or sell an asset (commodity, stock, etc.)

at a predetermined price on a specific future date.

●

Binding obligation: Both parties must fulfill the contract, ensuring

commitment.

●

Exchange-traded: Contracts are bought and sold on regulated stock

exchanges.

●

Equity Futures are cash settled or delivery setled but index futures are

always cash settled

●

Example: Purchasing a June futures contract for XYZ stock at Rs. 1,000

per share means buying/selling at that price on the designated date in

June.

19

Futures - Illustration

Example –

Initial margin:

On 12/04/2023: Mr. Bull to pay Initial Margin of Rs.3, 50, 000/-., i.e. 10% (1000 x 3500)

Mark to Market

:

On 12/04/2023 – Mr. Bull to receive Rs.50, 000/-, i.e. 1000 (3550 – 3500).

On 13/04/2023 – Mr. Bull to pay Rs.80, 000/-, i.e. 1000 (3550 – 3470).

On Squaring up of the Contract:

Mr. Bull will receive Rs.1,30,000/- i.e. 1000(3600-3470).

Actual gain in the transaction – Rs. 1,00,000- i.e. 1000(3600-3500)

20

Options

●

Contracts that give the buyer a right to buy and/ or sell the

underlying asset at the specified price during a particular period of

time.

●

The buyer of the contract has a right but not an obligation to perform

as per the terms of the contract. For acquiring this right the buyer

has to pay ‘Option Premium’ to the seller/writer.

●

The seller has the obligation to buy or sell the specified underlying

asset at an agreed price if the buyer chooses to exercise the option.

For this he charges the ‘Option Premium’ from the buyer/holder.

21

Options

●

Strike/Exercise Price: The price at which the buyer has a right to buy

or sell an underlying asset and the seller has an obligation to sell or

buy.

●

There are two types of options: Call Option and Put Option

●

A call option is a right to buy an underlying asset or contract at a

fixed price at a future date but at a price that is decided today.

●

A put option is the right to sell an underlying asset or contract at a

fixed price at a future date but at a price that is decided today.

22

Options

●

The rights and obligations of the parties involved in an option

contract can be summarized in a tabular form, as under:

23

Options - Illustration

Example- Purchase of Put option by Mr. Bear

24

Options - Illustration

As Mr. Bearer is the buyer of the put option, he has the right but not an

obligation to sell the underlying asset

Scenario I - Purchase of Put option by Mr. Bear and square up before contract expiry

On 12/04/2023 

: Put Premium  Payable by Mr. Bear - Rs.20,000/- i.e. 1000 * Rs.20/-.

Sale on 25/04/2023 (Before expiry):

Assumed Mr. Bear will square up his Put Option on 25/04/2023 i.e., before expiry

Net gain to Mr. Bear – Premium received Less Premium paid for the purchase of Put

Option

i.e Rs.5,000/- {Rs. 25,000 (-) Rs.20,000/-}.

25

Options - Illustration

Scenario II - Purchase of Put option by Mr. Bear and square up on contract expiry

On 12/04/2023 

: Put Premium  Payable by Mr. Bear - Rs.20,000/- i.e. 1000 *

Rs.20/-.

On 27/04/2023:

I – TCS Price is Rs.2,100/-  - Assumed  that Mr. Bear will not exercise the Put

Option.

Mr. Bear will incur a maximum loss of Rs.20,000/- i.e. the amount of premium paid.

II – TCS Price is Rs.1,900/- -  Mr. Bear will exercise his Put Option and will receive

Rs.1,50,000/- { 1000(2050-1900)}

On settlement:

Net gain to Mr. Bear - Profit on settlement of Put Option Less Premium paid for the

purchase of Put Option i.e Rs.1,30,000/- {Rs.1,50,000 (-) Rs.20,000/-}.

26

Options - Illustration

In the above example suppose Mr. Bull is the seller of the above-referred Put Option at the

same premium for the same strike price and for the same series.

F

rom the following tabulation the net position of profit/loss for both Mr. Bear (Buyer of Put

Option) and Mr. Bull (Seller of Put Option) at different levels of price of TCS on the

settlement date viz.27th April 2023 can be assessed.

27

Swaps

●

Two parties exchange their financial obligations under this contract.

●

Cash flows are based on a principal amount agreed by both the

parties without exchanging the principal. The amount is based on a

rate of interest.

●

While one cash flow remains fixed, the other changes based on the

benchmark rate of interest.

●

Swaps are OTC contracts between businesses and/ or financial

institutions and are not traded on stock exchanges.

Accounting treatment

29

Accounting treatment as per AS 13

●

AS 13  deals with accounting for assets held as Investments.

●

Classification of Investments

1.

Current Investments



Intended to be held for less than a year from the date

when such investment is done



Carried in the books at lower of cost or market price.



If there is any reduction in the carrying amount than the

cost the same should be debited to profit and loss

account as diminution in the value of investments.

30

Accounting treatment as per AS 13

2. Long-Term Investments



Investments other than the current investments



Carried in the books at cost.



If there is any permanent decline in the value of investments

the same will have to be recognized.  However a lenient view

can be taken for investments held of a strategic nature

31

Accounting treatment as per AS 13

Disposal

On disposal of current/long term investments:

○

the difference

○

between the carrying amount and the proceeds on disposal

○

net of expenses, if any

○

should be recognized in the profit and loss account.

32

Accounting treatment as per AS 13

Reclassification of investments



From long term to current:

Transfer to be made at lower of cost and carrying value on the date of such

transfer.



From current to long term:

Transfer to be made at lower of cost and fair value on the date of such

transfer.

33

Accounting treatment as per AS 13

Disclosures in the Financial Statements

:

The below mentioned are the disclosures in the financial statements with

respect to AS 13 Accounting for Investments is applicable:

(a) accounting policies employed for determining carrying amount of

investment

(b) the amounts which are included in the profit and loss statement for:

(i) Dividends, interest, and rentals on the investments presenting the

income from such long-term and current investments separately. Gross

income must be stated, amount of TDS (tax deducted at source) included

under the Advance Taxes Paid.

(ii) Profits and losses on the disposal of current investment and the

changes in carrying the amount of the investment

34

Accounting of Derivatives – Guidance

note by ICAI



All derivative contracts should be recognised on the balance sheet and

measured at fair value.



If any entity decides not to use hedge accounting, it should account for its

derivatives at fair value with changes in fair value being recognised in the

statement of profit and loss

Fair value represents the ‘exit price’ i.e. the price that would be paid to

transfer a liability or the price that would be received when transferring an

asset to a knowledgeable, willing counterparty.

35

Accounting of Derivatives

Example - Mr. Bull buys 1000 units 

NIFTY

 Future April 2023 expiry, at a

price of Rs. 3500/- on 28th March 2023. Initial margin is 10%

Daily Settlement price of this unit were as under:

36

Accounting of Derivatives

37

Accounting of Derivatives

On 31/03/23 – Open interest

Future contract asset will appear under “Current asset

Accounting of Derivatives

Sample contract note:

Accounting of Derivatives

Explanation of contract note:

•

B/F and C/F in the remarks column indicate that these are previous day’s

positions and that the 

position has not been squared off.

•

Net total (before levies) Rs. 48,500 and Rs. 21,440 is the mark to market.

Payin/ payout obligation (Net total) - Rs. 27,060 is the net mark to market for

the specific date.

40

Accounting of Derivatives (IND AS 109)

As per IND AS 109:



Classification: Derivatives to be classified as Financial liability or financial

asset.



Measurement: All derivatives are measured at fair value with changes in

fair value being recognized in profit and loss for the period, except

derivatives that qualify as hedging instruments.



Fair value of a financial instrument is a combination of its intrinsic value

and time value. In a fair and perfect market, it would be inappropriate to

conclude that immediately at the inception of a contract, it results in

creation of rights and obligations for two independent parties i.e. the

contract has no intrinsic value at inception

Taxation of securities

42

Equity shares

Listed Domestic Equity

Shares

●

STCG for shares held < 12

months.

        Tax rate: 15%.

●

Long-Term Capital Gains

(LTCG) for shares held ≥

12 months.

       Tax rate: 10%

       Exemption: Rs. 1,00,000

Unlisted Domestic Equity

Shares

●

STCG for shares held <

24 months.

        Tax rate: As per slab

rate 

of the investor

●

LTCG tax rate: 20% with

indexation.

Foreign Equity Shares

●

STCG for shares held <

24 months.

        Tax rate: As per slab 

rate

of the investor

●

LTCG tax rate: 20% with

indexation.

43

Mutual Funds

A) 

Equity Mutual Funds

:

They invest 65% or more of their

investable assets in Equity-oriented

assets such as domestic Equity shares

●

STCG for shares held < 12 months.

          Tax rate: 15%.

●

Long-Term Capital Gains (LTCG) for

shares held ≥ 12 months.

       Tax rate: 10%

       Exemption: Rs. 1,00,000

(B) Debt Mutual funds:

Debt Mutual Funds invest in Debt

instruments such as bonds, T-bills,

Certificates of Deposits, NCD. G-Sec,

overnight call and money market etc.

Bought till 31/03/2023

•

STCG for investments held < 36

months.

Tax rate: As per Slab rate of the investor

•

LTCG if held

≥

36 months

Tax rate: 20% with indexation.

Bought after 31/03/2023

Taxed as STCG irrespective of holding

period

44

Mutual Funds

(C) 

Hybrid Funds

●

Equity Allocation < 35%: Taxed like Debt Mutual Funds.

●

Equity Allocation ≥ 65%: Taxed like Equity Mutual Funds.

●

Equity allocation between 35%-65%: Taxed at 20% with

indexation

45

ETFs

(A) 

Equity ETFs 

- Majorly

invest in equities or related

investment instruments.

●

STCG for ETFs held < 12

months.

       Tax rate: 15%.

●

Long-Term Capital Gains

(LTCG) for ETFs held ≥ 12

months.

       Tax rate: 10%

       Exemption: Rs. 1,00,000

(B) Gold and Debt ETFs

Bought till 31/03/2023

•

STCG for investments held <

36 months.

Tax rate: As per Slab rate of the

investor

•

LTCG if held

≥

36 months

Tax rate: 20% with indexation.

Bought after 31/03/2023

Taxed as STCG irrespective of

holding period

46

Debt securities

(A) Listed Debt Instruments

●

STCG for investments held

<12 months.

Tax rate: As per slab rate of the

investor

●

LTCG tax rate: 10% without

Indexation.

(B) 

Unlisted Debt

Instruments

•

STCG for investments held <

36 months.

      Tax rate: As per Slab rate of

the investor

•

LTCG tax rate: 20% without

indexation

.

47

Gold securities

(A) Gold ETFs, Gold Mutual Funds

Bought till 31/03/2023

•

STCG for investments held < 36

months.

Tax rate: As per Slab rate of the

investor

•

LTCG if held

≥

36 months

Tax rate: 20% with indexation.

Bought after 31/03/2023

Taxed as STCG irrespective of

holding period

(B) Sovereign Gold Bonds

Tax-free at maturity only for

individuals.

If exited before maturity.

●

STCG if held < 36 months.

       Tax rate: Slab rate.

●

Long-Term Capital Gains

(LTCG) if held ≥ 36 months.

       Tax rate: 10% without

indexation or 20% with

indexation

       Exemption: Rs. 1,00,000

Interest taxed as Income from other

sources at slab rate

48

REITs and Invits

●

Interest and rental income 

: Taxed at applicable slab rate.

●

Dividend income : 

If u/sec 115BAA of Income Tax Act, 1961, the REIT’s/Invit’s

Special Purpose Vehicle has:

1.

Not opted for the lower tax regime – Dividend is exempt

2.

Opted for the lower tax regime - Taxable at the applicable tax slab rate

for unit holder

●

At the time of sale of reits/invits

-STCG for REITs/Invits held < 36 months.

      Tax rate: 15%.

-Long-Term Capital Gains (LTCG) for REITs/Invits held ≥ 36 months.

      Tax rate: 10%

      Exemption: Rs. 1,00,000

49

REITs and Invits

●

‘Loan repayment’ i.e., return of capital must be reduced from the cost of

acquisition at the time of sale of unit by the investor for computation of capital

gain.

●

Loan repayment in excess of issue price will be taxed as “Income from other

sources” at applicable slab rate

50

Derivatives

●

The income from Derivatives instruments should be taxed as

Business income according to assessee’s income tax slab

●

It is irrespective of the frequency or volume of derivatives

transactions.

●

The business income is normally divided into speculative and non-

speculative income.

51

Derivatives

Calculation of turnover for Derivatives transactions:

(i) The total of favourable and unfavourable differences shall be taken as

turnover.

(ii) Premium received on sale of options is also to be included in turnover. (To

be done when position is squared off on expiry)

However, where the premium received is included for determining net profit

for transactions, the same should not be separately included. (To be done when

position is squared off on expiry)

(iii) In respect of any reverse trades entered, the difference thereon, should also

form part of the turnover.

52

Speculative transactions in securities

Speculative transactions

Meaning: Transaction in which a contract for the purchase or sale of any

commodity, including stocks and shares, is periodically or ultimately

settled otherwise than by the actual delivery or transfer of the commodity

or scrips

Example: Intraday trading.

53

Taxation of Speculative transactions in

securities

Income from speculative transactions:

●

Taxed as Business income according to assessee’s income tax slab

●

The contract is settled by paying out the difference which may be

positive or negative.

●

The aggregate of both positive and negative differences is to be

considered as the turnover of such transactions.

54

Case studies

Case study 1:

Mr. A sold 150 shares of Glenmark pharmaceuticals, details of which are

as follows:

Selling price per share: Rs. 479.3 each

Purchase cost per share: Rs. 200 each

Sale date: 03-04-2023

Purchase date: 05-04-2019

The amount invested at the time of purchase was borrowed as loan.

55

Case studies

Contract note

56

Case studies

Expenses incurred:

Brokerage – Rs. 360

Exchange Charges – Rs. 2.7

SEBI Turnover fees –Rs.0.04

Securities transaction charges – Rs. 72

GST -  Rs. 65.29

Interest expenses for loan (purchase cost) –Rs. 5,000

Which of the above charges are deductible under the Income Tax, 1961 in the following

scenarios?

(1)

Income from sale is treated as business income

(2)

Income from sale is treated as long term capital gain

57

Case studies

Response to case study 1:

Business income –

Section 37(1) states that any expenditure expended wholly or exclusively for the

purposes of the business or profession shall be allowed in computing “Business income”

Section 36 (1) (XV) states that STT paid by the assessee should be allowed to be

deducted in computing business income

Capital gain–

As per section 48 of the Income Tax Act, 1961, capital gain shall be computed by

deducting expenditure incurred wholly and exclusively in connection with such transfer

and cost of acquisition from full value of consideration.

58

Case studies

Response to case study 1:

59

Case studies

Case study 2

Mr. A deals in futures and options trading. During FY 23-24, he entered into the following

contracts:

Futures:

How will turnover for liability for audit under section 44AB be calculated?

60

Case studies

Case study 2

Options:

How will turnover for liability for audit under section 44AB be calculated?

61

Case studies

Response to Case study 2

Total turnover = Rs. 3,23,000

1.

Favorable and unfavorable differences to be considered as turnover

2.

Premium received on sale of options

•

ICICI (Square up on expiry)- Premium received has been added to the gain as the gain

is  difference between (strike price and settlement price)*Qty

•

 HUL (Square up before expiry) – Premium received has not been added to the gain as

the gain is difference between (Premium received-Premium paid)*Qty

62

Case studies

Case study 3

Mr. A has a portfolio with XYZ Portfolio Managers. In FY 22-23, the following transactions

took place in the said portfolio:

During the year, Mr. A paid Rs. 70,000 to XYZ Portfolio Managers as Portfolio Management fees.

63

Case studies

Case study 3

Computation of Capital gains by Mr. A

Would Portfolio Management fees be a deductible expense as per Income Tax Act, 1961?

64

Case studies

Response to case study 3

•

As per section 48 of the Income Tax Act, 1961, capital gain shall be computed by

deducting expenditure incurred wholly and exclusively in connection with such transfer

and cost of acquisition from full value of consideration.

•

As per Devendra Motilal Kothari vs. DCIT 132 ITD 173:

It was held by the Tribunal that the portfolio management fees was not deductible in

computing capital gain. The said fees was not inextricably linked with the particular

instance of purchase and sale of shares and securities and the assessee would have been

required to pay the fees regardless of any purchase or sale of securities.

65

Case studies

Response to case study 3

•

As per 

KRA Holding & Trading (P) Ltd. vs. DCIT 46 SOT 19

The Tribunal held that the



The expression ‘in connection with such transfer’ enjoyed much wider meaning and, therefore,

the fee paid to the portfolio manager had to have been expended for the purposes of acquisition

and transfer of the investment of the securities.



The expression ‘transfer’ involved various sub-components and the first subcomponent must

be of purchase and possession of the securities.



Unless the assessee was in possession of the asset, he could not transfer the same.



Thus the expenditure was allowable u/sec 48.

The above view taken by the Pune tribunal has been followed by the Pune and other Benches of the

Tribunal in several other cases.

Conclusion

: The deduction of Portfolio management fees for computation of capital gain

is a controversial matter.

66

Case studies

Case study 4

Company XYZ Ltd was dealing in agricultural products. In FY 22-23, it stopped doing said

business and started trading in shares and futures & options. The income of the company

is exclusively from trading activity.

What are the implications of this for an auditor?

67

Case studies

Response to case study 4

•

Since the principal business of the company is trading activity financial activity,

the criteria for NBFC gets fulfilled.

•

Financial activity as principal business is when a

1. Company’s financial assets constitute more than 50 per cent of the total

assets and

2. Income from financial assets constitute more than 50 per cent of the

gross  income.

•

Para 78 of Guidance note on CARO, 2020 requires the auditor to examine whether

the company is engaged in the business which attract the requirements of

registration as NBFC under RBI.

68

Case studies

Case study 5

During FY 23-24, the assessee has transacted in options and has incurred a loss. The

turnover computed under section 44AB of the Income Tax Act, 1961 is less than Rs. 2

crores and he is not liable for tax audit.

Is the assessee required to offer a minimum of 6% or 8% profit (as the case maybe) as

stipulated under section 44AD? If not, what are the implications?

69

Other important points



Dividend should be reported as “Income from other sources” even for companies

who account for dividend in their Profit and Loss statement.



While computing Capital gain/loss, assesee should not consider sale rate specified

in Annual information Statement (AIS) provided by the Income Tax Department.

The rate specified in AIS is closing market rate for the specific date instead of the

rate at which the security was sold.



As per section 10(34A) of the Income Tax Act, 1961, income arising to an assessee

on account of buy back of shares by a domestic company is exempt. This is to avoid

double taxation as the domestic company is required to pay income tax @20% on

such distributed income.

70

Other important points



Assessees should disclose/offer for tax the premium earned on sale of options (where

position is squared up on expiry).



Price adjustment of shares after demerger should be done by the investor in their

books in order to compute correct capital gain/loss. For example – Demerger of

Reliance to Jio Financial services. For every share held in Reliance, the investor would

receive one share of Jio Financial. The purchase cost of the shares would be

proportionate to the percentage of cost of acquisition of equity shares: Reliance –

95.32% and Jio Financial – 4.68%. Thus if an investor held 20 shares of reliance

bought at Rs. 500 each, on demerger, the purchase cost per share in the investor’s

books would be as follows:

Reliance – Rs. 476.6 per share (Rs. 500*95.32%)

Jio Financial – Rs. 23.4 per share (Rs. 500*4.68%)

71

Other important points



Bonus stripping



 Selling original shares soon after the bonus issue generally at a discounted

price due to market adjustment for bonus issuance.



 This is done in order to claim capital loss on sale of original shares, which

can be offset against other capital gains thus reducing tax liability.



 As per section 97(8) of the Income Tax Act, 1961

•

 Where a person buys securities or units within a period of 3 months

before the record date of bonus issue and sells the securities or units

within a period of 9 months from the record date while continuing to hold

the original securities or units, the capital loss arising out of such

transactions shall not be considered for the computation of income tax.



Assessee should periodically conduct stock reconciliation in order to account for

bonus, split, etc.

72

Other important points



As per section 73 of Income Tax Act, 1961, a company involved in the purchase and

sale of shares of other companies shall be considered to be carrying on speculation

business to the extent to which the business consists of purchase/sale of shares.

Loss on such speculation business can be set off against profits of speculative

business only.

      Explanation-  Where any part of the business of a company (other than a company

whose gross total income consists mainly of income which is chargeable under the

heads "Interest on securities", "Income from house property", "Capital gains" and

"Income from other sources", or a company the principal business of which is the

business of trading in shares or banking or the granting of loans and advances)

consists in the purchase and sale of shares of other companies, such company shall,

for the purposes of this section, be deemed to be carrying on a speculation business

to the extent to which the business consists of the purchase and sale of such shares.

73

Decision making

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People

 use

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IT 

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Information

74

References

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AS 13 - Accounting for Investments

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IND AS 109 – Financial Instruments

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Guidance Note on Accounting for Derivatives contracts issued by the

ICAI

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Guidance Note on Tax Audit under Section 44AB of the Income-tax

Act, 1961 issued by the ICAI

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Accounting Standards for Non-Company entities issued by the ICAI

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Guidance note on CARO, 2020 issued by the ICAI