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Tax Treatment of Loss on Derivative Transactions Quiz

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Tax Treatment of Loss on Derivative Transactions Quiz

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Questions and Answers

What is the maximum period for which losses on derivative transactions can be carried forward?

10 assessment years

15 assessment years

5 assessment years

8 assessment years (correct)

Which type of income cannot be set off against losses on derivative transactions?

Investment income

Business income

Rental income

Salary income (correct)

What is a key principle highlighted regarding investment opportunities in the text?

Guaranteed profits are common in investments

All investments are risk-free

Returns are directly proportional to risk taken (correct)

High returns are always guaranteed in investments

Which of the following is an eligible deduction under the Income-tax Act for derivative transactions?

Securities transaction tax (A) Signup and view all the answers

What is a major recommendation of the Prof. J.R. Verma Committee?

Calendar spreads on futures will attract lower margins. (A) Signup and view all the answers

In the context of derivative transactions, why is it important for brokers to obtain authorization from the Board of Trustees or Board of Directors of Trusts or Companies?

To meet the accounting treatment criteria for forward contracts. (B) Signup and view all the answers

What is required for an exchange to change the Initial Margin calculation methodology according to the text?

SEBI approval. (D) Signup and view all the answers

How are losses in derivative transactions typically treated for tax purposes?

They can be set off against gains from other sources subject to certain conditions. (B) Signup and view all the answers

Where is exchange difference recognized?

Profit & Loss statement (D) Signup and view all the answers

When are profit/loss on cancellation/renewal of forward contracts recognized?

In the Income statement (D) Signup and view all the answers

What happens to premium or discount when a forward contract is for trading/speculation?

It is not recognized (C) Signup and view all the answers

How are derivative transactions carried out in a 'recognized stock exchange' treated for tax purposes?

Excluded from being taxed as speculative income or loss (D) Signup and view all the answers