When a taxpayer earns any income through investment in securities they incur a tax liability for these transactions. This income can be considered as Business Income or Capital gains. This is determined depending upon the nature of security, nature of the transaction, the period of holding, etc. Some of such transaction types are mentioned below:
- Speculative transactions: Transactions in which a contract for the purchase/sale of commodity or scripts is executed not by actual delivery but by an alternative method is treated as speculative transactions.
- Business Income: Income generated by dealing in shares is treated as business income.
- Long-term capital gain: Income generated from dealing in equity shares, equity-oriented mutual funds or units of a business trust that is exempt under section 10(38) provided the transaction is subjected to Securities Transaction Tax. Tax is chargeable @20% on other long-term capital gains. However, in the case of listed securities, tax can be paid @10% on gains computed without indexation. Short-term capital gain in such cases is chargeable @15%.
- Short term capital gains: In case of other short-term capital gains, tax is leviable as per the regular income slabs.
Taxpayers who receive an SMS or any communication via call or email from ITD are likely to face some verification issues in their ITRs. Taxpayers can receive the SMS for three reasons:
- Not filed ITR or The ITR is not filed in the given assessment year and has potential tax liability pending.
- Details provided by taxpayers and Information received to the ITD don’t match for that particular assessment year.
- Significant transactions get reported to the Income Tax department during a financial year which is considered abnormal or out of line with the profile of the taxpayer.
Taxpayers who have received any such verification issue needs to submit a response on those issues raised. The response has to be submitted online by logging into the compliance portal.
Verification issue in the computation of tax liability on Investment in securities
| Code | Description | Response |
| A1 | Total receipts as per taxpayer pertaining to the above information | Amount |
| A2 | Less: Amount relating to another year/PAN | PAN year-wise list |
| A3 | Less: Amount covered in other information | Amount |
| A4 | Less: Exemption/Deduction/Expenditure/ Set off of Loss | Exemption/Deduction wise list |
| A5 | Income/Gains/Loss (A1-A2-A3-A4) | Computed |
A1- Total receipts:
Any gross value of the transaction in securities should be included and a final amount should be mentioned.
A2- Amount relating to other year or PAN:
If part of the gross receipts relates to someone else’s PAN or is considered for some other year then the List of details of such receipts are to be mentioned as per the table below:
A3- Amount repeatedly covered:
If any amount is mistakenly covered twice then it should be mentioned under the Remarks section of the previous table. This will nullify the repeated Income/Gains/Loss covered.
A4- Exemption/Deduction/Expenditure/Set off of loss:
This section has to includes a list of all the available allowances which are exempt. The taxpayer needs to select the correct category from the drop-down list as under:
- Exempt Long-term Capital Gain on shares u/s 10(38)
- Cost of acquisition u/s 48.
- Expenditure incurred wholly and exclusively in connection with transfer u/s 48.
- Deductions from capital gains 54EC/54EE/54F
- Set off of Loss
- Others
The details are to be submitted as per the table mentioned below:
A5- Income/Gain/Loss:
This section includes the self-computation of securities transactions chargeable to tax A5=(A1-(A2+A3+A4)). If your income computation exceeds the minimum of 2.5 lakh then you should file your ITR.
FAQs
Yes, it is advisable to log in to the compliance portal. If a taxpayer doesn’t log in he/she will not be able to respond to the issues raised.
– Speculative transactions: Transactions in which a contract for the purchase/sale of commodity or scripts is executed not by actual delivery but by an alternative method is treated as speculative transactions.
– Business Income: Income generated by dealing in shares is treated as business income.
– Long-term capital gain: Income generated from dealing in equity shares, equity-oriented mutual funds or units of a business trust that are exempt under section 10(38) provided the transaction is subjected to Securities Transaction Tax. Tax is chargeable @20% on other long-term capital gains. However, in the case of listed securities, tax can be paid @10% on gains computed without indexation. Short-term capital gain in such cases is chargeable @15%.
– Short term capital gains: In case of other short-term capital gains, tax is leviable as per the regular income slabs.
Upon examining the online response submitted by the taxpayer, ITD can raise an additional query request to seek further information/clarification from the taxpayer. The taxpayer needs to respond to the additional query request as well.
If there are any e-Verification issues it will be pushed to the compliance portal for e-verification, Email and SMS will be sent to the taxpayer informing about the issue raised. Taxpayers then need to respond to those issues raised.