Traders need to choose their ITR form based on the instruments they have traded in, this could be Equity, Mutual Funds, Intraday, Futures & Options, etc. The taxpayer needs to report incomes, calculate and pay taxes, claim TDS Credits, and request a refund for the overpayment of taxes while filing their ITR. Traders or Investors having income from financial investments need to file the ITR Form ITR 2 (in case of capital gains) or ITR 3 (in case of business income) based on the nature of income from trading. File ITR-3. The income tax department has notified ITR Form for Trader or Investor based on different income situations.
ITR Form for Investor – ITR 2
ITR 2 is for Individuals and HUFs having Capital Gains in the given FY. Income from delivery based Equity trading and trading in Mutual Funds are classified as Income from Capital Gains. If an Individual/HUF has income from Capital Gains and has opted for the Presumptive Taxation Scheme for business income, file ITR 3 without preparing financial statements.
However, in some cases, income tax Equity Trading and Mutual Funds trading is considered as a Business Income. It is important to understand when to treat sale of shares as Capital Gains or Business Income. In such cases, the investor should file ITR 3. The Due Date to file ITR 2 is 31st July of the assessment year. Eg: Due Date to file ITR for FY 2019-20 was 31st July 2020. It has been extended to 30th November 2020.
ITR Form for Trader – ITR-3
It is the ITR Form for Individuals and HUFs having income from profits and gains from business or profession. A trader having income from the following types of trading should file their returns using this form:
- Equity Intraday Trading (Speculative Business Income)
- Equity F&O Trading (Non-Speculative Business Income)
- Commodity Trading (Non-Speculative Business Income)
- Currency Trading (Non-Speculative Business Income)
The trader needs to prepare the P&L Statement and Balance Sheet. Additionally, the applicability of the Tax Audit as per the Income Tax Act needs to be checked. The Due Date to file ITR is 31st July of the AY, if the income Tax Audit for the trader is not applicable. However, the due date is 30th September of the AY, if Tax Audit is applicable. (FY 2020-21 onwards, the Due Date for filing ITR is 31st October).
ITR Form for Trader opting for Presumptive Taxation – ITR-4
ITR 4 is the ITR Form for resident individuals, HUFs, and firms having total income up to INR 50 lakhs and opting for presumptive taxation scheme under section 44AD, 44ADA, or 44AE. A trader having income from Intraday Trading, F&O Trading, Commodity Trading, and Currency Trading is considered as a Business Income. The trader has an option to opt for Presumptive Taxation Scheme if:
- Turnover is up to INR 2 Crore AND
- Profits are more than or equal to 6% of Trading Turnover
A trader opting for presumptive taxation scheme does not require to have books of accounts audited and needs to file ITR 4. However, if the trader has opted for presumptive taxation for business income and has income from capital gains also, he/she needs to file ITR 3.
Here is a list of ITR Form applicable to Trader or Investor.
|Income Situation||ITR Form|
|Equity Delivery Trading, Mutual Funds Trading (Capital Gains Income)||ITR-2|
|Equity Delivery Trading, Mutual Funds Trading (Business Income)||ITR-3|
|Equity Intraday Trading, Equity F&O Trading, Commodity Trading, Currency Trading (Business Income)|
|Opted for Presumptive Taxation u/s 44AD + Capital Gains Income|
|Opted for Presumptive Taxation u/s 44AD||
In case of income from delivery based equity trading and trading in mutual funds that can be classified as Income from Capital Gains, you have to file ITR-2. In the case of trading in equity intraday, equity F&O, currency, and commodity that is classified as Business Income, you are required to file ITR-3. Based on your treatment of trading income you are required to file respective ITR.
Yes, you will have to pay interest on tax dues if the return is not furnished within the due date. In addition to interest, a penalty of Rs. 5,000 shall be levied under section 271F if the return is not filed up to the end of the assessment year.
Yes. Trading in Equity Intraday, Equity F&O, Commodity, and Currency is considered as Business Income. Tax Audit as per Income Tax Act is applicable in the following cases:
– Total Trading Turnover exceeds Rs. 2 Crore
– If the Total Trading Turnover is up to Rs. 2 Crore, profit is less than 6% of Turnover or there are losses
Since you have incurred a loss from intraday trading, a Tax Audit is applicable. You can carry forward your intraday trading loss up to the next 4 financial years.