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The big news of the day is that India has conducted surgical strike’s on the terror camps located inside the Pakistan occupied Kashmir. The DGMO of the Indian Army held a press conference at around 12 noon, and informed the nation that they had attacked around 7 terror launch pads the previous night and caused them heavy damages. As per the army each launch pad had around 25-35 terrorists along with Pakistan army men. Now you can calculate the probable number of casualties yourself.
As soon as the news was revealed by the DGMO, hell broke loose in the Indian Stock Markets. The Sensex and Nifty not only wiped off all the gains they were showing during the day, they got so terrorised of the news that both the indices closed deep in the red. Many in market actually feel that there may be a Nuclear war between India and Pakistan.
Many must be wondering what would happen in the markets now. We at VRIDHI know many would be confused about the situation and hence this article. But before coming to markets, let’s check on some crucial points.
Recently I had written my views on the ‘56 inches chest of PM Modi’ debate which public was engaging in, and the politicians were mocking at. These people were behaving like Emotional Idiots and wanted Modi to declare outright war on Pakistan.
The last sentence in the article read this : ‘This govt means action and looks like we will take measured actions’ You can read the full article here: https://emotionalidiots.com/2016/09/21/my-view-on-public-sentiment-on-56-inches/
Hence what we were anticipating from the government has happened exactly. Action in a controlled manner!
One more thing said in another article has also come out in expected lines. In the previous MarketFastFood article it was said: ‘Midcaps and Small Caps are on the costlier side hence caution is advised. No major correction is anticipated. On an index of 28000+ swift corrections of 5% to 10% should not cause any worries to us’ Read the article here: https://vridhi.co.in/2016/09/05/hold-on-to-your-investments-the-india-story-is-yet-to-unfold/
Sensex’s recent high was 29077 on 8-9-2016 and today it has hit a low of 27720, that’s a clean shave of 1357 points from the top which amounts to 4.67% meaning we may behave exactly as said in the above paragraph.
Now, let us come to the market and it’s likely movements in next few days. Those fearing that the situation may escalate and there can be a situation of nuclear war between the two countries may get a bit relieved after reading the below points. Yes, there would be some amount of escalation which Pakistan may do to save its face. Not that whatever we say can always come true, but we sincerely believe that things may not escalate to the levels of nuclear bombing!
*Firstly we need to be clear that India has not attacked Pakistan. India has just attacked the terror camps in PoK which actually belongs to India. Hence India has attacked terrorists in its own territory.
*India has neither attacked Pakistan or the civilians! Hence Pakistan can’t hope of help from China. China won’t risk being cornered by opposing strikes on terrorists!
*Thus if Pakistan tries attacking India the Indian army defeat them hands down.
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Now let’s check on the Nuclear War threat:
Pakistan had nuclear weapons even during Kargil war. Pakistan had then in same manner threatened to use them on India during Kargil, but instead of using them they surrendered to Indian forces.
In fact then American president warned then Indian PM Atal Bihari Vajpayee about this and said that usage of nuclear bomb by Pakistan can harm large part of India.
On this Vajpayee said: Let them use, if they take the first step of harming us with nuclear bomb we will make sure that entire Pakistan is wiped off in our next step!
Pakistan didn’t risk taking such insane step and I feel they won’t even now. Remember India has a No First Use Policy on nuclear weapons.
Hence we feel market will not take this situation too seriously for too long. We won’t be surprised if we see a recovery tomorrow itself and then further volatility before we settle down fully. Small escalations between the two countries can add another 5% volatility.
Mr. Vivek Karwa was on a business channel today where he was speaking about the stock IDFC Bank. We think you can use all opportunities which markets may throw up in next few days to buy few shares of the company for absolute long term. Read this also: https://www.facebook.com/vkarwa/posts/10207150602196259?pnref=story
We maintain our Target.1 and Target.2 and then again some volatility.
No country will dare to speak against India or against the strikes on the terrorists. Not even cunning China would dare!
Thanks and Regards
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This article from the personal blog of #VivekKarwa. It does not directly relate to Investments but then the on going conflict does impact investors indirectly, hence we are sharing the link to the article under ‘Vivek Speaks’ category instead of publishing the full piece.
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Income from F&O deals is almost always treated as business income, irrespective of frequency or volume of transactions
by Archit Gupta, 5-9-2016, Mint, Source: http://www.livemint.com/Money/GvW3JB9PpYhvw6dvHEENjI/How-to-report-FO-trading-in-your-income-tax-return.html
Taxpayers who deal in derivatives, describe their experience with the tax filing process as vague and confusing. Here are some basics that can help.
A derivative means an instrument whose value is derived. It has no value of its own. Its price is based on the underlying asset. Derivatives of stocks and indices can be traded on Indian stock exchanges. The most popular form of derivatives are futures & options (F&O). A futures contract means an agreement to buy or sell on a future date. This contract expires on a pre-set date. On expiry, futures are executed by delivery of the underlying asset or via payment. Options and futures are alike but when you do an options contract, you can choose to not make the transaction.
Income from F&O deals is almost always treated as business income. This treatment is irrespective of the frequency or volume of your transactions. That may come as a surprise if you are salaried and have never run a business. Taxpayers who have business income have to file ITR-4.
As per Indian tax laws, incomes are reported under five heads—salary, house property, capital gains, business and profession and other sources (any residual income that cannot be classified in other heads). F&O trade is reported under the head ‘business’ in your tax return.
Reporting F&O trade as a business means:
*You can claim expenses from your business income
*As a result you may earn a profit or incur a loss
*Losses must be reported and losses have tax benefits
*Your total income (from all five heads) continues to be taxed at slab rates.
Businesses may be speculative or non-speculative, and the tax treatment is different. The income tax Act says that F&O trade is considered as a non-speculative business. Intra-day stock trades are treated as a speculative business.
Remember that cost indexation and capital gains exemptions are only allowed on sale of capital assets such as equity shares, mutual funds, land, house, and others. Since F&O trades are considered a business, tax rules of capital gains rules do not apply.
The first hurdle is to prepare your business’s profit and loss details. To calculate gross income from F&O trades, take your transaction statement for the whole year. Look at your receipts; these may be a positive or a negative value. Sum these up for the whole year. Expenses can be deducted from your gross income. Some expenses that you can deduct include rent or maintenance expenses of premises used for the business; mobile or telephone; internet charges; demat account charges; broker commission; depreciation on laptop used for trading; and any other expense directly related to your work.
Business income is calculated for the financial year for which you are filing your return. You will also have to prepare a balance sheet which is reported in ITR-4. It is basically a statement of your assets and liabilities.
Many people get confused when they have more than one type of dealing in the stock market. Some do intra-day stock transactions along with F&O trades. Some may hold stocks as long-term investments and also invest in mutual funds. In such a situation, you should calculate your business income from all of these separately. F&O trade income and intra-day stock trading will have separate expenses. Don’t worry if you have consolidated expenses; for example, you use the same premises to trade in both, or use a single phone. Simply bifurcate these expenses on a reasonable basis. You can allocate them using a ratio based on time spent.
If you invest in stocks for the longer run, you can treat them as capital assets. These will not be reported as business if you don’t trade in them often. There is an element of judgement involved and the main criteria is your intent. So, choose carefully. If you have some stocks that you trade often and some that you hold for longer, you can separate them into business and capital assets. Remember to choose on a fair basis and apply your choice consistently. You have to report gains from capital assets under the head ‘capital gains’, which has different tax rules. Mutual funds, too, may be treated as investments and taxed separately.
You will end up paying higher tax if you do not report your losses since losses have tax benefits and reduce your total taxable income. Losses from F&O can be set off from income from other heads (except salary income). Say, your loss from F&O business is Rs.1 lakh, salary income is Rs.5 lakh, income from rent is Rs.2 lakh, and interest income isRs.50,000. Your total taxable income shall be Rs.6.5 lakh.
If losses are not fully set off in the same year, you can carry them forward for 8 years. However, in the following 8 years, it can only be set off from non-speculative business income.
If you have F&O loss, you must get your accounts audited. Audit is also mandatory if your turnover exceeds Rs.1 crore. If accounts are not audited, a minimum penalty of 0.5% of turnover may be levied (maximum Rs.1.5 lakh). The due date of filing of tax returns for financial year 2015-16, where audit is mandatory, is 30 September 2016.
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