Yes, friends, how are you all?
We were discussing about PGVP head.
Your friend Shreya Gupta is supporting you.
I just want your support.
Friends, I would like to say a small thing before starting
today's lecture.
Don't ever try to change yourself according to others.
If someone tells you that you don't look like this, you
should look like that.
You don't wear clothes like this, you should wear clothes
like that.
Don't ever try to change your behaviour or style according
to others.
Change yourself, not for others.
Change yourself only to achieve your goal.
If you have to change to achieve your goal, you wake up
late in the morning, and if you have to wake up at 5 or 6
in the morning to achieve your goal, then wake up.
That is a good habit.
But if someone in front of you tells you, what kind of
clothes you are wearing, you should change them.
Wear short jeans.
What is this? I won't work to impress others.
I have to achieve my goal.
Whatever my objective is, I will bring changes in me for
that objective.
What difference does it make to me whether you like me or
not?
It doesn't make any difference to me.
Yes, once I achieve my goal,
I will tell you after that.
Because the people who are telling me to change, once I
achieve my goal, they will come after you and ask, how did
you do it? Tell me.
You are this, you are that.
So never listen to the world.
The world is very cruel.
Today it will laugh at you, but when you will achieve your
goal, everyone will come after you.
This is my personal experience.
So always change yourself for your goal.
Don't try to change according to others.
Anyway, I am very motivated.
Let's move on to our topic.
We were discussing about PGVP.
In the last lecture,
I had told you that if there is another head of income,
another head of income, like interest income, or capital
gain income, if you have sold a land, and you have put it
in profit and loss account, then once, when you calculate
net profit, remove that thing from the head of income.
We will look at the treatment of that separately.
We will look at it in a different head.
Now we are only talking about PGVP profits.
The profits that I have earned from business,
I will only talk about that.
And my next topic is speculation business.
Speculation business.
My business is to speculate.
Speculating.
Speculating means, for example, if the price of anything
goes up or down, where the price changes very quickly, for
example, if you have a horse race business, people have
businesses, you think it is a business for someone.
If you go to a casino, the casino that you have seen in
movies, that is a business for the casino owner.
It is a speculation business.
What is a horse race? It is a speculation business.
If you go to a casino, you are speculating.
It is a business.
If your business is that I will take Rs.
10 lakhs from home every day,
I am such a rich person,
I take Rs. 10 lakhs and leave.
And my business is that I will invest that money in a horse
race.
If I win, Rs.
10 lakhs,
Rs. 1 crore.
And if I lose, Rs. 0 crore.
It is my business.
I pay income tax on it.
And if you remember,
I told you in the last lecture, then what is the big deal
in a speculation business?
What you have to see in this is that if it is a speculation
business, for example, if you have a normal company,
I will write it down so that you can understand it better.
For example, take the example of Reliance Industries.
You have a normal company, and you make a profit and loss
account.
In this, you write down your business things.
Either your P&L account is made, or you take out your gross
profit.
Right, sir?
Or you take out your expenses.
Now, in this gross profit, take the example of Reliance
Industries.
These Reliance Industries, tomorrow, will start investing
in a horse race.
Everyone has their own unique hobbies.
Tomorrow, Reliance Industries,
Mukesh Ambani will go and say,
I am not investing in Mukesh Ambani.
This Reliance name is very lucky.
So, I am investing in the name of Reliance.
I am investing in the horse race.
And suppose, as Mukesh Ambani said, that name proved to be
very lucky.
He invested Rs.
10 lakhs in the horse race, and made a profit of Rs.
1 crore.
Because the horse on which he invests, the horse always
wins the race.
It is your misunderstanding to say this.
He bought all the other horses.
That is why he won.
Anyway, he invested Rs.
10 lakhs, and made a profit of Rs.
1 crore.
Here, he wrote his profit.
Speculative.
He is speculating, which horse will win.
It is not confirmed yet.
He is speculating, which horse will win.
I am investing Rs. 60 lakhs.
Suppose, he invested Rs.
1 crore, and made a profit of Rs.
1 crore.
Now, the government says, we will treat this speculation
business in a different way.
Its taxability will be determined in a different way.
Its loss, you will set off only with the speculation
business.
Speculation business has nothing to do with non-speculation.
Like, I told you in the last lecture, that the other head
of income, have nothing to do with business.
So, what do we do with them?
We will remove the income of the speculation business.
For example, in this case, if I invest Rs.
900, and the total of Rs.
1001 is settled.
The total of Rs.
1001 is settled.
For example, the net profit of Rs.
101 is Np.
So, what will the income tax do?
They will remove Rs. 1 from Rs. 101.
They say, this is your speculation business.
The business income will be Rs. 100.
Sir, what do we do with this one?
It will not be taxable anywhere. It will be taxable.
We have to show it separately.
We have to show the other business.
And we have to make the other business taxable in the PGVP
head.
Sir, tell me one thing.
You are confusing me for no reason.
You are saying that this is also a business.
Speculation business is also a business.
Where will the income of both go?
In the PGVP head.
So, why not take this together?
Sir, do not give it together.
Because some provisions of speculation business are
different.
If you face a loss, you will set that loss off only with
speculation activity.
Some provisions are different.
So, when the provisions are different, we will treat it
differently.
So, remove it from here.
Keep it only for business activities.
What to do with speculation?
We will treat it differently.
Okay, sir?
Sir, is the share market also a speculation business?
Sir, in the share market, if you work with a delivery, then
you are not speculating.
You took the delivery of a share.
After taking the delivery, for 10 days, 20 days, 6 months,
whenever the share price increased, you sold the share in
the market.
That is not speculation.
You are doing genuine investing and trading.
But, during the day, you made a deal.
At 9.30 in the morning, you got information that the share
price of Reliance Industries is Rs.
And there is a big bull in the market and he is increasing
the share price to Rs.
You bought 1000 shares for Rs. 2600.
By afternoon, the share price increased to Rs.
And you sold 1000 shares.
Within 3-4 hours.
You took a profit of Rs.
1 lakh in your pocket.
Sir, this is speculation.
You didn't do any genuine trading or investing.
You just played with the price that was going up and down.
In that case, that speculation activity will be considered.
Now, let's see what comes in speculation and what doesn't.
It is a very interesting topic.
Just keep in mind that there must be some income or profit
in the loss account.
Remove it from there.
Separate its treatment.
Separate the income of the rest of the business.
Is it a matter of speculation business?
He is saying that if an SSE does a speculative business,
simple, in that case, that business must be deemed as
distinct and separate from any other business.
This is because
Section 73 says that if a loss occurs in a speculation
business, you cannot set it off from any other business.
For that, you have to set it off from a speculation
business.
Now, what all doesn't come in speculation?
These are some following transactions that don't come in
speculation.
What are these?
Hedging contract in respect of raw material.
For example,
I run a business.
I have a clothing business.
And I make this coat.
The cloth that comes for this coat,
I import it from somewhere.
From where?
For example, I import this cloth from Dubai.
My material is coming from Dubai. Now tell me one thing,
there is a Sheikh in Dubai, he is supplying goods to me, I
told him that the currency in Dharam, I told him to take
the payment, he said no, I want the payment in dollars.
I said okay, you want the payment in dollars, I will get it
for you.
Now if the payment is in dollars, I will pay.
The problem is, today I bought the goods, today I gave the
import contract to him, you give me 1000 pieces of this
coat, and today's exchange rate of dollars is Rs.
I told him that the rate is Rs.
81, the rate is such that when I will pay the money,
I just gave him the order, that you supply me 1000 coats in
a month or two.
He said okay, I will do it.
Now what happened, because if you read the newspaper, the
rates of dollars are increasing every day.
So I am thinking that how much payment do I have to give
him, total of Rs. 81,000.
If I do it today.
Sheikh says, Mr. Gupta, do the payment after two months,
there is no problem.
You are a genuine businessman, we know that you will not
kill our money, and you will give us the payment.
Now my problem is that our country's economy is going on
like this.
I am afraid that the rate of Rs.
81 is going on today, what if after two months the rate
becomes Rs.
If the rate becomes Rs. 83, then I will incur a loss of Rs.
2000.
I will do the payment of 1000 pieces, earlier it would have
been Rs.
81,000, now it will be Rs.
So what I will do, I will type from a bank,
and I will tell the bank that I want to do the payment
after two months, get a system so that the rate of Rs.
81 is locked.
So that the payment goes at the rate of Rs.
81, whether it is Rs.
83 or Rs.
Suppose it is Rs.
78, then I would have benefited, but I do not want to incur
a loss from here.
So I will tell the bank to lock the rate of Rs.
81, for the next two months.
On that day, whatever the rate is, I will do the payment
according to Rs. 81.
It can be a benefit for me or a loss for me.
If we look at it from a legal point of view, the rate is
going up and down, so I am speculating somewhere.
But in this case, the government says, look, you are doing
it for your genuine business purposes.
We also understand that a genuine businessman thinks that
he can save money from everywhere.
Keep more sales and less expenses.
If a genuine transaction is visible, the government says
that you are hedging it.
I have taken a forward contract so that I do not incur a
loss in the future.
In that case, the government says, we will not accept your
speculation transactions.
If you benefit from it in the future, then you can take it
in your profit and loss account.
We will consider it as your income.
Even if you incur a loss, we will consider it as your loss.
There is no need to remove it.
Next, hedging contract.
This is the same thing.
If you do it in stock and shares, it will be different.
This is a forward contract.
Derivative trading.
If you do something in commodity derivatives, then it is
not considered as speculation.
Provided that you do it in a recognised stock exchange.
Now, let's come to computation.
Sir, till now you were saying that tax is imposed on net
profit.
Income tax is imposed on net profit.
Sir, I know about accounting.
I will extract the data from the tally of accounting profit.
How can I take it there?
How can I tell about income tax?
Sir, I had said that there are some adjustments.
Now, we will talk about those adjustments gradually.
It is a simple thing.
You will get some words here.
One word will be allowed.
The other word will be disallowed.
Allowed and disallowed.
What do these two mean?
You are a businessman.
I have already told you.
In this chapter, never assume that you are a student.
Assume yourself as a businessman.
In this chapter, they will assume that I am an income tax
officer.
And they will assume that you are running a business empire
of 1000 crores.
And I will keep asking you some questions.
You keep answering me accordingly.
These are my symbols.
It is a P&L account.
I have put the sale, purchase and stock adjustments.
Now, for example, I do expenses.
First, tell me that if I put expenses in the Profit and
Loss account, how does it affect my profit?
Think and tell me.
Till then, I will write their figures.
So that you get clarity in the answer.
Think and tell me.
If I put some expenses, how will it affect my profit?
How will it affect my profit?
The effect of that expense will be that my profit will be
less.
In this case, the profit that I will get.
For example, here I did a sale of 300 rupees.
Purchased goods worth 200 rupees.
Spent 100 rupees in this case.
The profit will be zero.
You have made this P&L account.
You are a businessman.
This is your P&L account.
I am an income tax officer.
I will come to you and say,
Mr. Businessman, I have come to take income tax.
Tell me, what is your income?
What is your profit?
You will say, I have come to take profit.
Come, come.
I will show you the profit.
You will say, look, this is a sale.
This is a purchase.
I have spent 100 rupees.
My profit is zero.
Thanthan Gopal, you go away.
My profit is nothing.
I will also go away.
Because if there is no profit, what will I take?
What will the government get?
Baba Ji's.
The interesting thing is that this person has done the
expenses in this way.
Do you know what this man did in the expenses?
This man put his own salary in the expenses.
His wife was an illiterate woman.
She did not pass even a single mark.
She showed his salary of 5 lakhs per month.
Salary per month.
What will happen?
Whatever was the profit, in the form of salary, he withdrew
and took it.
He showed his child's salary of 10 lakhs per month.
He put the petrol expenses of his personal car in this way.
He went on buying personal assets.
Not of the company, but of his own personal.
So, in a way, he got the money.
And the company's profit became zero.
Will the government get any tax in this case?
No, sir.
So, the government said, we are very worried, sir.
We are very worried.
Every businessman will come and do the same thing.
He will show his salary to himself.
He will show his wife's salary.
He will show his wife and children's salary.
He will give his servant 1000 rupees and put a bill of
100,000 rupees.
How will we catch him?
He will keep on making his profit zero.
When the profit is zero, the income tax is also zero.
So, in this case, the government said, we are issuing some
lists.
We are telling you some expenses.
Listen carefully to what I am saying.
The government said, some expenses.
Some expenses.
We are telling you some expenses.
Will we allow those expenses?
Or will we disallow those expenses?
If I allow some expenses, it simply means that the income
tax is allowing those expenses.
You can put those expenses in your Profit and Loss account.
There is no need to remove them.
But on the other hand, the income tax officials say that we
disallow those expenses.
What do they say? Disallow.
In that case, the expenses that you have put in your Profit
and Loss account, there is no need to remove them.
To answer your question, if I remove some expenses, how
will it affect my Profit?
Let's say I had put in Rs.100.
My Profit was zero.
Let's say this is Rs.0 Profit.
If I remove this, this is Rs.0 Profit.
This is Rs.0 Profit.
The government said, that you have given Rs.5 lakhs to your
wife, and Rs.10 lakhs to your child.
We do not allow this salary.
What do we do? We disallow it.
We do not allow expenses.
In that case, what will affect your Profit?
Your Profit will increase.
If I remove some expenses, my Profit will increase.
How much will it increase?
It will increase by Rs.15 lakhs.
Now what is the new Profit?
Rs.15 lakhs.
Now how much will your Tax be?
Rs.15 lakhs.
How much was it earlier?
Zero.
Look at it once.
If the government disallows some expenses, the effect of
that will be that your Profit will increase.
There was Rs.100, we spent Rs.30, which was allowed. So how
much profit was left? Rs.70.
Assume that Rs.30 is not allowed, then how much profit is
left? Rs.100.
That is simple mathematics.
Now, whom are we discussing?
We are discussing what should be allowed and what should be
disallowed.
If you disallow, you will earn less profit, and if you earn
less profit, you will have less tax.
If you disallow, the more you disallow, the more profit you
will earn.
Obviously, if profit increases, income tax will also
increase.
We will discuss this. I am leaving this lecture here.
In the next lecture, we will discuss what should be allowed
and what should be disallowed.
Thank you very much, friends.