Things to keep in mind: Zerodha Tax PNL Report

You can download the Tax P&L Report from Zerodha Console.

[sc name="read-more" link="" title="How to Download Tax Profit & Loss report from Zerodha?" description="Step-by-step guide to download Tax P&L from Zerodha Console " ][/sc]

The report includes details of segment wise trading - scrip name, buy value, sell value, buy price, sell price, realized profit, and trading expenses.
This Tax P&L Report can be used to prepare P&L A/C to report it in the Income Tax Return.

However, the trader must take care of the following things where the treatment as per Income Tax may differ.

  • Expenses

    The Tax P&L Report covers expenses that are directly related to trading transactions. For example brokerage, turnover fees, STT, transaction charges, GST, stamp duty, etc.
    However, you can also claim other expenses related to the trading income such as internet expense, legal fee, subscription expenses, depreciation, etc which are not covered in Tax P&L Report.
[sc name="read-more" link="" title="What Expenses Can a Trader claim when filing Income Tax Return?" description="" ][/sc]
  • Buy Back Gains

    When a company buys back shares issued by it from an existing shareholder, it results in capital gains for the shareholder. Such buyback gains would be included in the Tax P&L Report.
    As per a recent amendment in Budget 2019, the gains from buy-back are exempt in the hands of the individual since the company is now liable to pay the buyback tax under Section 115QA. If such buyback gains have been included under Capital Gains in Zerodha, you can omit the buyback gains and report them under Exempt Income in the ITR.
[sc name="read-more" link="" title="Section 115QA - Tax on Buyback of Shares" description="" ][/sc]
  • Calculation of Long Term Capital Gains under Section 112A

    LTCG on the sale of securities (on which STT is paid), bought on or before 31st Jan 2018 should be calculated using the Grandfathering Rule. As per this rule, the Cost of Acquisition is computed after considering the FMV as on 31st Jan 2018 as per Section 112A.
    Zerodha Tax P&L Report does not provide the FMV in the scrip wise data for each segment. Thus, the LTCG should be calculated using the FMV of each trade in the Tradewise Tax P&L Report.
[sc name="read-more" link="" title="Section 112A – Tradewise details of LTCG (Nightmare for Traders)" description="" ][/sc]
  • Transfer In/Out

    If you moved your portfolio from another broker to Zerodha or wise-a-versa, your brokers will have partial data (either buy-side or sell-side depending on transfer in or out). Most brokers including Zerodha let traders enter such missing data. However, there are high chances of missing out Capital Gains arising out of such transfers.
  • Devolvement

    Devolvement means that the option contract will get converted into a futures contract of the same underlying. As per the Zerodha Support thread, the RMS team (at their discretion) can square-off of open positions upon Failure to produce the margin. Any gains/losses arising from such trades will be included in the Tax PnL report - marked as "DEVOLVED"
  • Reversals

    As per the Zerodha thread, Reversal trades are alleged to be non-genuine trades. All reversals will be included in Tax PnL report - marked as "REVERSALS". However, reversals are punched in on a cost basis & hence do not carry any tax consequences.

All of the above conditions are considered when you file your Tax Return using Quicko. However, reporting may vary depending on your specific situation, hence it's always advisable to consult a tax professional when in doubt.

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The Mega TCS Buyback

It’s been one heck of a rollercoaster for the stock markets ever since the outbreak of the pandemic. Indian giants, especially the ones under the Nifty50 and the SENSEX play a huge role in moving the markets. While some have lost tremendously, some have come out of it as winners. IT giants have surely emerged as the major champions. And just recently, the mega TCS buyback was announced to pass on this win to its shareholders.

Tata Consultancy Services Ltd. announced this repurchase on 7th October 2020. They sanctioned an INR 16k cr worth of buyback to reward its stakeholders. This includes a total of 5.33 crore shares or 1.42% of the total paid-up equity. The buyback valuation is INR 3k per share making the tech giant the first company after Reliance Industries to cross INR 10 lakh cr market capitalization. 

And note, this is not the first buyback announced by the giant. The IT giant had previously made buybacks worth around INR 16k cr each in 2017 and 2018 as part of its long-term capital allocation policy of returning excess cash to shareholders. And, of course, the buybacks were conducted at a premium to the company’s market value.

But is this what was expected of TCS? The pandemic has made winners of the IT giants. TCS alone has come at 4.5% revenue growth. These companies have tons of cash lying around. So, with approx INR 50k cr net cash in their hands, TCS decided to use a small chunk of it to reward the shareholders. But is a 16k cr. worth buyback (a sheer 1.42% of paid-up equity) going to have a positive impact on the stocks of TCS? Well, stocks are currently at 27 times two years forward. In the last three months alone, the stock price has skyrocketed by 20%. Nonetheless, the buyback is a positive development for the IT sector. It could be a precursor for other IT companies to follow suit - Wipro did make an announcement a few days after the TCS buyback! It has almost INR 30k cr of net cash.

Taxes and Buybacks

They say, nothing is certain except death and taxes. Much like TCS, huge companies having high distributable cash, generally reward its stakeholders in two ways:

  • Declare dividend; or
  • Purchase its own shares (i.e. buyback its shares)

Earlier, the amount distributed as buyback of shares was chargeable to capital gains in the hands of shareholders while the companies were not liable to pay any tax. And being treated as capital gains, the income tax was paid at lower rates on buyback of shares. So, to avoid taxes, companies started resorting to buybacks instead of declaring dividends. As an anti-tax avoidance measure, the government introduced Section 115QA in the Finance Act, 2013. So now the companies are liable to pay tax on the buyback of shares while the shareholders do not have to pay any tax on the same. This move made buybacks and dividends alike from the tax perspective of the companies.

But after the Budget 2020, dividends and buybacks are no longer at par from the tax perspective of a company.

[sc name="read-more" link="" title="Section 115QA - Tax on Buyback of Shares" description="In simple terms, buyback of shares is when a company repurchases the shares issued by it from the existing shareholders. Tax on buyback of shares in India is now regulated by Section 115QA of the Income Tax Act, 1961." ][/sc]

So what changed? The government removed the 10% DDT aka Dividend Distribution Tax payable by the companies. The dividend is now taxable at the hands of shareholders and not the companies. As a result, promoters and high shareholders now have to pay as high as 40% tax (highest tax slab) on dividends. Also since the income is taxable in the hands of the shareholder, TDS at a rate of 10% (if the amount exceeds INR 5000) would be applicable. On the flip side, shareholders are exempt from paying any taxes in case of buybacks.

This said buybacks have emerged as the better choice of returning capital to shareholders in comparison to dividends. And looks like the Indian Government agrees too. Recently, Centre has asked at least eight state-run companies to consider share buybacks in the current financial year. The companies asked include miner Coal India , power utility NTPC , minerals producer NMDC and Engineers India Ltd. Besides, being tax-friendly for promoters to take the cash out, buybacks also boost companies' financials, which is another positive. The trending ‘buyback’ route will lure cash rich firms to fundamentally improve investor confidence.

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Tax Hacks: Lesser-Known Tax Deductions

A junkyard owner once tried to write off the cost of cat food. He claimed the feral cats it attracted helped him keep snakes and rats off the property. Did you know the government once let a bodybuilder successfully write off a huge sum in tanning oil? There’s a whole world of obscure, industry-specific tax deductions you could be missing out on as a small business owner without even knowing it. So how do you find these lesser-known deductions?

Make sure you’ve deducted the less obscure ones first.

Did you know you can claim a tax deduction on stamp duty? Or if you use a specific part of your home exclusively for business, you may be able to claim the home office deduction?

Before you start claiming cat food on your business tax return, make sure you’ve deducted the other lesser-known expenses first. Take a look at a list of some of the lesser-known investments and expenditures that are eligible for tax breaks.

Let’s dig out some of the lesser-known ones!

Saving the environment with benefits to Electric Vehicle buyers.

🏎️ Interest on loan for the purchase of an Electric Vehicle is exempt. This deduction is available from A.Y. 2020-21 i.e. the loan should be sanctioned between 1.4.2019 to 31.3.2020. This deduction is included under Section 80EEB.

The maximum permissible deduction is INR 1,50,000

Look out for…

  • Only interest expense to be allowed as a deduction
  • The assessee should be an ‘individual’

Fulfilling the dream for first time home buyers.

🏡 Claim deduction U/S 80EE and 80EEA on interest paid on a home loan taken by a first-time homeowner.

  • 80EE

Interest on loan should be sanctioned between 1.4.2016 to 31.3.2017 for the purchase of the first house. It is applicable to ‘all’ taxpayers. Section 24 can be claimed to provide exemptions up to INR 2.5 lakh.

Deduction Amount - INR 50,000

Look out for:

  • Loan Amount should not exceed INR 35 Lakhs

Know more.

  • 80EEA

Interest on loan should be sanctioned between 1.4.2019 to 31.3.2020 for the purchase of the first house. Applicable to ‘individual’ taxpayers. Section 24 can be claimed for exemptions up to INR 3.5 lakh.

Deduction Amount - INR 1.5 Lakh

Look out for:

  • Stamp duty cost should not exceed INR 45 Lakhs
  • Shouldn’t have taken any deduction U/S 80EE

Know more.

Benefits to contributing members of society.

💰 Donations made to certain relief funds & charitable institutions U/S 80G are tax-deductible. Additional documents like Stamp Receipts and Form 58 are also required as proof of donations.

There are 3 types of deduction eligibility:

i. 100% or 50% without any qualifying limit

ii. 100% subject to the qualifying limit of 10% of adjusted gross total income

Look out for:

  • ’Cash’ payment of more than INR 10k in not eligible

Read on:

Benefits for nurturing the children

📚 Playschool, nursery, and pre-nursery fees for children are eligible for deduction U/S 80C. The benefit is restricted to 2 children per individual. So a couple can claim a deduction for the fees of 4 kids.

Maximum permissible deduction: INR 1.5 Lakh

Look out for:

  • Late fees, donations, etc are not eligible.

Rent to parents cuts tax

👪 Rent paid to parents for residing in their property is tax-deductible U/S 10(13A). This can help save hard-earned money for the entire family. Also, parents are still eligible for the standard deduction.

Deduction Amount (the lowest out of the following)

  • Actual HRA received
  • rent paid over 10% of salary
  • 50% of basic salary (40% if you live in a nonmetro)

Look out for:

  • It is important to make the landlord-tenant equation official.

Read on.

Benefits for the better health of your parents.

🩺 Recurring medical expenses of elderly parents can be claimed  U/S 80D. The medical expenditure incurred by parents only if they are above 60 years of age.

Maximum permissible deduction- INR 50k

Look out for- Not allowed if parents already covered by a health insurance policy.

Read on.

Benefits for higher education

🎓 Interest paid on repayment of education loan is eligible for deduction U/S 80E. The exemption is allowed only to ‘individual’ taxpayers. The loan must be for self, spouse, or children, and the repayment must be done by the taxpayer. Producing a certificate of repayment to your employer is mandatory.

Maximum deduction amount: INR 1.5 Lakh

Look out for: 

  • The deduction is available only for 8 consecutive years.

Exemption for the Innovators

💡 Section 80-IAC provides a deduction for 100% of the income i.e. profits and gains of an eligible startup

The following conditions are mandatory to be eligible for the above deduction:

  • Should be a Pvt. Ltd. Company or an LLP incorporated after 1.4.2016
  • The turnover limit should be INR 25 cr.
  • Certificate from the Inter-Ministerial Board of Certification is compulsory

Deduction Amount- 100% of income for 3 out of 7 years from the year of incorporation

There’s a whole world of TAX DEDUCTIONS you could be missing out on. But these deductions will help you save up your hard-earned income. Make sure to claim them this Tax Season 2020!

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Trading Income Turnover Calculation

Howdy traders! Confused about calculating your Trading Income Turnover and determining the Tax Audit Applicability? We’ve got you covered. Jump right in!

First, trading income turnover calculation should be done only when your income is considered as business income and not capital gains income. Second, you need to calculate the trading turnover of such income to determine your tax audit applicability.

Note: Tax liability does not depend on turnover

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Absolute Profit in Trading Income Turnover Calculation

Absolute Profit is the ‘sum of positive and negative differences’ - the total of the absolute value of profit and loss of each trade during a financial year. 

A few examples:

  • Trade 1:
    -You buy 400 units of Scrip 1 at INR 100 on 25/01/2020
    -You sell 400 units of Scrip 1 at INR 90 on 26/01/2020
  • Trade 2:
    -You buy 200 units of Scrip 2 at INR 45 on 25/01/2020
    -You sell 200 units of Scrip 2 at INR 50 on 26/01/2020
  • Absolute Profit
    - Loss from Trade 1 = (90-100) * 400 = INR -4,00
    -Profit from Trade 2 = (50-45) * 200 = INR 1,00
    -Absolute Profit = 4000+1000 = INR 5,000

Methods of Trading Income Turnover Calculation for Tax Audit Applicability

Now that you understand the concept of Absolute Profit, let’s dive into the methods of calculation. Methods are different for each type of trade.

Type of Trading Calculation of Trading Turnover
Equity Intraday Trading Absolute Profit
Equity Futures, Commodity Futures, Currency Futures Absolute Profit
Equity Options, Commodity Options, Currency Options Absolute Profit + Premium on Sale of Options
Equity Delivery Trading & Mutual Fund Trading
(if considered as business income)
Sales Value
[sc name="read-more" link="" title="Equity Trading Income: Delivery, Intraday, Futures & Options" ][/sc]

Equity Intraday Trading

  • You buy 10 shares of Nestle at INR 6,000 on 10/12/2019
    -You sell them on the same day at INR 5,500
    -Loss = (6000-5500) x 10 = INR -5,000
  • You buy 15 shares of Kotak at INR 540 on 22/01/2019
    -You sell them on the same day at INR 600
    -Profit = (600-540) x 15 = INR 900
  • Trading Turnover = Absolute Profit = (5,000 + 900) = INR 5,900
[sc name="read-more" link="" title="Income Tax on Intraday Trading" description="Read about Income Tax on Intraday Trading - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss, Tax Rate etc"][/sc]

Equity Delivery Trading

  • You buy 2 shares of Dabur at INR 6,800 on 28/03/2018
    -You sell them on 31/03/2018 at INR 7,000
    -Sales value = 7,000 x 2 = INR 14,000
    -Profit = (7,000 - 6,800) x 2 = INR 400
  • You buy 5 shares of Britannia at INR 480 on 28/03/2018
    -You sell them on 31/03/2018 at INR 400
    -Sales value = 400 x 5 = INR 2,000
    -Loss = (480 - 400) x 5 = INR 400
  • Trading Turnover = Sales Value = 14,000 + 2,000 = INR 16,000
[sc name="read-more" link="" title="Calculation of Trading Turnover from Trading Income" ][/sc]

Equity/Currency/Commodity Futures Trading

  • You buy 75 units of Bank Nifty Futures at INR 10,000 on 17/01/2019
    -You sell them on 12/01/2019 at INR 9,000
    -Loss = (10,000 - 9,000) x 75 = INR 75,000
  • You buy 40 units of Bank Nifty Futures on 05/04/2018 at INR 24,000
    -You sell them on the same day at INR 24,010
    -Profit = (24,010 - 24,000) x 40 = INR 400
  • Trading Turnover = Absolute Profit = (75,000 + 400) = INR 75,400
[sc name="plan" link="" title="ITR for F&O Traders" description="Take help of an expert to file Income Tax Return for Futures & Options Trading" ][/sc]

Equity/Currency/Commodity Options Trading

  • You buy 10 units of Bank Nifty Options at INR 10,000 on 17/01/2019
    -You sell them on 12/01/2019 at INR 9,000
    -Loss = (10,000 - 9,000) x 10 = INR 10,000
  • You buy 5 units of Bank Nifty Options on 05/04/2018 at INR 24,000
    -You sell them on the same day at INR 24,010
    -Profit = (24,010 - 24,000) x 5 = INR 50
  • Absolute Profit = (10,000 + 50) = INR 10,050
  • Trading Turnover = Absolute Profit + Premium on Sale of Options
[sc name="read-more" link="" title="Income Tax on F&O Trading" description="Read about Income Tax on F&O Trading (Futures & Options) - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss,Tax Rate etc" ][/sc]

Important Pointers about Trading Income Turnover Calculation:

  • Tradewise vs Scripwise: The taxpayers should report the trade-wise turnover and not scrip-wise turnover in ITR. However, if the broker report provides scripwise data, turnover is reported on a scrip-wise basis.

Tax Audit Applicability

Trading turnover is a major condition to determine tax-audit applicability.

[sc name="read-more" link=" " title="Tax Audit of Trading Income" description="Turnover limit for Tax Audit is increased from Rs. 1 Cr to Rs. 5 Cr in Budget 2020. Read about tax audit for trading income."][/sc]

There have been some major changes to the tax-audit rules in Budget 2020. The limit for turnover as per Section 44AB is increased from INR 1 cr. to INR 5 cr if - at least 95% of total payments and 95% of total receipts are digital in nature. For traders, all transactions are digital. Hence the limit of Tax Audit Applicability U/S 44AB will be INR 5 cr. And for taxpayers who do not satisfy the above condition, the limit of INR 1 Cr. remains unchanged.

[sc name="tools" link="" title="Check Tax Audit Applicability" excerpt="Select financial year, residential status, income sources and financial situation to check tax audit applicability u/s 44AB" ][/sc]

The table below might help you understand the applicability rules in a jiffy.

Up to F.Y. 2018-19
  Tax Audit IS APPLICABLE if: Tax Audit is NOT APPLICABLE if:
Up to INR 1 cr.
Applicable U/S 44AAB(e)
- Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit - Profit>=6% of trading turnover
1 cr. to 2 cr.
Applicable U/S 44AAB(a)
- Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit
- Profit>=6% of trading turnover and NOT opted for presumptive taxation scheme U/S 44AD
- Profit>=6% of trading turnover and opted for presumptive taxation scheme U/S 44AD
Above 2 cr. Always applicable
F.Y. 2019-20 Onwards
  Tax Audit IS APPLICABLE if: Tax Audit is NOT APPLICABLE if:
Up to INR 2 cr.
Applicable U/S 44AAB(e)
- Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit - Profit>=6% of trading turnover
2 cr. to 5 cr.
Applicable U/S 44AAB(a)
NOT APPLICABLE irrespective of profit or loss
(loophole in the provision*)
Above 5 cr. Always applicable

*Under Budget 2020, the turnover limit under Sec 44AB has been increased from Rs. 1 Cr to Rs. 5 Cr. However, the turnover limit under Sec 44AD has not been changed. When the Trading Turnover is between Rs. 2 Cr and Rs. 5 Cr, neither Sec 44AB is applicable nor Sec 44AD. Thus, Tax Audit is not applicable irrespective of profit or loss. The Income Tax Department is expected to make an amendment in the turnover limit of Sec 44AD to resolve this loophole. However, there is no clarification from the Income Tax Department yet.

[sc name="read-more" link="" title="Income Tax on Trading" description="Read about income tax on trading income - trading turnover, tax audit, tax rates, ITR Form, Due Date, set-off & carry forward loss, advance tax, etc"][/sc]

Here’s what traders like you have asked us. Shoot your queries in this Tax QnA.

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🧾 Taxes are simple with Quicko

Howdy Traders,👋

You have long complained about tax compliance. Its confusing, complicated & boring sometimes. We hear you.

The wait is over!!!🎉 We used the same Kite APIs that you all have grown to love & used them to simplify taxes for Zerodha Traders. 🙂

Here is how all of you can file taxes this season 🚀-

1. 📈 Import Intraday and F&O Trades

Quicko lets you import your trades simply by logging into your favourite brokerages and prepares your ITR on the fly.

Import Trades from Zerodha

Have trades with multiple brokers? Import Trades using Excel utility.

2. 💰Add other Incomes & Review 

You can add all your income like Salary by uploading Form 16, house property income, Capital Gains, and income from other sources.

Add Other Incomes & Review

3. 🚀 File your Tax Return Online

E-file your taxes instantly from the comfort of your home. We promise - no more paperwork, no more hurried visits, no more hassle.

File your return Online

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