What Expenses Can a Trader claim in Income Tax Return?

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Sakshi Shah

F&O Trading
income from trading
Income Tax
ITR-3
Last updated on May 4th, 2022

Expenses a Trader can Claim

A trader can claim all the expenses directly connected to the trading business as a business expense. The expenses incurred should be wholly and exclusively in relation to business and professional income. Below is a list of expense that a trader can claim against trading income.

Can I claim Tax paid as a Business Expense?

Expenses that a Trader cannot claim in Income Tax Return

Points to remember for Trader who claims Business Expenses

A trader having Business Income should claim valid business expenses in the P&L Statement. They also need to prepare financial statements and file ITR-3. The trader also needs to calculate the trading turnover and determine the applicability of Tax Audit to file ITR.

Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Which expenses can a trader claim on sale of shares?

Income from sale of shares is taxable under the head Income from Capital Gains. An investor or trader can deduct the expenses which are wholly and exclusively incurred on the transfer of shares, from the sales consideration. Thus, a trader or investor can claim expenses such as brokerage, stamp duty, sales commission, etc. in the Income Tax Return. Such expenses are deductible only for the purpose of calculating the Capital Gains. However, Securities Transaction Tax (STT) is not allowed as a deductible expense against capital gains as per the announcement in Budget 2008.

FAQs

Can I claim GST paid as a business expense?

If a business is not registered under GST, it can claim CGST, SGST and IGST paid on expenses as a valid business expense. However, if the business has a GST Registration, they can claim the credit of Input GST paid on expenses against the Output GST collected on sales. Since they are claiming the credit, they cannot claim the GST paid as an expense again.

Can I claim a margin penalty as a business expense?

A margin Penalty is a penalty levied on trades performed without sufficient margin. Margin penalty paid to the stock exchange/broker is not an infringement of law. Thus, it does not violate Explanation 1 of Sec 37 and is deductible as a business expense.

Will STT be treated as tax paid or as an expense?

STT was earlier allowed as a rebate from the tax payment. However, in Budget 2008, the Finance Minister removed the rebate and allowed STT to be claimed as a business expense. Further, it was clarified that the STT would be allowed as an expense only if the income is considered as a business income and not capital gains.

Got Questions? Ask Away!

  1. Hi @Saurabh_Ghosh

    1. The treatment of income from the trading activity will remain the same irrespective of company account or individual account. They are classified under the same income heads such as capital gains or business/profession and taxes are calculated accordingly.
      If your turnover is less INR 400 cr then the Income Tax slab rate is 25% for companies. For Individuals, the income tax liability is taxed at the applicable slab rates.
    1. To claim GST ITC, you need to have a GST registration and need to file a GST return. However, when filing your Income Tax Return, you can claim expenses directly related to your trading activity like electricity bills, internet expenses, etc.
      Keep in mind, if you are claiming GST ITC you cannot claim the GST amount in your expense.
      For eg: if the electricity bill is INR 1180 (180 being GST), and you are claiming the ITC on INR 180, you claim only INR 1000 as an expense when filing your ITR. In case you do not have GST registration, you can claim the total of INR 1180 when filing the ITR.
  2. @Saurabh_Ghosh,

    The GST Act specifically excludes Securities from the definition of Goods. So there is no requirement for traders to have GST registration.
    The GST paid on trading expenses such as brokerage, transaction costs, turnover fees, etc can still be claimed as an expense when filing the ITR.

  3. @Saurabh_Ghosh

    Since GST ITC claimed can only be used when you have GST liability. So it might make sense for a trader to claim ITC along with other expenses when filing the ITR.

    However, if you have GST payable then you can claim the ITC credit against that liability.

  4. @Saurabh_Ghosh,

    Right.
    Also, since Capital Market traders are not required to have GST registration.

  5. Hi @nishant_khemani,

    You can drop your contact details on our contact us page so our team can get in touch with you to understand your requirements, tell you more about the process, pricing and discounts :slight_smile:

  6. Hi @Saurabh_Ghosh,

    Unlike, F&O and intraday trading which are classified as business activity for income tax purposes, you cannot claim expenses like brokerage, internet expenses, legal and professional fees, etc for short-term and long-term capital gains. But an investor can claim, any transfer expenses except STT like brokerage, stamp duty, etc for capital gains, when filing ITR.

    However, the Income Tax Act has defined the particular sections under which exemptions can be claimed on capital gains earned. The intention of the exemption is to allow the taxpayer to invest in a new Capital Asset within a specified time limit without any tax burden.

  7. @Saurabh_Ghosh,

    There has always been this question and a debate around the treatment of gains from equity shares as business income or capital gains.
    The answer is derived from the taxpayer’s intent of the transaction. Here’s an article discussing when to treat the sale of shares as Capital Gains or Business Income

  8. Hi @Saurabh_Ghosh

    As per the clarification issued by CBDT, it is at the discretion of the assessee to treat Equity share trading as Business Income or Capital Gains.
    The only condition is to follow the same method continuously in subsequent years as well. The taxpayer shall not be allowed to adopt a contrary approach in subsequent years.

    After filing of ITR, you just need to wait for IT Department to process your ITR. You don’t need to give any confirmation letters or documents. However, if the IT Department asks for any clarifications, in that case, you need to submit a response by mentioning your intent and reasoning for the treatment.

    Hope this helps :slightly_smiling_face:

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