Tax Treatment of Loss on Derivative Transactions Quiz

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12 Questions

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

8 assessment years

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

Salary income

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

Returns are directly proportional to risk taken

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

Securities transaction tax

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

Calendar spreads on futures will attract lower margins.

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.

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

SEBI approval.

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.

Where is exchange difference recognized?

Profit & Loss statement

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

In the Income statement

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

It is not recognized

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

Excluded from being taxed as speculative income or loss

Test your knowledge on the tax treatment of loss on derivative transactions according to the Income-tax Act, 1961. Understand how losses can be set off against other income and carried forward to subsequent assessment years. Learn about the eligibility of securities transaction tax paid on such transactions as a deduction.

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