What is Speculative Business Loss

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As per section 43(5) , speculative transaction means a transaction in which a contract which is ultimately settled ,otherwise than by the actual delivery.

For Example-

Mr A entered into contract with Mr B to purchase  shares at Rs 1000 after 3 months

After 3 month,price of share is 800.

Hence ,Mr A suffers loss of 200

Mr A now has 2 options

  1. Buy Share from B at 1000
  2. Handover 200 difference to B and not purchase the shares

 

1.Buy Share from B at 1000

,if Mr A still buys share at 1000,it is not a speculative business as there is actual delivery of shares

 

2.Handover 200 difference to B and not purchase the shares

i f Mr A  doesnt buy share but instead hand over 200 to Mr B,this is a speculative transaction loss because there is no delivery of shares

However,if it is done through  Stock Exchange and fulfills prescribed condition,it is a speculative loss as it is covered in exceptions as explained below

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Loss of Speculative Business can be adjusted against income from Speculation Business only   (i.e. it cannot be adjusted against Normal Business)

  • If any loss remaining it can be carry forward against income from Speculation Business
  • Carry forward a llowed for 4 years maximum.

              Loss of AY 2016-17 (FY 2015-16) can be carry forward till AY 2020-21 (FY 2019-20) maximum

  • It is not necessary that same speculation business continues in the future period.

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 QUESTION 1

What is the total income chargeable to tax for the A.Y.2016-17?

Particulars Amount
Loss from Speculative Business 1 -100000
Profit from Speculative Bsiness 2 30000
Profit from Normal Busines 3 80000
Total profit earned 10000

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PARTICULARS AMT
PGBP Income    
Profit from Normal Busines 3   80000
     
Loss from Speculative Business 1 -100000  
Add,    
Profit from Speculative Bsiness 2 30000  
Balance Loss Carry forward to next year -70000 0
     
Total PGBP Income   80000
     
Gross Total income   80000

Speculative loss carry forwarded=70000

This can be carry forwarded till AY 2020-21

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 QUESTION 2

Suppose next year(AY 2017-18),profit earned as follows

Particulars Amount
Loss from Speculative Business 1 -30000
Profit from Non Speculative Business 2 50000
Profit from Normal Busines 3 70000
Total profit earned 90000

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PARTICULARS AMT
PGBP Income    
Profit from Normal Busines 3   70000
     
Loss from Speculative Business 1 -30000  
Add,    
Profit from Speculative Bsiness 2 50000  
Balance Profit  20000  
Less    
Carry forward and Set off of Last year loss -70000  
Balance Loss to be carry forward -50000 0
     
     
Total PGBP Income   70000
     
Gross Total income   70000

 

 

Remaining loss of 50000 of AY 2016-17 can be carry forward till AY 2020-21

 

  1. Income Tax
  2. Set off and Carry Forward of Losses
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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