A trader filing an Income Tax Return should use a report or statement from the broker that consists of the details of the trades from all segments such as sale value, buy value, realized profit, expenses, etc.
In the case of a Zerodha trader, he/she can download the Tradewise Tax P&L Report from Zerodha Console to prepare and file the Income Tax Return.
If you are a Zerodha Trader filing return with the help of Quicko, you might observe certain discrepancies in the Tax P&L Report from Zerodha and the Tax P&L Report from Quicko.
The following are the reasons for such difference:
1. Breakdown of Expenses
The Tax P&L Report reflects various trading expenses such as Brokerage, STT, Stamp Duty, GST, Transaction Charges, Turnover Fees, CTT, etc for each segment of trading.
While Zerodha reflects these expenses for both buy and sell transactions, Quicko reflects such expenses only for the sell transactions.
2. Fair Market Value i.e. FMV as of 31st Jan 2018
In the case of equity shares or equity mutual funds (on which STT is paid), bought on or before 31st Jan 2018, the Long Term Capital Gain (LTCG) is 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 does not provide the FMV in the scripwise data for each segment. The FMV of each trade is reflected in the Tradewise sheet. Thus, the Cost of Acquisition after applying the grandfathering rules should be manually calculated. However, Quicko Tax P&L would reflect the final Cost of Acquisition after considering the FMV and applying the grandfathering rule.
3. Trading Turnover
Trading Turnover is used to determine the applicability of the Tax Audit under Section 44AB. It is calculated as per the provisions of the Income Tax Act. The Income Tax rules prescribe reporting based on trade-wise turnover. However, most brokers provide scripwise data and thus, scripwise turnover can also be used.
The Zerodha Tax P&L Report reflects the scrip-wise turnover. Quicko calculates scrip-wise turnover using trade-wise data received from Zerodha.
The scrip-wise turnover is calculated using the data of each scrip aggregated for multiple trades. The trade-wise turnover is calculated using the data of each trade.
4. 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 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”
5. Reversals
As per the Zerodha thread, Reversal trades are alleged to be non-genuine trades. All reversals will be included in the Tax PnL report – marked as “REVERSALS”. In most cases, reversals are punched in on a cost basis & hence do not carry any tax consequences. However, sometimes the reversals for short deliveries are not entered on a cost basis, the gain or loss in such cases must be included under Capital Gains in the Income Tax Return.
EXAMPLE
Reliance LTD
Profit from Trade 1 = INR 5,000
Loss from Trade 2 = INR 8,000
HDFC Bank
Loss from Trade 1 = INR 9,000
Profit from Trade 2 = INR 15,000
Trading Turnover for Equity Delivery = Absolute Profit i.e. the sum of absolute values of profit or loss
- Trade-wise Turnover = 5,000 + 8,000 + 9,000 + 15,000 = 37,000
- Scrip-wise Turnover
Loss from Reliance LTD = INR 3,000
Profit from HDFC = INR 6,000
Total Scrip-wise Turnover = INR 9,000