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A Farmer Faces ₹69 Crores Tax Demand Despite ₹29 Lakhs F&O Losses
This situation appears to stem from non-compliance with tax filing requirements, where the farmer has been issued a tax demand notice despite having losses of ₹29 lakhs in F&O (Futures & Options) trading. Let’s break this down and analyze the potential reasons, implications, and steps for preventive measure:
1. Understanding the Situation
- The farmer engaged in F&O trading, which is treated as a business activity under the Income Tax Act.
- Even if the farmer incurred losses of ₹29 lakhs in F&O trading, the following may have led to the ₹69 crore tax demand:
- Non-filing of ITR: F&O trading, being a business, requires tax filing even if there are losses.
- Deemed Income Addition: If no returns were filed, the Income Tax Department might have treated gross receipts (total turnover) from F&O trades as unexplained income under Section 69 or related provisions.
- Misreporting or Non-disclosure: The farmer might not have disclosed his trading activity, leading to scrutiny and arbitrary assessment by the department.
2. Why the ₹69 Crores Demand?
- The demand likely includes tax on assumed income, interest (Section 234A/B/C), and penalty (Section 270A).
- Turnover in F&O trading is calculated as the absolute sum of profits and losses on all trades. If this turnover is high (e.g., due to frequent trading), the department may have incorrectly assumed it as total income, leading to a disproportionate tax demand.
3. Tax Treatment for F&O Losses
- Filing Requirement: Even if there’s a loss in F&O trading, the individual must file an ITR (likely ITR-3) and report the losses under the head “Business or Profession”.
- Set-off and Carry-forward:
- The ₹29 lakh loss can be set off against other business income.
- Unutilized losses can be carried forward for 8 years, provided the return is filed on time.
4. Preventive Measures
- File ITR on Time: F&O traders, even with losses, must file tax returns to report income/losses and avoid scrutiny.
- Maintain Proper Records: Keep all broker statements, contract notes, and bank transaction details to substantiate your claims.
- Understand Agricultural Income Exemptions: While agricultural income is tax-exempt, any non-agricultural income (like F&O) must be disclosed and taxed.
Conclusion
The ₹69 crore demand likely arises due to misinterpretation of F&O turnover as taxable income in the absence of proper disclosures. By filing a corrected return, responding to the notice, and seeking professional help, the farmer can resolve the issue and claim rightful tax relief.
trading is done in the trading account and not demat account .
how could the I.T. department come to know about one’s fno trading if there is nil transaction in the demat account and no show in the AIS report ?
@Sakshi_Jain
@CA_Anand_Thakor
@Surbhi_Pal
@Surbhi_Pal
It’s true that FnO (Futures and Options) trading is conducted through a trading account rather than a Demat account, and it may not always be reflected in the Annual Information Statement (AIS). However, the Income Tax Department has advanced algorithms, known as Computer Assisted Scrutiny Selection (CASS), to track such transactions. Additionally, brokers might report this data through Statement of Financial Transactions (SFT) filings.
Therefore, it is advisable to always declare FnO trading activities while filing your Income Tax Return (ITR) to ensure compliance and avoid potential scrutiny.
there are crores of traders and billions of fno trades !
i m surprised how does it work and select any person for scrutiny ?
Generally, the one who is non filer or who doesn’t declare the same and have a good amount of Fno Transactions is selected through CASS.
BUT . how do the CASS come to know about the fno transactions ?
I.T. department is only linked with the demat account and not the trading account !
i m surprised !