Compliance portal: Tax liability from Purchase of Immovable property

A taxpayer who has purchased an immovable property(from undisclosed income) might receive a query on the compliance portal. As per the Income Tax Act, any unexplained investment is considered as Income for that Financial Year u/s 69 and 69B.

Important aspects that can be considered, for the query on compliance portal regarding purchase of immovable property, are as follow:

  • If a person receives an immovable property without consideration or with disclosed consideration is lower by more than Rs. 50,000/- then the stamp valuation, the difference will be considered as an income in the hands of the purchaser.
  • If the sale has not been executed but the agreement of the sale is prepared, provisions of section 50C and 56(2) will apply.

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:

  1. Not filed ITR or The ITR is not filed in the given assessment year and has potential tax liability pending.
  2. Details provided by taxpayers and Information received to the ITD don’t match for that particular assessment year.
  3. 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 to those issues raised on the compliance portal. The response has to be submitted online by logging into the compliance portal.

Verification issue in the computation of tax liability on the Purchase of Immovable Property

Code Description Response
A1 Correct Information Value Amount + Remarks
A2 Out of earlier income or savings Amount + Remarks
A3 Out of receipts exempt from tax Exempt income-wise list
A4 Received from identifiable persons (without PAN) PAN wise list
A5 Received from identifiable persons (without PAN) Person wise list 
A6 Received from un-identifiable persons Nature of transaction wise list 
A7 Others Amount + Remarks
A8 Unexplained amount A1- (A2+A3+A4+A5+A6+A7)

A1- Correct Information value

The total of all the amount paid for the purchase of the immovable property has to be mentioned here. The purchase amount and all the expenses like stamp duty etc. In the case of co-ownership, the taxpayer should mention his/her share of investment and give details like name, PAN and share of other co-owners under the remarks section.

A-2 Out of earlier income or savings

If any part of the investment or expenditure is made out of earlier income or savings then it should be mentioned with the amount under this category. Suitable remarks are also required under the remarks section.

A3- Out of receipts exempt from tax

Available exemptions are listed below in the drop-down list. After choosing the relevant exemption the value of the receipt will be determined.

  • Interest income u/s 10.
  • Dividend income u/s 10(34)
  • Long-term capital gains on shares u/s 10(38).
  • Agricultural income u/s 10(1).
  • Share in the total income of firm/AOP etc. u/s 10(2A)
  • Income is not taxable in India.
  • Others

If this field is selected you will be displayed the following rows:

A4- Received from identifiable persons (with PAN)

If any amount is received from an identifiable person who holds a valid PAN, then his/her details are to be mentioned as per the following table:

The Transaction Type consists of:

  • Sales
  • Loan Received
  • Loan Repayment
  • Gift Received
  • Donation Received
  • Other Receipt.

The Transaction Mode consists of two options i.e ‘Cash’ and ‘Non-cash’. More rows can be added by clicking on the button ‘Add Row’. Suitable remarks are to be provided under the remarks section.

A5- Received from identifiable persons (without PAN)

If any amount is received from an identifiable person who doesn’t hold a PAN, then his/her details are to be mentioned as per the following table:

A6- Received from un-identifiable person

If any amount is received from an unidentifiable person, then his/her details are to be mentioned as per the following table:

A7- Others

If any amount which was not covered in any of the above-mentioned categories then it should be mentioned here. Suitable remarks are to be provided under the remarks section.

A8- Unexplained amount

This section computes a figure (A1 – (A2+A3+A4+A5+A6+A7)), for which no explanation is provided.

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FAQs

Is it necessary to login to Compliance Portal? What happens if I don’t log in?

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.

What is an additional query request?

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.

How will the taxpayer come to know about pending e-verification?

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.

Long Term Capital Gain Tax on Shares & Mutual Funds : Section 112A

Income Tax on Equity Share Trading can be treated as Long Term Capital Gains or Short Term Capital Gains based on the period of holding. Up to FY 2018-19, LTCG i.e. Long Term Capital Gain on shares and securities on which Securities Transaction Tax (STT) is paid was exempt under Sec 10(38) of the Income Tax Act. However, under Budget 2018, the exemption under Section 10(38) was removed. Further, a new Section 112A of Income Tax Act was introduced to levy a 10% income tax on Long Term Capital Gains on the sale of equity shares, equity mutual funds, and units of business trust in excess of Rs. 1 lac for a financial year. Section 112A was applicable from FY 2018-19 (AY 2019-20) onwards.

What is Long Term Capital Gain?

The profit or loss on the sale of a capital asset held for more than the specified holding period is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).

Based on the period of holding, here is a summary of Capital Gain on the sale of Capital Assets. Eg: If the listed equity share of a domestic company is sold after 12 months of purchase, the profit or loss is Long Term Capital Gain or Long Term Capital Loss on shares.

Capital Asset Period of Holding
Equity Shares of Domestic Company listed on a recognized stock exchange 12 months
Equity Shares of Domestic Company not listed on a recognized stock exchange 24 months
Equity Shares of Foreign Company whether listed or not 24 months
Equity-Oriented Mutual Funds or ETFs (Exchange Traded Funds) 12 months
Debt-Oriented Mutual Funds or ETFs (Exchange Traded Funds) 36 months
Debentures or Bonds listed on a recognized stock exchange 12 months
Debentures or Bonds not listed on a recognized stock exchange 36 months
Immovable Property such as land, building, or house property 24 months
Movable Property such as jewelry, car, painting, work of art 36 months

Section 112A Grandfathering Rule to calculate Long Term Capital Gain on Shares

Traders who would have invested in equity markets with a view to earning tax-free income in the form of Long Term Capital Gains would now have to pay tax as per the new rule. The announcement of 10% LTCG was made on 1st February 2018. Thus, an investor who was holding an investment in equity shares and equity mutual funds as of 31/01/2018, should not be required to pay tax on entire capital gains. Hence, to ensure that LTCG on shares earned up to 31st January 2018 should not be taxed, the Capital Gains earned up to 31/01/2018 would be grandfathered using a formula.

For equity shares and equity mutual funds bought on or before 31/01/2018, the cost of acquisition should be calculated as follows:

  1. Lower of Fair Market Value as of 31st January 2018 or the Actual Selling Price
  2. Step 1 or Actual Cost Price whichever is higher

Section 112A of Income Tax Act – Calculation of Long Term Capital Gain Tax on Shares

The budget was announced on 01/02/2018 and so the provisions for tax on LTCG on shares are different based on the date of purchase.

Particulars

Up to 31/01/18 01/02/18 Onwards
Date of Purchase Shares bought on or before 31/01/2018 Shares bought on or after 01/02/2018
STCG (sold within 365 days) STCG @ 15% STCG @ 15%
LTCG (sold after 365 days) SP = price at which shares are sold SP = price at which shares are sold
CP = Follow these steps:

Higher of the following:

(i) Price as on 31.01.18 or Actual Selling Price whichever is less

(ii) Actual Cost
CP = price at which shares are bought
LTCG = SP – CP LTCG = SP – CP
Tax = 10% (LTCG – Rs.1,00,000) Tax = 10% (LTCG – Rs.1,00,000)

Examples for Grandfathering Rule

  Case I Case II
Purchase Date  1st Jan 2018 10th Feb 2018
Purchase Value 2,00,000 2,00,000
Sell Date  10th Jan 2020 10th Jan 2020
Sale Value 3,50,000 3,50,000
Grandfathering rule applicable Yes No
Actual Cost * 2,40,000 ** 2,00,000
LTCG
= Sale Value – Actual Cost
1,10,000 1,50,000
Exempt Exempt up to INR 1 Lakh Exempt up to INR 1 Lakh
Tax Liability 1,10,000 – 1,00,000= 10,000 * 10%
= 1,000
1,50,000 – 1,00,000= 50,000 * 10%
= 5,000

*Note: Actual Cost is the Cost of Acquisition to calculate capital gains 

**Calculation of Actual Cost using FMV (Case I)

  Condition Amount (INR) Qualifying Amount
Step 1 Lower of:

Actual Selling Price
or
FMV on 31st Jan 2018
Lower of:

3,50,000 or 2,40,000  

2,40,000
Step 2 Higher of:

Value in Step 1
or
Purchase Value
Higher of:

2,40,000 or 2,00,000

2,40,000
  Actual Cost   2,40,000

Income Tax on Long Term Capital Gain

The tax rate of a capital asset is determined on the basis of the nature of capital gain i.e. LTCG or STCG.

Capital Asset STT LTCG STCG
Listed equity share of a domestic company Yes 10% in excess of INR 1 lac u/s 112A 15% u/s 111A
Listed equity share of a domestic company No 10% without indexation slab rate
Unlisted equity share of a domestic company No 20% with indexation slab rate
Listed equity share of a foreign company Yes / No 10% without indexation slab rate
Unlisted equity share of a foreign company Yes / No 20% with indexation slab rate
Equity Mutual Fund or ETF (Exchange Traded Fund) Yes 10% in excess of INR 1 lac u/s 112A 15% u/s 111A
Debt Mutual Fund or ETF No 20% with indexation slab rate
Listed Debentures or Bonds No 10% without indexation slab rate
Unlisted Debentures or Bonds No 20% without indexation slab rate
Land, Building, House Property, Car, Jewellery, Paintings, Art of Work NA 20% with indexation slab rate

Long Term Capital Gain Tax on Shares – Equity Shares and Equity Mutual Funds

Date of Purchase Date of Sale Tax Treatment
On or before 31/01/2018 On or before 31/01/2018 Exempt u/s 10(38)
On or before 31/01/2018 Between 31/01/2018 and 01/04/2018 Exempt u/s 10(38)
On or before 31/01/2018 01/04/2018 onwards Calculate LTCG as per the above table
* LTCG up to 31/01/2018 exempt
* LTCG after 31/01/2018 – Tax at 10% in excess of Rs. 1 lac
On or after 31/01/2018 01/04/2018 onwards Calculate LTCG as per the above table
Tax at 10% in excess of Rs. 1 lac
Under Budget 2022, the surcharge on long term capital gains (LTCG) on listed equity shares, units, etc has been capped at 15%
Tip
Under Budget 2022, the surcharge on long term capital gains (LTCG) on listed equity shares, units, etc has been capped at 15%

LTCG on Shares – Reporting under Schedule 112A of ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. AY 2020-21 onwards, the ITR Forms comprised of reporting LTCG on shares and mutual funds under Schedule 112A. Under Schedule 112A of ITR, the taxpayer needs to provide scripwise reporting of long term capital gains on equity shares and equity mutual funds purchased on or before 1st February 2018. To calculate the LTCG as per Section 112A after considering the provisions of the grandfathering rule, reporting Schedule 112A is mandatory. The taxpayer needs to report the following details in ITR:

  • ISIN i.e. International Securities Identification Number
  • Name of the share or unit
  • Number of shares
  • Sales price per share or unit
  • Cost of Acquisition
  • FMV i.e. Fair Market Value as on 31/01/2018
  • Expenditure related to transfer

Set Off & Carry Forward LTCL under Section 112A of Income Tax Act

The loss on sale of listed equity shares and mutual funds held for more than 12 months is a Long Term Capital loss. A taxpayer can set off LTCL from one capital asset against LTCG from another capital asset. As per the income tax rules for set off and carry forward of losses, LTCL i.e. Long Term Capital Loss can be set off against Long Term Capital Gains only in the current year. The taxpayer can carry forward the remaining loss for 8 years and set off against future LTCG only.

If the taxpayer has income from sale of some listed equity shares and securities, and profit from other listed equity shares and securities, only net gains in excess of INR 1 lac are taxable at 10%. Further, the net LTCL under Section 112A of income tax act can be set off against LTCG on sale of shares, securities, property, jewellery, car or any other capital asset. The remaining loss can be carried forward for 8 years.

Exemption from LTCG on Shares

The taxpayer having income from the sale of a long term capital asset can claim capital gain exemption under Section 54 to 54GB of the Income Tax Act if he/she fulfills the conditions.

A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.

The taxpayer has an option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.

FAQs

Are LTCG on sale of listed shares and securities taxable now?

Yes. Under Budget 2018, the exemption under Sec 10(38) was removed. Further, a new Section 112A of Income Tax Act was introduced to levy a 10% income tax on Long Term Capital Gains on the sale of equity shares, equity mutual funds, and units of business trust in excess of Rs. 1 lac for a financial year. Sec 112A was applicable to FY 2018-19 (AY 2019-20) onwards.

What is the new grandfathering rule introduced in Budget 2018?

Grandfathering rule is used to determine the cost of acquisition to calculate the long term capital gain tax on shares and securities that are listed and on which STT is paid.
To calculate the LTCG on the sale of equity shares and equity mutual funds bought on or before 31/01/2018, the cost of acquisition is lower of FMV as of 31/01/2018 or the actual selling price and higher of the earlier result and actual cost price.

How to determine FMV i.e. Fair Market Value of equity shares and mutual funds to calculate LTCG on shares under Section 112A?

FMV i.e. Fair Market Value is the highest price of an equity share or equity mutual fund quoted on a recognised stock exchange as on 31st January 2018. If the said share or mutual fund was not traded on 31st Jan 2018, FMV would be the highest price on the immediately preceding trading day. FMV of Equity Shares is available on the NSE website. Further, the FMV of Equity Mutual Funds is available on the AMFI website.

ESOPs Taxation in the hands of an Employee

What are ESOPs?

ESOP meaning Employee Stock Ownership Plan is an employee benefit plan provided by an employer to its employees. ESOP allows an employee to buy a stock of their company at a below-market price. It also offers ownership interest to employees. A company may issue ESOPs in form of direct stock, profit-sharing plans, or bonus. Below is a brief process for issue of ESOPs:

  • The company or employer decides to issue ESOPs
  • The employee opts to exercise the ESOPs i.e. buy the shares
  • The employee sells the shares

Before granting ESOPs to employees, an employer needs to follow rules and regulations relating to ESOPs as per the Companies Act 2013.

An employee needs to understand tax on ESOP before exercising the option. Below are the provisions for ESOP Taxation in the hands of an employee:

  • At the time of exercising right i.e purchasing the shares,
  • At the time of selling the shares.

Hence it is important to understand the tax implications of Employee Stock Options before filing ITR for the financial year on the income tax website.

ESOP Terms Meaning
ESOP Full Form Employee Stock Ownership Plan
Grant Date Date of agreement between employer and employee to grant an option to the employee to own shares of the company
Vesting Date Date on which the employee is entitled to buy shares
Vesting Period Time period between grant date and vesting date
Exercise Period Time period when the employee has a right to buy the shares after the stocks are vested
Exercise Date Date on which the employee exercises the option
Exercise Price Price at which the employee exercises the option

Tax Implications of ESOPs

It is important to understand the ESOP taxation in India before the employer considers implementing an ESOP scheme.

ESOPs are taxed in the following two instances:

  1. At the time of exercising ESOP: It is considered as a Perquisite under the income head ‘Salary’. Hence, when an employee exercises his option, the difference between Fair Market Value (FMV) as on the date of exercise and the exercise price is taxable as a perquisite.
  2. At the time of selling ESOP: It is considered a Capital Gain. An employee might sell his/her shares after buying them. In case he/she sells these shares at a price higher than FMV on the exercise date, he/she would be liable for capital gains tax.

ESOPs Taxation on Purchase of Shares

When an employee exercises the stock option i.e. agrees to buy the shares, it is a taxable income. The shares are credited to a Demat Account of an employee once shares are purchased. Here is the tax treatment for tax on purchase of shares under ESOP:

  • The exercise of stock option is treated as a Perquisite under the income head ‘Salary’
  • Perquisite amount is the difference between FMV as on exercise date and exercise price.
  • Perquisite will be taxed in the year in which the employee exercises the ESOP
  • The employer will deduct TDS on such amount and issue Form 16 to the employee
  • The employee must report it as Salary Income in the ITR, claim TDS Credit and pay tax on such income at slab rates.

Example

Neha works in a startup in India. During FY 2021-22 her company announces ESOPs for all the current employees. Neha decides to exercise her option to buy the shares of the company. Under this scheme, Neha received 2000 shares at INR 20 per share. The FMV of the shares is INR 65 per share. Following are the tax implications on the above transaction.

Purchase Price: INR 20
FMV: INR 65
Perquisite: INR 45 (65-20)
Taxable Perquisite Amount: INR 90,000 (2000*65)

Now the company will treat INR 90,000 as a taxable salary and will deduct TDS on the same. While filing her ITR, Neha needs to report INR 90,000 as Perquisites under Salary Income Head.

Budget 2020 Amendment for ESOPs

Under Budget 2020, the finance minister announced to defer TDS or tax payment on shares allotted by startups to their employees under ESOPs. Thus, from FY 2020-21 onwards, when an employee receives ESOPs from an eligible startup, they need not pay tax in the year of exercising the option. The employer can defer the deduction of TDS on the perquisite amount up to the occurrence of the following events whichever is earlier:

  • Expiry of 5 years from the year of allotment of ESOP
  • Date of sale of ESOP by the employee
  • Date of termination of the employment

ESOPs Taxation on Sale of Shares

When an employee sells the shares, it is treated as Capital Gains. Here is the tax treatment for tax on sale of shares under ESOP:

  • The sale of shares is treated as capital gains
  • Amount of Capital Gain is the difference in Sale Price and FMV as on the exercise date
  • The period of holding is calculated from the exercise date up to the date of sale
  • Capital Gains will be taxed in the financial year in which the employee sells the shares
  • The employee must report it as Capital Gains in the ITR and pay tax on such income at applicable rates below
Type of Share Period of Holding Capital Gain Tax Rate
Listed Shares Holding Period <= 12 months STCG u/s 111A 15%
Holding Period > 12 months LTCG u/s 112A 10% in excess of INR 1 lac
Unlisted Shares Holding Period <= 24 months STCG slab rates
Holding Period > 24 months LTCG u/s 112 20% with Indexation
Listed Shares must be listed on a recognised stock exchange in India. Thus, if you sell shares of a listed foreign company, they would be treated as unlisted shares if they are not listed on a recognised stock exchange in India
Tip
Listed Shares must be listed on a recognised stock exchange in India. Thus, if you sell shares of a listed foreign company, they would be treated as unlisted shares if they are not listed on a recognised stock exchange in India

Example

Arya is a salaried individual. She works for a company listed on NSE Ltd. She received 2000 shares from her company under the ESOPs scheme in FY 2020-21. And she sells the shares on 20/01/2022.

Date of Exercising the ESOPs i.e. Purchasing Shares: 25/02/2021
FMV as on 25/02/2021: INR 50
Sales Price as on 20/01/2022: INR 75

Below is the tax treatment and calculation of tax liability for Arya

Arya must pay tax on Capital Gains in FY 2021-22 on the sale of shares.

  • Period Of Holding – 25/02/2021 to 20/01/2022 i.e. less than 12 months
  • Type of Capital Gain – Since the shares are of a company listed on a recognised stock exchange in India and the period of holding is less than 12 months, it is a Short Term Capital Gain.
  • Tax Rate – The applicable tax rate is 15% under Section 111A
  • Capital Gain per share = Sales Price – FMV = 75 – 50 = INR 25 per share
  • Total Capital Gains = 2000 shares * 25 per share = INR 50,000
  • Tax Liability = INR 50,000 * 15% = INR 7,500

How to calculate FMV for ESOP?

Type of Share Meaning Trading Status FMV i.e. Fair Market Value
Listed Share Listed on a recognised stock exchange in India Traded on a recognised stock exchange as on exercise date Average of opening and closing price
Listed Share Listed on a recognised stock exchange in India Not traded on a recognised stock exchange as on exercise date Closing price on the date preceding the exercise date
Unlisted Share Not listed on a recognised stock exchange in India   Price determined by a merchant banker

Treatment of Loss from Sale of ESOPs

The loss on sale of shares received in form of ESOPs is a Capital Loss.

  • The loss on sale of listed shares held for more than 12 months or unlisted shares held for more than 24 months is a Long Term Capital Loss. As per the income tax rules for set off and carry forward of losses, the taxpayer can set off Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG) only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
  • The loss on sale of listed shares held for up to 12 months or unlisted shares held for up to 24 months is a Short Term Capital Loss. The taxpayer can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.

FAQs

Under which head of Income-tax is ESOP taxable and which ITR is to be filed?

-When an employee buys the shares of a company, it is treated as a Perquisite. And thus taxable under the head Salary. In this case, the taxpayer is required to file ITR-1.
-When an employee sells the shares, it is treated as Capital Gains and thus taxable under the Capital Gain head. In this case, the taxpayer is required to file ITR-2.

How do I report ESOPs i.e. employee stock options in my Income Tax Return?

The taxpayer must report perquisite under salary income on exercising the ESOP. Further, he/she must report it as Capital Gains on the sale of shares. If a taxpayer owns ESOPs/RSUs of a foreign company, they must report it as a foreign holding under Schedule FA i.e. Schedule Foreign Assets in the Income Tax Return.

Am I liable to pay Income Tax if I do not exercise the ESOP?

The employee has a right to exercise the ESOP on the exercise date. However, if the employee does not exercise the same, there is no tax implication on the same.

Set Off and Carry Forward of Losses under Income Tax Act

The Income Tax Act has laid down provisions for set off and carry forward of losses. Set off of loss means adjusting the loss against the taxable income. The taxpayer can carry forward the remaining loss to future years to set off against future incomes. The Income Tax Act prescribes rules to set off and carry forward of losses under each head of income. Further, if the taxpayer has not filed the ITR on the Income Tax Website within the due date as per Sec 139(1), he/she cannot carry forward losses to future years. However, the taxpayer can carry forward the loss under the head Income from House Property to future years even if he/she files the ITR after the due date.

Set Off Losses

Intra-Head Set Off of Loss

Intra-Head set off is the adjustment of loss from an income source against the profit from another income source under the same head. For example, set off of loss from self-occupied property against profit from another rented house property is an intra-head set-off.

Inter-Head Set Off of Loss

Inter-Head set off is the adjustment of loss under an income head against the profit under another income head. For example, set off of loss from self-occupied house property against income from salary. Before making the inter-head set-off, the taxpayer has to first make the intra-head set-off.

Restrictions for making Adjustment of Loss (Set Off) in Current Financial Year

  • Business (PGBP) Loss
    • You can set off Non-Speculative Business Loss against any income except salary income.
    • However, you cannot set off Speculative Business Loss against any income other than Speculative Business Profit.
  • Loss under Capital Gains
    • You cannot set off loss under the head “Capital Gains” against income under other heads of income.
    • You cannot set off LTCL i.e. long-term capital loss against any income other than LTCG i.e. long-term capital gain.
    • Further, you cannot set off STCL i.e. short-term capital loss against any income other than STCG i.e. short-term capital gain, and LTCG i.e. long-term capital gain.
  • House Property Loss
    • You can set off loss under the head ‘House Property’ against any income. There is no restriction to set off house property loss.
    • From AY 2018-19, you can set off loss under the head ‘house property’ against any other income head to the extent of Rs. 2,00,000 only for any assessment year. However, you can carry forward unabsorbed loss for set-off in subsequent years as per provisions of Section 71B.
  • Loss from trading in Cryptocurrency and other Virtual Digital Assets (VDA)
    • You cannot set off loss from the transfer of cryptocurrency, NFT or VDA against any other income.
    • Further, you cannot set off loss under any other head of income against profit on transfer of cryptocurrency, NFT or VDA.
  • Horse-Race Loss
    • You cannot set off loss from the business of owning and maintaining race horses against any income other than income from the business of owning and maintaining race horses.
  • Specified Business Loss
    • You cannot set off loss from business specified under section 35AD against any other income except for income from specified business. Section 35AD is applicable for specified businesses like cold chain facility, warehousing facility for storage of agricultural produce, developing and building housing projects, etc.
  • You cannot set off loss against income from winnings from lotteries, crossword puzzles, horse race, card games, and games having gambling or betting.

Example for Set Off Loss

Non-Speculative Business Loss: INR 5,00,000
Speculative Business Income: INR 1,00,000
House Property Income: INR 2,50,000

Solution

Taxpayer can set off Non-Speculative Business Loss in the following order:

  1. Speculative Business Income (Intra-head set off) – INR 1,00,000
  2. House Property Income (Inter-head set off) – INR 2,50,000
  3. Carry Forward Loss to future years – INR 1,50,000 (5,00,000 – 1,00,000 – 2,50,000)

Carry Forward of Loss

Loss remaining after set off is the loss that taxpayer can carry forward to future years to set off against future incomes. For example, loss from self-occupied house property remaining after intra-head and inter-head set off, the taxpayer can carry forward for 8 years and adjust against future income from house property.

It is important that the taxpayer files the Original ITR within the due date as per Section 139(1) to carry forward the loss to future years. However, it is possible to carry forward loss under the head House Property to future years even if the taxpayer files a Belated ITR under Section 139(4). Below is the table with rules for carry forward and set off of losses against future incomes.

Example for Carry Forward of Loss

  • FY 2020-21 (AY 2021-22)
    Non-Speculative Business Loss: INR 5,00,000
    Speculative Business Income: INR 1,00,000
    House Property Income: INR 2,50,000
  • FY 2021-22 (AY 2022-23)
    Speculative Business Income: INR 30,000
    Non-Speculative Business Income: INR 1,40,000

Solution

  • FY 2020-21 (AY 2021-22)
    The taxpayer can set off Non-Speculative Business Loss in the following order:
    1. Speculative Business Income (Intra-head set off) – INR 1,00,000
    2. House Property Income (Inter-head set off) – INR 2,50,000
    3. Carry Forward Loss to future years – INR 1,50,000 (5,00,000-1,00,000-2,50,000)
  • FY 2021-22 (AY 2022-23)
    The taxpayer can set off Non-Speculative Business Loss in the following order:
    1. Carry Forward Loss – INR 1,50,000
    2. Non-Speculative Business Income – INR 1,40,000
    3. Speculative Business Income – INR 10,000

Carry Forward and Set Off of Non-Speculative Business Loss

The taxpayer can carry forward Non-Speculative Business Loss that remains after set off for 8 assessment years. The taxpayer can only carry forward loss if they have filed ITR before the due date u/s 139(1). In the coming financial years, the taxpayer can set off the brought forward Non-Speculative Loss against profits from both non-speculative and speculative business. Further, the taxpayer can set off a specified business loss under Section 35AD against profits from specified business under Section 35AD only.

The taxpayer can carry forward Speculative Business Loss that remains after set off for 4 assessment years. The taxpayer can only carry forward their loss if they have filed their income tax return before the due date of filing the ITR u/s 139(1). In the coming financial years, the taxpayer can set off the brought forward Speculative Business Loss against profits from speculative business only.

The taxpayer can carry forward loss from the business of owning and maintaining racehorses for 4 assessment years. In the coming years, the taxpayer cannot set off such loss against any income other than income from the business of owning and maintaining race horses.

Carry Forward and Set Off of House Property Loss

The taxpayer can carry forward and set off losses from House Property for 8 assessment years. The taxpayer can carry forward their loss even if they have filed ITR after the due date of u/s 139(1). In the coming financial years, the taxpayer can set off the brought forward House Property Loss against income from House Property.

Carry Forward and Set Off of Capital Loss

The taxpayer can carry forward loss under the head ‘Capital Gains’ that remains after set off for 8 assessment years. The taxpayer can only carry forward their loss if they have filed ITR before the due date of u/s 139(1). In the coming financial years, the taxpayer can set off the brought forward STCL (Short Term Capital Loss) against both STCG (Short Term Capital Gain) and LTCG (Long Term Capital Gains). Further, the taxpayer can set off the brought forward LTCL against LTCG only.

Carry Forward and Set Off of Crypto Loss

Budget 2022 brought changes to the tax on cryptocurrency, NFT, and other virtual digital assets (VDA). As per the budget provisions, here is the treatment of loss on the sale of cryptocurrency, NFT, and other VDA.

The taxpayer cannot set off the loss from the transfer of one VDA against profit from the transfer of another VDA or any other income. Further, the taxpayer cannot carry forward such loss to future years. If there is a loss under any other head of income, the taxpayer cannot set it off against profit on the transfer of VDA.

Treatment of Loss as per New Tax Regime

With the introduction of Section 115BAC in Budget 2020, there were few changes in the treatment of losses as follows:

  1. House Property Loss
    As per the new income tax regime, the taxpayer can set off only current year loss from house property against income from house property and not against any other Income. Moreover, the taxpayer cannot carry forward house property loss to future years if he/she opts for the new tax regime.
  2. Set Off Business/Profession Loss
    In the case of a business income, an individual/ HUF cannot set off the brought forward business loss or unabsorbed depreciation. Further, they cannot carry forward these B&P losses and unabsorbed depreciation if they relate to deductions/exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC.

    In simple terms, you can carry forward short-term & long-term capital losses, derivatives trading losses in the new tax regime. Since, only the losses relating to deductions & exemptions withdrawn under Section 115BAC(2)(i) cannot be set off or carried forward, for eg: House property losses, additional depreciation, etc.

    The image below gives a clear understanding of the treatment of losses in the new and old tax regime.

FAQs

I have incurred losses under equity intraday trading. Can I adjust it against F&O trading income?

Loss from equity intraday trading is a speculative business loss. Speculative loss can be set off against Speculative Profits only. Thus, it cannot be adjusted against F&O trading income. However, you can carry forward the loss for 4 years and adjust it against speculative profits in future.

I have incurred losses of Rs. 10 lacs from F&O trading. I also have an Interest Income of Rs. 2 lacs and Salary Income of Rs. 6 lacs. Can I adjust F&O trading loss with salary income and interest income?

Loss from F&O trading is a non-speculative business loss. Non-Speculative Loss can be set off against any income except Salary Income in the current year. Thus, you can adjust non-speculative loss against interest income (2 lacs) but not salary income. However, you can carry forward the remaining loss (8 lacs) for 8 years and adjust it against business & profession income (speculative and non-speculative) in future.

I have not filed Income Tax Return before the due date of filing the return. Can I file the ITR to carry forward loss to future years?

You cannot carry forward loss to future years if the income tax return for the year in which loss is incurred is not filed within the due date as per Sec 139(1). However, if you have incurred loss under head house property, you can carry forward the loss even if the return is filed after the due date.

Income Tax on Equity Share Trading

Trading in equity shares and stocks has become very easy due to the availability of online trading platforms. Equity trading includes means buying and selling of various financial instruments such as delivery stocks, intraday, futures, options, etc. If you are trading in equity, you need to file your ITR and pay tax on this income. There can be two forms of equity share trading i.e. Equity Delivery Trading and Equity Intraday Trading.

What is Equity Trading – Intraday, Delivery, Futures & Options?

What is Equity Delivery Trading?

When a trader buys an equity share from the stock market and retains it for more than a day, it is called Equity Delivery Trading. It is called delivery trading because the intention of this purchase is to hold the share for a time long enough for the ownership to be transferred to the buyer. In this case, the share is delivered to the trader’s Demat account. The intention is to earn short/long-term capital gains. Equity Delivery Trading is considered as either Capital Gains or Non-Speculative Business Income. Further, when an investor applies for an IPO i.e. Initial Public Offering, and receives shares, income on sale of such shares is treated as capital gains.

What is Equity Intraday Trading?

When a trader buys an equity share and sells it on the same day, it is called Equity Intraday Trading. The intention is to earn profits from the fluctuation of prices in a single day. In the case of Equity Intraday Trading, there is no delivery of shares and therefore ownership is not transferred. For Income Tax, Equity Intraday Trading is considered a Speculative Business Income since trading is done without the delivery of shares and with an intention to earn quick profits. The trader must pay tax on intraday trading at slab rates.

What is Equity F&O Trading?

When a trader buys or sells futures or options of an underlying asset i.e. equity share, it is as equity F&O trading. Income from equity F&O trading is a non-speculative business income as per income tax.

How to treat sale of shares as Capital Gains or Business Income

The profit or loss from equity and mutual fund trading may be considered as Capital Gains income or Business Income. The taxability of both heads of income is different. Thus, the treatment of profit or loss on the sale of equity shares or equity mutual funds has been a matter of dispute between the equity traders and the income tax department.

Primary factors to classify treatment of income on the sale of shares and securities:

  • Significant Trading Activity
    • When the trader has done significant share trading activity with regular trading in shares and securities or in futures and options during the year, the income from such activity is classified as Business Income.
    • When the volume of trading transactions is less and it is not a regular activity, the income from such activity is classified as Capital Gains
  • Intention of Taxpayer
    • If the intention of the taxpayer is to resale shares and securities to earn profits, the income is classified as a Business Income
    • If the intention of the taxpayer is to invest for long term appreciation and earn interest and dividends, the income is classified as Capital Gains

Clarification from CBDT Circular

With an intention to reduce litigations and disputes and to maintain a uniform approach, the CBDT proposed the following:

  • In the case of listed shares and securities, it is the choice of the taxpayer to report income as Capital Gains or Business Income
    • If the taxpayer treats listed shares and securities as stock-in-trade irrespective of the period of holding, income would be treated as Business Income
    • If the taxpayer treats listed shares and securities held for more than 12 months as an investment, income would be treated as Capital Gains. However, the only condition is to follow the same method continuously in subsequent years as well unless there is a major change in the circumstances.
  • In all other cases, the income head would be decided on the basis of significant trading activity and the intention of the taxpayer to hold it as stock or investment
  • In the case of unlisted shares and securities, income should be treated as capital gains irrespective of the period of holding

CBDT Guidelines for Assessing Officers

For the Assessing Officer i.e. A.O. to determine whether the taxpayer is a trader or investor, here are a few guidelines:

  • If the purchase or sale of securities was linked to the usual trade or business of the taxpayer or it was an occasional independent activity
  • Whether the purchase of shares and securities was with an intention of resale at a profit or for long term appreciation and earning interest/dividends
  • Whether the volume of transactions in the financial year is significant
  • If there were continuous and regular trading transactions during the financial year
  • The holding period of shares and securities traded by the taxpayer
  • Time devoted to trading and its impact on the livelihood of the taxpayer

Can a taxpayer treat income on the sale of shares as both Capital Gains & Business Income?

In the CBDT Circular, Circular no. 4/2007, dated 15.06.2007, it mentioned that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio that comprises securities that are treated as capital assets and a trading portfolio that comprises securities that are treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e. capital gains as well as business income. However, the taxpayer should be able to produce evidence from their records to maintain a distinction between shares held as stock in trade and shares held as an investment.

Income Heads for Equity Share Trading

Equity Trading as Capital Gains Income

A trader who does trading in listed shares and securities with an intention to invest, the profit or loss is considered as Capital Gains Income.

  • Long Term Capital Gain (LTCG) u/s 112A: Any gain arising on the sale of Long Term Capital Asset is considered Long Term Capital Gain. Listed securities held for more than 12 months are considered Long Term Capital Assets.
  • Short Term Capital Gain (STCG) u/s 111A: Any gain arising on the sale of Short Term Capital Asset is considered as Short Term Capital Gain. Listed securities held for up to 12 months are considered as Short Term Capital Assets.

Equity Trading as Non-Speculative Business Income

A trader who does significant trading activity and trading income is the only source of income, the profit or loss is considered a Non-Speculative Business Income. The trader can claim expenses incurred for earning such business income and needs to file ITR-3.

Income Tax on Equity Share Trading

The rate of Income Tax on trading in equity shares depends on the income head. If it is considered a Non-Speculative Business Income, it is taxed at income tax slab rates. However, if treated as Capital Gains Income, below are the tax rates.

Income Tax on Equity treated as Capital Gains Income

  Type of Security Period of Holding Long Term Capital Gain (LTCG) Short Term Capital Gain (STCG)
Domestic Company Listed Equity Share (STT paid) 12 months 10% in excess of Rs. 1,00,000 under Section 112A 15% under Section 111A
Listed Equity Share (STT not paid) 12 months 10% without Indexation Slab Rates
Unlisted Equity Share (STT not paid) 24 months 20% with Indexation Slab Rates
Foreign Company Listed Equity Share 24 months 10% without Indexation Slab Rates
Unlisted Equity Share 24 months 20% with Indexation Slab Rates

Income Tax on Equity treated as Non-Speculative Business Income

Non-Speculative Business Income is taxable at slab rates.

Slab Rates if Equity Trader opts for Old Tax Regime

Taxable Income (INR) Slab Rate
Up to 2,50,000 NIL
2,50,001 to 5,00,000 5%
5,00,001 to 10,00,000 20%
More than 10,00,000 30%

Note: Surcharge is liable for the total income as per the prescribed surcharge slab rates. Cess is liable at 4% on (basic tax + surcharge).

Slab Rates if Equity Trader opts for New Tax Regime

Taxable Income (INR) Slab Rate
Up to 2,50,000 NIL
2,50,001 to 5,00,000 5%
5,00,001 to 7,50,000 10%
7,50,001 to 10,00,000 15%
10,00,001 to 12,50,000 20%
12,50,001 to 15,00,000 25%
More than 15,00,000 30%

ITR Form, Due Date, and Tax Audit Applicability for Equity Traders

  • ITR Form: Equity Trader should file ITR-2 on Income Tax Website if they treat the income as Capital Gains. However, if they treat the income as Non-Speculative Business Income, the equity trader should file ITR-3 and prepare financial statements.
  • Due Date
    • Up to FY 2019-20
      31st July is the due date for equity traders to whom Tax Audit is not applicable
      30th September is the due date for equity traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July is the due date for equity traders to whom Tax Audit is not applicable
      31st October is the due date for equity traders to whom Tax Audit is applicable
  • Tax Audit: If the trader treats the income as Business Income, the equity trader should check if a tax audit under Sec 44AB is applicable.
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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Turnover Calculation for Equity Trading

To determine whether the Tax Audit is applicable or not, we must calculate Trading Turnover when equity trading is treated as a business income. It is important to note that tax liability does not depend on Turnover.

Turnover for Equity Delivery Trading = Absolute Profit

Absolute Turnover means the sum of positive and negative differences. Trading Turnover Calculation can be either through scrip wise method or trade wise method.

Tax Audit for Equity Trading

If Equity Delivery Trading is treated as Business Income, below are the conditions to check the applicability of Tax Audit.

Trading Turnover up to INR 2 Cr

  • If the taxpayer has incurred a loss or the profit is less than 6% of Trading Turnover and total income is more than the basic exemption limit, a Tax Audit is applicable.
  • If the taxpayer has a profit of more than or equal to 6% of Trading Turnover, Tax Audit is not applicable.

Trading Turnover more than INR 2 Cr and up to INR 10 Cr

  • If the taxpayer has incurred loss or the profit is less than 6% of Trading Turnover, the Tax Audit is applicable.
  • If the taxpayer has a profit of more than or equal to 6% of Trading Turnover and has not opted for the Presumptive Taxation Scheme under Sec 44AD, Tax Audit is applicable.
  • When the taxpayer has a profit of more than or equal to 6% of Trading Turnover and has opted for the Presumptive Taxation Scheme under Sec 44AD, Tax Audit is not applicable.

Trading Turnover more than INR 10 Cr

  • Tax Audit is applicable irrespective of the profit or loss.

Advance Tax for Equity Share Trading

A taxpayer whose tax liability on the total taxable income from all the sources during the financial year exceeds INR 10,000 is liable to pay Advance Tax. Income for Equity Share Trading is a non-speculative business income taxable at slab rates. Thus, the equity trader is liable to pay Advance Tax as follows:

Advance Tax for Equity Traders who do not opt for Presumptive Taxation

If Equity Traders do not opt for presumptive taxation under Section 44AD and have profits, they must pay Advance Tax in four installments as per the table below.

Advance Tax Liability Due Date
15% of Tax Liability On or before 15th June
45% of Tax Liability On or before 15th September
75% of Tax Liability On or before 15th December
100% of Tax Liability On or before 15th March

Advance Tax for Equity Traders who opt for Presumptive Taxation

If Equity Traders opt for presumptive taxation under Section 44AD and have profits, he/she must pay the entire amount of Advance Tax in a single installment on or before 15th March.

Carry Forward Loss for Equity Trading

Carry Forward Loss if Equity Trading treated as Capital Gains

  • Equity traders can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). He/she can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
  • Equity Trader can set off the long-term losses against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG only.

Carry Forward Loss if Equity Trading treated as Business Income

The equity trader can claim and set off and carry forward the losses if a tax audit has been conducted by a professional chartered accountant in practice. They can carry forward the remaining loss to future years and set off against future profits to reduce the income tax liability.

Loss from Equity Trading is a Non-Speculative Business loss. In the current year, the trader can set off against any income except salary income. In future years, the trader can set off against business income (both speculative and non-speculative). The trader can carry forward the loss for 8 years.

If Equity Traders have opted for the new tax regime, they cannot set off the brought forward business loss against business incomes. Further, they cannot carry forward the business loss to future years.

FAQs

I have treated income from sale of shares as capital gains in ITR of previous year. Can I treat it as business income now?

As per the CBDT Circular, the treatment of income from the sale of shares should be consistent each year. The taxpayer shall not be allowed to adopt a contrary approach in subsequent years. Thus, if you have considered income from the sale of shares as Capital Gains in a year, you cannot treat it as Business Income in subsequent years.

Can I treat sale of equity shares as Business Income?

When the taxpayer has done a significant trading activity, you have an option to consider equity shares as stock-in-trade and treat income from trading as a Business Income. You can claim expenses incurred for earning such business income and the net income is chargeable at slab rates as per the Income Tax Act. The trader should file ITR-3 since income is considered a Business Income.

If I only have Mutual Fund Investment, which ITR do I need to file?

If you have income from the sale of mutual funds, you should report it as Capital Gains and file ITR-2. The nature of capital gain and its tax treatment shall depend upon the nature of the mutual fund and its period of holding…

Documents required for Income Tax Return filing in India

Income Tax Return or ITR forms are different on the basis of income sources. Specific documents of the taxpayer are required to file ITR.
Other documents required may differ based on the income situation. These documents are not required to be submitted to the IT Department while filing the Income Tax Return. Since ITR is an annexure-less form. However, if a taxpayer receives a notice from the ITD such documents may be required to be submitted.

List of Basic Documents required for filing the Income Tax Return – ITR

Following are the basic documents mandatory to file an ITR in India:

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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Documents Required for Different Income Heads

Salary Income/ Pension Income

Following documents are required from taxpayer having salary/ pension income:

  • Form 16
  • Salary Slips (If form 16 is not available)
  • Pension Statement / Passbook

House Property Income

The following documents are required to determine when rental income is earned by a taxpayer or there is a home loan. These documents will help determine the correct deduction and Income from House Property.

  • Property Address
  • Rent Agreement
  • Co-ownership details in case of co-owned property
  • Municipal Tax Receipts
  • Form 16A if TDS is deducted on rental income
  • Home loan repayment certificate/ Interest Certificate from the bank
  • Pre-Construction Interest Details
ITR for Multiple House Properties
CA Assisted Income Tax Return filing for Individuals and HUFs having multiple house property income, multiple salaries and income from other sources.
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ITR for Multiple House Properties
CA Assisted Income Tax Return filing for Individuals and HUFs having multiple house property income, multiple salaries and income from other sources.
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Capital Gains Income

When an individual sells any movable or immovable property a Capital Gain arises. It also includes the sale of shares and securities.

  • Sales and Purchase deed, stamp duty valuation in case of sale of the land/ building
  • Details of Improvement cost.
  • Details of expenses incurred on the transfer of capital assets
  • Proof of cost of the asset, cost of improvement and sales receipts in case of movable assets
  • Details of investment made to claim exemptions
  • Capital Gains Deposit Account details if any
  • For shares & securities- Trading statement/ Stock Ledger/ Contact Notes
ITR for Gains from Sale of House / Property
CA Assisted Income Tax Return filing for individuals and HUFs having Capital Gains / Loss income from sale of house, property, land, etc.
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ITR for Gains from Sale of House / Property
CA Assisted Income Tax Return filing for individuals and HUFs having Capital Gains / Loss income from sale of house, property, land, etc.
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Business and Professional Income

Following are the documents required to file the return if you are earning any income from Business and Profession during the year:

  • Balance Sheet and Profit & Loss Statement
  • Bank Account Statement/ Passbook
  • Supporting documents for expenses incurred
  • Cash Register
  • Any other documents required to maintain the books of accounts of the business & profession
  • Audit Report in case the profit from the business is less than 8% of the Total Turnover.
ITR for Proprietors with Professional Income
CA Assisted Income Tax Return filing Plan for Individuals & HUFs earning professional income from proprietary firm.
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ITR for Proprietors with Professional Income
CA Assisted Income Tax Return filing Plan for Individuals & HUFs earning professional income from proprietary firm.
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Income from Other Source

Any income which does not fall under any of the above heads of income, in that case, it will come under the head Income From Other Source.

  • Total Interest income earned from savings/ current account
  • Interest certificate from deposits/ Bonds/ NSC
  • PPF Account Statement/ Passbook
  • Dividend Warrants/ counterfoils
  • Proof of details of receipt of any other incomes
  • Rent Agreement in case of let out machinery
ITR for Pensioners
CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
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ITR for Pensioners
CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
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Documents Required for Tax Saving Investments (Section 80)

One can invest in some of the tax-saving investment schemes to save taxes and claim a tax deduction. Following are the documents that come in handy for tax saving investment made:

  • ELSS/ ULIP/ NSC investment details
  • PPF account passbook/ statement
  • Life/Medical Insurance Receipts
  • Details of Tax Saving FD
  • National Pension Scheme investment details
  • Senior Citizen Saving scheme investment details
  • Donation Receipts
  • Children Tuition Fees Paid Receipts
  • Repayment Certificate for home loan/ education loan
  • Certificate from specified medical authorities in case of disability
  • Receipts/proof of any other tax saving investment/contributions

Documents Required for Foreign Income and Foreign Investments

  • Details of foreign income and taxes deducted on the same
  • Details of Assets held outside India including the foreign bank accounts.
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
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ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
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FAQs

What is the list of documents required for filing basic ITR?

The basic list of documents required to file ITR is as follows:
PAN (Permanent Account Number)   
Aadhar Number
Form 26AS
Bank Account Details
Challan of any advance tax or self-assessment tax (if paid during the year)
Details of the original return (if filing a revised return)

What is Form 16?

It is a certificate of TDS on salary. Every employer issues Form 16 to an employee after the end of a Financial year. Employees usually receive Form 16 before 31st May of the next financial year. It contains details of income earned and the taxes deducted. Furthermore, Form 16 is divided into two parts: Form 16 Part A and Form 16 Part B.

What is Form 26AS?

It is a consolidated Tax Credit Statement which provides the following details to a taxpayer:

1. Details of taxes deducted from the taxpayer’s income.
​2. Details of taxes collected from taxpayer’s payments.
3. Advance Taxes, Self Assessment Taxes, and Regular Assessment
4. Taxes paid by the taxpayers.
5. Details of the refund received during the year.
6. Details of any high-value transactions (for eg. Shares, Mutual Funds, etc.).

Exempt Income under Income Tax

What is Exempt Income?

There is a common myth that if you are earning any income then you will have to pay tax on it. The more you earn, the more would be the tax liability. But it is not true. There exist certain types of income for which your tax liability is zero. Such incomes are known as Exempt Income u/s 10 of the Income Tax Act. Such income is different from Deduction under Income Tax. While exempted incomes are excluded from the total taxable income of a taxpayer, deductions are availed on taxable incomes.

Types of Exempt Income

  • Agriculture Income:
    • Any income earned by the taxpayer from agriculture activity is exempt from tax. However, the agriculture income must be included in the total income for the calculation of the applicable slab rate. Thus, it is indirectly taxed by taxing the non-agriculture income at higher tax slab rates.
  • Gift Received from Relatives: 
    • Any gift received by an individual from relatives is exempt from tax. Gift received on the marriage or by way of will is exempt. Monetary gift received from non-relative up to Rs. 50,000 is also exempt from tax.
  • Long Term Capital Gain: 
    • From FY 2018-19, LTCG up to INR 1,00,000 is exempt from tax. Earlier, the long-term capital gain on the sale of stocks and equity mutual funds was exempt from tax under section 10(38). This section is not applicable to debt mutual funds.
  • Interest on Securities: 
    • Income from securities in the form of interest, premium, etc from government-issued bonds, certificates, deposits are tax-free. For eg: Bonds issued by NHAI, IRFC, REC, etc.
  • Profit Share from Partnership Firm: 
    • Any share of profit from a partnership firm or LLP is exempt from tax in the hands of the partner. However, interest on capital and remuneration is taxable.
  • Provident Fund: 
    • Payment received from PF is exempt under Section 10. However, PF withdrawal is taxable for less than 5 years of service. In the case of EPF, the taxpayer can withdraw the balance subject to a few conditions.
  • Gratuity: 
    • Gratuity received by a government employee is totally exempt from tax. Whereas in the case of employees of a private organisation, it is exempt subject to certain conditions.
  • Commuted Pension: 
    • Commuted pension received by the government employee is fully exempt. However, for other employees, it is exempt subject to certain conditions.

Other Exempt Income

  • Life Insurance: 
    • The payment proceeds of a life insurance policy are exempt under section 10(10D). This includes a maturity amount as well as death claims.
  • Receipts From HUF: 
    • Any amount received out of family income is tax-free in the hands of a member. For example, a family owns an impartible estate. An amount received out of an income of family estate by the member of such HUF is tax-free in the hands of the member.
  • Scholarship and awards: 
    • Any type of scholarship or award granted to any deserving student to meet the cost of education is exempt from tax. The entire sum of money received as a scholarship gets that tax exemption.
  • Amount Received under VRS (Voluntary Retirement Service): 
    • When an employee receives an amount under the scheme of voluntary retirement as per Rule 2BA of the Income Tax Rules gets a tax exemption up to Rs. 5,00,000 from the amount received as voluntary retirement.
  • Allowance for Foreign Services: 
    • Any Indian resident rendering service outside India and receiving any allowances or prerequisite outside the country are exempt from income tax u/s 10(7) of the Act. Due to this section, any perquisite and allowances received by government servant while working outside India are tax-free.

Reporting Exempt Income in ITR

Taxpayers can declare their exempt income while filing for income tax every financial year. The taxpayer should report exempt income under the section ‘Exempt Income’ in the tab ‘Computation of Income and Tax’ of ITR-1 & ITR-4. You can add a row, select the nature of income from the dropdown list, add description and amount.

The taxpayer should report exempt income under Schedule EI i.e. Schedule Exempt Income of ITR-2 & ITR-3. The taxpayer should report the details under the specific row for Interest Income, Agriculture Income, Income not chargeable as per DTAA, other exempt income with a relevant option from the dropdown. The Exempt Income is separately reported and not added to the Gross Total Income.

Disclosure of Exempt Income for Salary and Non-Salary Allowances

For salary account holders, you need to make a disclosure of exempt income under Schedule S – Details of Income from Salary’ while filing income tax as per ITR-2. The various exemptions are:

  1. HRA – House Rent Allowance
  2. LTA – Leave Travel Allowance
  3. Leave Encashment Amount
  4. Pension Amount
  5. Gratuity Amount
  6. Any form of perquisites received
  7. Amount received from a Voluntary Retirement Scheme

For self-employed or non-salary account holders, there are certain incomes categorized under exempt income. They include dividends, agricultural income, interest on funds, capital gains which have to be disclosed under Schedule EI while filing income tax as per ITR-1.

FAQs

Is dividend income exempt from tax?

Earlier, the Dividend received from a Domestic Company was exempt from tax under Section 10(38). However, under Budget 2020, DDT was abolished thus making dividend a taxable income for a taxpayer. If dividend income exceeds INR 5,000, the company is liable to deduct TDS u/s 194 for dividend on equity shares and u/s 194K for dividend on equity mutual funds.

Is it mandatory to show exempt income in ITR?

Yes. You have to mention all your incomes while filing Income Tax Return, be it taxable or exempt. There is a separate tab to show exempt income in ITR. You need to mention the nature of exempt income and the amount of income received during the year.

Which ITR should I file if I have earned exempt income during a year?

You can file ITR-1 if you have earned only exempt income during a year. However, if you have earned agriculture income exceeding Rs. 5,000 then you should file ITR-2.

Capital Gains and Taxes : A Complete Guide

What is Capital Gain?

Capital Gain is simply the profit or loss that arises when you transfer a Capital Asset. If you sell a Long Term Capital Asset, you will have Long Term Capital Gain and if you sell a Short Term Capital Asset, you will have a Short Term Capital Gain. If the result from the sale is negative, you will have a capital loss. The Capital Gain will be chargeable to tax in the year in which the transfer of capital assets takes place.

What is a Capital Asset?

Capital Asset means any kind of property owned by you, whether or not connected with your business or profession. It includes movable assets, immovable assets, tangible/intangible assets, rights and choices in actions, etc.

Some of the examples of Capital Assets are house property, land, building, goodwill, patent, trademark, rights, machinery, jewellery, car, painting etc.

However, the following assets shall not be considered Capital Assets:

  • ​Any stock in trade, consumables, or raw material held for the purpose of business or profession.
  • ​Any personal effects like clothes or furniture etc. that the taxpayer holds for their personal use.
  • Agricultural land which is not situated within:
    • the jurisdiction of the municipality or cantonment board which has a population between 10,000 and 1,00,000.
    • 6 KMs of municipality or cantonment board which has a population between 1,00,000 and 10,00,000.
    • 8 KMs of municipality or cantonment board which has a population of more than 10,00,000.
  • Gold Bonds, Special Bearer Bonds & Gold Deposit Bonds issued by the Government of India.

Meaning of Transfer

Any profit or gain that arises from the ‘transfer’ of a capital asset is a capital gain. Transfer includes:

  • Sale, exchange, relinquishment (surrender) of the asset,
  • Extinguishment of any rights in the asset (reducing any right on asset).
  • Compulsory acquisition of an asset,
  • Conversion or treatment of any capital asset into or as stock in trade of a business
  • Maturity or redemption of zero coupon bonds
  • Any other transaction which allows to take or retain the possession of an immovable property in part performance of the contract as per sec 53A of the transfer of Property Act,
  • Any other transaction which has the effect of transferring or enabling the enjoyment of an immovable property whether by way of becoming a member, or acquiring shares in a cooperative society , company or any other association by way of any agreement or arrangement.

Note: If any capital asset is transferred by way of gift or will or inheritance, this shall not be treated as transfer. Further, if the asset transferred is not a capital asset, provisions of capital gain shall not apply.

What is Long Term and Short Term Capital Asset?

If a Capital Asset is held by the assessee for more than 36 months prior to its sale, then it is a Long Term Capital Asset. On the other hand, Short Term Capital Asset means the asset held by an assessee for not more than 36 months prior to its sale.

However, in the following cases, the assets will be considered Short Term if they are held for 12 months or less instead of 36 months:

If the above mentioned assets are held for more than 12 months, they will be considered as Long Term Capital Assets.

As per the above discussion it is clear that different assets have different periods of holding to be called short term and long term. The table given below defines period of holding for different classes of asset in order to be classified as short term or long term:

Asset Period of holding Short Term / Long Term
Immovable property < 24 months Short Term
>24 months Long Term
Listed equity shares <12 months Short Term
>12 Months Long Term
Unlisted shares <24 months Short Term
>24 months Long Term
Equity Mutual funds <12 months Short Term
>12 months Long Term
Debt mutual funds <36 months Short Term
>36 months Long Term
Other assets <36 months Short Term
>36 months Long Term

Note: Determination of period of holding is important because it impacts the method of calculating Capital Gains and also the tax rates.

How to determine the holding period if the asset was gifted?

  • In case the asset was acquired as a gift, or through a will, succession, or inheritance, the period of holding by the previous owner will also be included to determine the total holding period.
  • For eg, A gifted a watch to B on 01/12/2015. This watch was acquired by A on 01/12/2013. So for B, the total period of holding the watch will be from 01/12/2013 until the sale of the watch.
  • In case of bonus shares or right shares, the period of holding will be calculated from the date they were allotted.

Capital Gain Calculator

Calculation of Capital Gains is different in case of Long Term Capital Assets and Short Term Capital Assets. Here are some of the terms you need to know:

  • Full Value of Consideration: 
    • It is the amount received or to be received by the seller when he sells (transfers) the asset to the buyer. Capital Gain will be chargeable in the year in which the asset is transferred, even though consideration is received later on.
  • Cost of Acquisition: 
    • It is the purchase price at which the seller acquired the asset.
  • Cost of Improvement: 
    • It is an expense that is incurred to make any improvements or repairs or enhancements to the asset. Improvement costs will be considered only if they are incurred after 1st April 1981.
  • Indexation: 
    • It is derived with the help of the Cost Inflation Index. Cost Inflation Index is simply the measure of inflation and it is notified by the Central Government every year. Indexation is a technique to adjust income/payments by means of a price index, in order to maintain the purchasing power of the public due to inflation.
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How to Calculate Short Term Capital Gain Tax?

Particulars Amount
Full Value of Consideration XXXX
Less:​
Expenditure incurred exclusively in connection with the transfer.​​
Cost of Acquisition.
​Cost of Improvement.

​(XXX)

​​(XXX)​
(XXX)
Less: Exemption under Section 54B (XXX)
Short Term Capital Gain (1-2-3) XXXX

How to Calculate Long Term Capital Gain Tax?

Particulars Amount
Full Value of Consideration XXXX
Less:​
Expenditure incurred exclusively in connection with the transfer.
​​Index* Cost of Acquisition.
Index* Cost of Improvement.

(XXX)
​​
(XXX)
​(XXX)
Less: Exemption under Section 54, 54EC, 54F, 54B, 54D, 54EE, 54GB (XXX)
Long Term Capital Gain XXXX
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Can I claim any expenses as a deduction from the full value of consideration?

Expenses that are wholly and exclusively incurred in relation to the transfer of property, are allowed to be deducted from sales consideration. So here are different sales transactions and the allowable expenses for the same:

Sale of shares/stocks

Sale of House Property

  • ​Commission or brokerage paid to the property agent
  • ​Stamp duty paid on transfer of property
  • ​Any traveling expenditure incurred in order to complete the sales transaction may be allowed as a deduction
  • ​In case the property is transferred as a result of inheritance, any legal charges related to obtaining a succession certificate, executor fees, etc., may also be allowed as a deduction
  • ​In the case of compulsory acquisition, litigation expenses for claiming the enhanced compensation are allowed as a deduction

All these expenses are allowed as deduction only for the purpose of calculating the Capital Gains. Please note that these expenses are not allowed as a deduction from any other heads of income.

The cost of acquisition and cost of the improvement is also allowed as a deduction from the sales consideration.

Taxation on Long-term and Short-term Gains

Type of Capital Gain Tax Rate
Long Term Capital Gain under Section 112 (when Securities Transaction Tax is not applicable) 20% + Surcharge and Education Cess
Long Term Capital Gain under Section 112A (when Securities Transaction Tax is applicable) 10% over and above INR 1 lakh
Short Term Capital Gain (when Securities Transaction Tax is not applicable) Normal slab rate applicable to Individuals
Short Term Capital Gain under Section 111A (when Securities Transaction Tax is applicable) 15% + Surcharge and Education Cess

The taxability of gains from the sale of Equity and Debt mutual funds are different. Funds with more than 65% of the portfolio consisting of equities are called Equity Funds.

  Short Term Capital Gain Long Term Capital Gain
Debt Funds Normal slab rate applicable to Individuals 20% with Indexation + Surcharge and Education Cess
Equity Funds 15% + Surcharge and Education cess Exempt

Note: Unlike Equity mutual funds, debt funds have to be held for more than 36 months to qualify as Long Term Capital Assets.

Capital Gain Exemption

The Income Tax Act allows a total/partial exemption from Capital Gains under different sections. It is possible to avail of multiple Capital Gains Exemption under these sections. However, the aggregate amount of exemption cannot exceed the total amount of Capital Gain.

Section Type of Asset Sold Type of Asset Purchased Taxpayer Type
Section 54 House Property (LTCA) House Property Individual/HUF
Section 54F Any asset other than House Property (LTCA) House Property Individual/HUF
Section 54EC Land or Building or both (LTCA) Bonds of NHAI/REC Any Taxpayer
Section 54B Agricultural Land (LTCA/STCA) Agricultural Land Individual/HUF

Section 54D

Compulsory Acquisition of Land or Building Industrial Land or Building Any Taxpayer

Section 54EE

Any Long Term Capital Asset (LTCA) Units of notified fund Any Taxpayer

Section 54GB

Residential house or residential plot of land (LTCA) Subscription in equity shares of eligible startup Individual/HUF

Documents for Capital Gains

  • Income Tax Department (ITD) issues PAN. It is an alphanumeric ID of a taxpayer who is liable to pay taxes. PAN enables the department to link all transactions of the “Person” with his “Income”. Hence it is the most essential document while filing ITR.
  • Aadhaar (Aadhaar Card) a 12 digit unique identification number issued by the UIDAI (Unique Identification Authority of India). It is mandatory for Resident Individuals to provide details of Aadhaar while filing ITR.
  • Following details are required to calculate Capital Gains and file Form ITR-2 on the income tax website:
    • Purchase date
    • Sale date
    • Period of holding the asset
    • Transaction or brokerage charges (if any)
  • Any salaried individual, whose TDS has been deducted from his salary by the employer, receives Form 16 from his/her employer. It is a detailed statement that shows the salary earned during a Financial Year along with deductions, exemptions, and tax deducted from the salary in that year.
  • Form 26AS is a consolidated Tax Credit Statement.  It provides the following details to a taxpayer.
    • ​Details of taxes deducted from the taxpayer’s income.
    • ​Details of taxes collected from taxpayer’s payments.
    • Advance Tax, Self Assessment Tax, and Regular Assessment Taxes paid by the taxpayers.
    • Details of the refund received during the year.
    • Details of any high-value transactions (for eg. Shares, Mutual Funds, etc.).
  • A taxpayer can claim the deduction of certain Investments and expenses while filing ITR. Investments proofs are required to claim Chapter VI-A deductions. These investments reduce the net taxable income of a taxpayer.

FAQs

Can you apply tax losses against capital gains?

A capital loss can only be offset against any capital gains in the same income year or carried forward to offset against future capital gains. However it cannot be offset against income of a revenue nature.

How many years can you carry forward capital losses?

If you are not able to set off your entire capital loss in the same year, both Short Term and Long Term loss can be carried forward for 8 Assessment Years immediately following the Assessment Year in which the loss was computed.

In case I have sold a house that I had purchased 4 years ago, should I pay tax on any profits that I have earned?

If you sell a house, it comes under long-term capital assets. Therefore, any profit that is made is taxable under Capital Gains.

Which ITR Form should I file if I have only Income from Capital Gain?

There are different ITR forms based on the type and amount of income. “Individuals with income from salary and capital gains or only Capital Gains are required to fill ITR-2 on Income Tax Portal”

AY 2021-22 File ITR 2 Form for Income from Capital Gains

What is ITR 2 Form?

ITR 2 Form is the Income Tax Return form for all those individuals and HUFs who do not have any sort of Business or Professional Income. This means any individual having Salary, House Property, Capital Gains and Other Sources can file ITR 2.

Other important income tax documents include Form 16, Form 26ASForm 12BBForm 10BA and Form 15G/ 15H.

ITR 2 Form for Capital Gains Income
Download the ITR 2 Form for Capital Gains Income for AY 2021-22
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ITR 2 Form for Capital Gains Income
Download the ITR 2 Form for Capital Gains Income for AY 2021-22
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Up to FY 2018-19 (AY 2019-20), it was not mandatory to file Income Tax Return if the total income was less than the basic exemption limit. However, Budget 2019 inserted the seventh proviso to Section 139(1). As per this new provision, if a taxpayer has entered into high-value transactions, it is mandatory to file the ITR even if the total income does not exceed the basic exemption limit. The high-value transactions can be either of the following:

  1. If the taxpayer has deposited more than INR 1 Cr in a current account
  2. If the taxpayer has incurred foreign travel expense of more than INR 2 lacs
  3. Or, if the taxpayer has incurred electricity expense of more than INR 1 lac
File Your ITR for
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ITR 2 Form Breakdown

The ITR 2 Form has 25 sections that are needed to be filled before reviewing and submitting the return after paying the tax and finally verifying the return. These sections are as follows:

  • Part A General 
  • Schedule Salary
  • Schedule House Property
  • Schedule Capital Gains 
  • Schedule 112A and Schedule-115AD(1)(iii) proviso
  • Schedule Other Sources
  • Schedule CYLA
  • Schedule BFLA
  • Schedule CFL
  • Schedule VI-A
  • Schedule 80G and Schedule 80GGA
  • Schedule AMT
  • Schedule AMTC
  • Schedule SPI
  • Schedule SI
  • Schedule EI
  • Schedule PTI
  • Schedule FSI
  • Schedule TR
  • Schedule FA
  • Schedule 5A
  • Schedule AL
  • Part B – Total Income (TI)
  • Tax Paid
  • Part B-TTI

Who can file ITR-2?

It can be filed by an individual or a Hindu Undivided Family (HUF) whose total income includes:

Further, it can be used where the income of another person is clubbed with a taxpayer’s income provided such income falls in any of the above categories.

Who can not file ITR-2?

  • An individual whose total income includes Business or Professional income.
  • A taxpayer earning income from Partnership Firm can not file ITR-2. For declaring these types of Income, you may file ITR-3 or ITR-4.

File ITR 2 Online using Income Tax Website

  1. General Information

    Fill in the general information which consists of your contact, personal information, filing status & bank details.

  2. Schedule Salary, House Property & Other Sources

    In Schedule Salary, you need to review, enter, edit details of your income from salary or pension, exempt allowances and deductions u/s 16.
    Under schedule house property, you need to review, enter & edit details relating to house property (self-occupied, let out, or deemed let out). The details include co-owner details, tenant details, rent, interest, pass through income etc.
    and, under schedule other sources, you need to review, enter and edit details of all your income from other sources, including (but not limited to) income charged at special rates, deductions u/s 57 and income involving race horses.

  3. Schedule Capital Gains

    Capital Gains arising from sale or transfer of different types of capital assets have been segregated. In a case where capital gains arises from sale or transfer of more than one capital asset, which are of same type, please make a consolidated computation of capital gains in respect of all such capital assets of same type. But in case of transfer of land / building, it is mandatory to enter the computation towards each land / building. In Schedule Capital Gains, you need to enter details of your short term and long term capital gains or Losses for all types of capital assets owned.

  4. Schedule 112A & Schedule 115AD(i)(iii) Proviso

    Under Schedule 112A, you need to review, enter and edit details about sale of equity shares of a company, an equity-oriented fund, or a unit of a business trust on which STT is paid.
    Schedule 115AD (1)(iii) proviso involves entering the same details as for Schedule 112A but is applicable to non-residents.

  5. Schedule Current Year’s Loss Adjustment (CYLA)

    In Schedule Current Year’s Loss Adjustment (CYLA), you will be able to view details of income after set-off of current year losses. The unabsorbed losses allowed to be carried forward out of this are taken to Schedule CFL for carry forward to future years.

  6. Schedule Brought Forward Loss Adjustment (BFLA)

    You can view the details of income after set-off of brought forward losses of earlier years.

  7. Schedule Carry Forward Loss

    You can view the details of losses to be carried forward to future years.

  8. Schedule VI-A

     you need to add and verify any deductions you need to claim under Section 80 – Parts B, C, CA, and D of the Income Tax Act.

  9. Schedule AMT

    You need to confirm the computation of Alternate Minimum Tax payable u/s 115JC.

  10. Schedule AMTC

    You need to add details of tax credits u/s 115JD.

  11. Schedule SPI

    You need to add the income of specified persons (e.g. spouse, minor child) that is includable or required to be clubbed with your income as per Section 64.

  12. Schedule EI

    You need to provide your details of exempt income i.e., income not to be included in total income or not chargeable to tax. The income types included in this schedule include interest, dividend, agricultural income, any other exempt income, income not chargeable to tax through DTAA and pass through income which is not chargeable to tax.

  13. Schedule SI

    You will be able to view the income that is chargeable to tax at special rates. The amount under various income types are taken from the amounts provided in the relevant Schedules i.e., Schedule OS, Schedule BFLA.

  14. Schedule PTI

    You need to provide details of pass through income received from business trust or investment fund as referred to in section 115UA or 115UB.

  15. Schedule Foreign Source Income (FSI)

    You need to report the details of income, which is accruing or arising from any source outside India. This schedule is available for residents only.

  16. Schedule TR

    You need to provide a summary of tax relief which is being claimed in India for taxes paid outside India in respect of each country. This schedule captures a summary of detailed information furnished in Schedule FSI.

  17. Schedule FA

    You need to provide details of foreign asset or income from any source outside India. This schedule need not be filled up if you are Not Ordinarily Resident or a Non-Resident.

  18. Schedule 5A & Schedule AL

    In Schedule 5A, you need to provide the information necessary for apportionment of income between husband and wife if you are governed by the system of community of property under the Portuguese Civil Code 1860.
    If your total income exceeds ₹50 lakh, it is mandatory to disclose the details of movable and immovable assets in Schedule AL along with liabilities incurred in relation to such assets. If you are a non-resident or resident but not ordinarily resident, only the details of assets located in India are to be mentioned.

  19. Tax Paid

    Under Part B, verify all the auto populated rows from the details that you had entered in the schedules. Verify the tax paid details from the previous financial year.

  20. Login to efiling portal

    Login to the income tax efiling portal, i.e, the IT Portal 2.0

  21. File Income Tax Return

    Click on eFile > Income Tax Returns > File Income Tax Return

  22. Assessment Year and Mode

    Select the appropriate assessment year and select the online mode and click on proceed.

  23. ITR Form

    Select the appropriate ITR Form, in this case, ITR 2.

  24. Select the checkboxes

    Next, select the checkboxes applicable to your situation.

  25. Review and File ITR

    Finally, review all the details that you had entered previously and pay the tax dues (if any) and submit the return. Once you submit the return, proceed to everify it to complete the process.

Structure of ITR-2

Part/ Schedule Heading Fields
PART A- GENERAL Personal Information Name, Address, Date of Birth, PAN, contact details.
Filing Status Employer Category, Tax status, Residential status, Return filed under the section.
PART B-TI Computation of total income Total Income from all income sources, Losses of the current year set off, Gross Total Income, Deductions under Chapter VI-A.
PART B-TTI Computation of tax liability on total income The Bank Account details, Verification, and TRP details (if any) are to be provided. 
Schedule IT Details of Advance Tax and Self Assessment Tax Payments BSR code, Date of Deposit, Chalan number, Tax Paid
Schedule TDS TDS1: Details of Tax Deducted at Source from SALARY TAN of Employer, Employer Name, Tax Deducted, etc.
Schedule TDS TDS2: Details of Tax Deducted at sources from Income other than Salary (As per FORM 16A) & Details of tax deducted at source on sale of immovable property u/s 194IA (Form 26QB) TAN, Name of Deductor, Year of Deduction, Tax deducted, etc.
Schedule TCS Details of tax collected at source TAN of the collector, Name of Collector, Tax Collected, etc.
Schedule S Details of Income from Salary Name and PAN of the Employer, Address of the Employer, Salary, Perquisites, Allowance, etc.
Schedule HP Details of Income from House Property Details of House Property, Name and PAN of the Co-owners and Tenants, Details of Rent Income, Interest payable on Borrowed Capital, etc.
Schedule CG Capital Gains Details about the Short term and Long term Capital gains, Sales consideration, Cost of Acquisition, Deductions under Section 54,54B,54EC,54F,54GB.
Schedule OS Income from Other Sources A dividend, Interest, Rental income from machinery, Winnings from lotteries, Crossword puzzles, Races, Games.
Schedule CYLA Details of income after set­off of current year losses Details of current year losses and its Inter Headset off
Schedule BFLA Details of income after Set off of Brought Forward Losses of earlier years Details of brought forward losses set off against current year’s income, total brought forward losses set off.
Schedule CFL Details of Losses to be carried forward to the future years Total of earlier year losses, current year losses, Total of carried forward to future years.
Schedule VI-A Deductions under Chapter VI-A Deductions under section 80C, 80CCC, 80CCG, 80D, 80DDB, 80E, 80G, 80TTA.
80G Details of Donations Name of Donee, Address, City or District, State Code, PAN of Donee, Amount.
Schedule SPI The income of specified persons (spouse, minor child, etc.) included in the income of the assessee (income of the minor child, in excess of Rs. 1500 per child, to be included) Name and PAN of Person, Relationship, Nature of Income, Amount.
Schedule SI Income chargeable to income tax at special rates Description of Special Rate Income, Special Rate, Income, Taxable Income after adjusting min. chargeable to tax, Tax thereon.
Schedule EI Details of Exempt Income (Income not to be included in Total Income) Interest income, Dividend, Agricultural Income.
Schedule PTI Details of Income from Business Trust or Investment Fund  Details of Income earned from Business Trust or Investment Fund as per section 115UA, 115UB. 
Schedule FSI Details of Income from outside India and tax relief A country, Head of income, Income from outside India, Tax paid outside India, Tax payable in India, Relevant article of DTAA if relief is claimed u/s 90 or 90A
Schedule TR Summary of tax relief claimed for taxes paid outside India Details of tax relief claimed
Schedule 5A Information regarding the appointment of income between spouses governed by Portuguese Civil Code Name and PAN of a spouse, Income received under different heads, Amount appointed in the hands of the spouse, TDS details.
Schedule FA Details of Foreign Assets and Income from any source outside India Details of foreign bank accounts, financial interest in any entities, Immovable Properties, Other Capital Assets.
Schedule AL Details of Assets and Liabilities Details of an immovable asset, Details of a movable asset, Interest held in the asset of a firm or AOP.

Document Checklist

You should gather the following documents for a smooth process.

Essential documents:

  • PAN (Permanent Account Number)
  • Aadhaar Card
  • Bank account details
  • TDS certificates
  • Challan of taxes paid
  • Details of original return if filing revised return
  • Details of notice if filing in response to the notice

Documents on the basis of a type of Income:

  • Salary Income
  • House/Property Income
    • Co­owner details in case the property is co­owned,
    • Address of the property,
    • In case of house/property loan ­ Interest certificates/repayment certificate from a bank,
    • In case of let out property Rent agreement.
  • Other sources
    • Savings/current account statements/Passbook.
    • Interest certificates for deposits/bonds/NSC.
    • PPF account statement/Passbook.
    • Dividend warrants/counterfoils.
    • Rent agreement in case of let out machinery.
    • Details about receipts of any other income.
  • Capital Gains
    • For land/building ­ Sales & Purchase deeds, stamp duty valuation.
    • Details of improvement costs.
    • For securities ­ Contract notes/stock ledgers/trading statement.
    • For other capital assets ­ Cost of purchase, cost of improvement & sales receipts.
    • Details of expenses incurred on a transfer of capital assets.
    • Details of investments in order to claim exemptions.
    • Capital gains deposit account details if any.
  • If you’re eligible for any Section 80 Deductions, you may need to acquire the relevant documents from the list:
    • PPF account statement/Passbook.
    • Fixed deposit certificates/statements.
    • ELSS/ULIP/NSC investment details.
    • Life insurance premium receipts.
    • Medical insurance premium receipts.
    • House/property loan interest certificate/repayment statement.
    • Education loan interest certificate/repayment statement.
    • Tuition fees receipts.
    • Donation receipts.
Earned Capital Gain during the year?
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Sample ITR-2 Form for AY 2021-22

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Major Changes in ITR 2 for AY 2021-22

  • Taxpayers are given the option to choose between the old tax regime and the new tax regime
  • Dividend Income has to be added with a quarterly breakdown for accurate calculation of Interest under Section 234C

Major Changes in ITR 2 for AY 2020-21

  • RNORs and non-resident individuals have to file their income ITR 2 even if the income is below INR 50 Lakh
  • Taxpayers must disclose:
    • Amount of cash deposits above INR 1 Crore in the current accounts with a bank,
    • Expenditure incurred above INR 2 Lakh on foreign travel, or,
    • Expenditure incurred above INR 1 Lakh on electricity
  • Resident individuals owning more than 1 house property must file ITR 2
  • Taxpayers having income from business and profession cannot file ITR 2
  • Type of company needs to be disclosed if the taxpayer is a director in a company or holds unlisted equity investments
  • A separate section 112A for the calculation of the long-term capital gains on the sale of equity shares or units of a business trust which are liable to STT.
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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FAQs

Can NRI file ITR 2?

Yes, NRI can file ITR-2, if NRI is earning any salary income, rental income, capital gain income, or interest income.

Can I file ITR 2 in case of income from partnership firm?

No. If you are a partner in partnership firm/LLP then you need to file ITR-3. You need to enter details of the firm in which you are a partner and then add details of your income form that firm.

Can I file ITR 2 after the due date?

Yes, it can be filed after the due date. It will be considered a belated return. And late filing fees will be levied while filing a belated return.

Can I file ITR 2 if I have sold the house during the year?

Any consideration received from the sale of a property will be covered under the head income from Capital Gain. Hence you can file ITR-2 for reporting capital gain.