For Trading Account (Accounting one not Zerodha trading account ) are there any changes as per these New Guidelines?
Stock-in-Trade for open position of derivatives is 0 or needs to be computed?
Bcos then open short positions become googly, so we just leave open positions in balance sheet?
The rules for PL statement for Accounting purposes and Taxation purposes are different.
In order to reflect the correct financial position in Balance Sheet and PL, we consider the value of open positions and unrealized gains/losses as on 31st March from accounting purposes.
While preparing PL statement for Taxation purpose only the realized gains/losses on closed positions are considered. Unrealized gains/losses are not to be considered.
Actually the question I had was for the Accounting Trading Account:
is how do compute short open positions for Options in stock-in-trade?
In Balance sheet you can have a head for short open position and the premium rec’d shown other side with cash,
but for Trading account it is feasible only with Realized positions.
So then, stock-in-trade will be 0 right? bcos i’m not including short open positions of Options.
@Quicko just one last question for futures open positions - for Income tax purposes, I understand from your post that only realised should be considered but I have been considering profit / loss as per 31 Mar prices for p&l calculations. Is it ok to follow the same practice? as a lot of people are saying either of the practices can be followed (computing using 31 March prices for open positions / computing realised gains only and ignoring unrealised)
The Futures and Options transactions are ideally considered as contracts and not the actual stock that you are holding so there will be no effect for short open positions for options in Trading A/c as stock in trade.
Following the double entry concept, both the effects will be in Balance Sheet, one that you report the open position under Current Assets and the effect of premium received will be on liability side as your current liability.
As per the Tax laws one has to Ignore both Unrealized Profit and Loss of the open position as of 31st March and should only consider Realized Profit/Loss as of 31 March to compute Taxes.
Whereas for Derivatives Accounting there are multiple ways to maintain the books as mentioned but the suggested one is to consider both Unrealized Profit and Loss in the books of accounts.
@Quicko thanks. Will calculate the realised gains only as suggested and use that for paying income tax under non speculative business income head.
So on the balance sheet side there will be 2 entries right - one entry under brokers name with unrealised accounted and then one more entry to nullify the unrealised so that the balance sheet matches?
) are there any changes as per these New Guidelines?