Taxation - OTM ITM Options and Short Term

Taxation
1

Hi,
Need help to understand taxation when stock is delivered as a result of OTM option becoming ITM. Consider the following example -
Trade 1:

  • Sold ITC 185 PE @ Rs. 2 when spot is at Rs. 200. Lot = 3200
  • On Expiry, spot is 180, and the OTM option becomes ITM and shares are delivered to demat account due to obligation of taking delivery.

Now how the taxation will work in following scenarios -

  • Scenario 1 : I sell the shares directly in cash market by holding them for around 25 days.
  • Scenario 2 : I sell the shares directly in cash market by holding them for over a 1 year.
  • Scenario 3 : I sell a OTM Call option that turns ITM on expiry, and i have obligation to give delivery, but this happens within a period of around 25 days.
  • Scenario 4 : I sell a OTM Call option that turns ITM on expiry, and i have obligation to give delivery, but this happens after holding shares over 1 year.

Please guide @Jason_Castelino @ZeroIndian @San78 @Quicko

2

In case of ITM, delivery happens at strike price.

So for put ITM cost of acquisition is the strike price.
And for call ITM sale consideration is the stike price.

Scenario 1: STCG. Difference between sale price and strike price
Scenario 2.: LTCG. Difference between sale price and strike price.
Scenario 3: STCG. Difference between call ITM strike price and put ITM stike price.
Scenario 4: LTCG. Difference between call ITM stike price and Put ITM strike price.

All premiums received at the time of sale of option will be considered as business income.

Also scenario 3 is not possible because you can’t have 2 expires for stock in 25 days. :grin::grin::grin:

2 Likes
3

Thanks @Jason_Castelino

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