Income Tax on Unlisted Shares in India

What are Unlisted Shares?

A Stock that is not listed on a recognized stock exchange is an unlisted stock. A trader or investor who buys and sells unlisted stocks should file ITR and pay tax on the income. Sale of Unlisted Shares is a Capital Gains Income as per the Income Tax Act. The Income Tax treatment of unlisted shares is not the same as the listed share.

ITR for Capital Gains from Investment in Stocks
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Capital Gain on Sale of Unlisted Shares

Unlisted Stock is not listed on any recognised stock exchange. Thus, the Company does not pay STT i.e. Securities Transaction Tax on such shares. The period of holding is 24 months.

  1. Long Term Capital Gain (LTCG): If an investor sells an unlisted stock held for more than 24 months, gain or loss on such sales is a Capital Gain or Capital Loss.
  2. Short Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).

Income Tax on Unlisted Shares

Income Tax on Trading in unlisted shares is similar to the tax treatment of other capital assets. The following are the income tax rates on the sale of unlisted shares of a Domestic Company or Foreign Company.

  • LTCG – 20% with Indexation
  • STCG – taxed as per slab rates

Note: In the case of a Non-Resident, LTCG on Unlisted Stock is 10% without Indexation.

ITR Form, Due Date and Tax Audit Applicability for Unlisted Shares

  • ITR Form: Trader should file ITR 2 (ITR for Capital Gains Income) on Income Tax Website since income on the sale of unlisted stocks is a Capital Gains.
  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
  • Tax Audit: Since the income on the sale of unlisted stock is a Capital Gains Income, the applicability of tax audit under Section 44AB need not be determined.

Carry Forward Loss on Sale of Unlisted Shares

  • The investor can set off Short Term Capital Loss against both STCG and LTCG. They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
  • The investor can set off Long Term Capital Loss against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG only.

FAQs

How do I report income from sale of unlisted shares in the Income Tax Return?

You should file ITR-2 and report income from the sale of unlisted shares of a Domestic Company or Foreign Company as Capital Gains. You should pay income tax on it as per rates below:
– Long Term Capital Gain – 20% with indexation
– Short Term Capital Gain – slab rates
The assessee can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

Can STT be paid on Unlisted Shares?

STT i.e. Securities Transaction Tax is the tax on the purchase and sale of securities listed on a recognised stock exchange in India. Thus, STT is not paid on Unlisted Shares. However, when a company offers shares to the public under IPO i.e. Initial Public Offering, such shares are later listed on the stock exchange. In such cases, STT is charged on the Unlisted Shares.

Income Tax on Foreign Shares

If a person resident in India has invested into shares listed in foreign countries, profit or loss on the sale of such shares should be reported in the ITR and the assessee must pay tax on this income. The tax treatment varies based on whether the shares are listed on a recognized stock exchange in India and whether STT on such shares is paid.

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Income Heads for Trading in Foreign Shares

Capital Gains Income from Foreign Shares

Income from the sale of foreign shares is a Capital Gains Income as per the Income Tax Act. Foreign Shares is not listed on any recognized stock exchange in India. The period of holding is 24 months.

  • Long Term Capital Gain (LTCG): If an investor sells an unlisted stock held for more than 24 months, gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
  • Short Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).

Other Income from Foreign Shares

  • Dividend Income – Dividend received from a Foreign Company is taxable income under the head Income From Other Sources at slab rates. If the assessee incurs the expense of remuneration or commission for the purpose of earning the dividend, he/she can claim it as an expense from dividend income.

Income Tax on Foreign Shares

Income Tax on Trading in shares of foreign countries is similar to the tax treatment of other capital assets. The following are the income tax rates on the sale of listed and unlisted foreign shares.

Type of Security Period of Holding Long Term Capital Gain

Short Term Capital Gain

Listed Foreign Share 24 months 20% with Indexation Slab Rates
Unlisted Foreign Share 24 months 20% with Indexation Slab Rates
  • Dividend Income on Foreign Shares is taxable at slab rates under the head ‘Income from Other Sources’.

Sale of Foreign Shares

  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
  • Tax Audit: Since the income on the sale of foreign shares is Capital Gains, the applicability of tax audit under Section 44AB need not be determined.
Check Tax Audit Applicability u/s 44AB
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Carry Forward Loss for Sale of Foreign Shares

  • The investor 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.
  • The investor 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.

FAQs

How do I report income from sale of shares of Foreign Company in the Income Tax Return?

The investor should file ITR-2 and report income from the sale of Foreign Shares as Capital Gains.
(a) Listed Foreign Shares
LTCG – 20% without indexation
STCG – slab rates
(b) Unlisted Foreign Shares
LTCG – 20% with indexation
STCG – slab rates
The details of Foreign Shares should be reported in Schedule FA i.e. Schedule Foreign Assets of the ITR. The assessee can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

I am an Indian Resident. Do I need to pay Income Tax on income from the sale of foreign shares?

A Resident as per the Income Tax Act should pay tax on global income i.e. income in India and outside India. Thus, you must report income from the sale of foreign shares as Capital Gains Income and pay income tax on it as per rates below:
– Long Term Capital Gain – 10% without Indexation on sale of listed foreign shares and 20% with indexation on sale of unlisted foreign shares
– Short Term Capital Gain – pay tax at slab rates

Income Tax on ETF (Exchange Traded Funds) in India

Exchange-Traded Funds were launched in India in the year 2002. There are advantages of investing in ETF over shares and mutual funds. An investor can spread the risk by investing in the equities of multiple companies instead of investing in equity shares of a single company having a higher risk. Investing in ETFs is beneficial over mutual funds due to reduced expenses and higher liquidity.

What is ETF?

ETF i.e. Exchange Traded Fund is a basket of stocks that reflects the composition of an index like BSE Sensex or CNX Nifty. Thus, it holds all the stocks in the same proportion as held by the underlying index. It is an Index Fund that is listed and traded on a stock exchange just like a stock. The trading value is based on the Net Asset Value (NAV) of the underlying asset. It is a mutual fund that the investor can buy and sell on the stock exchange, unlike the normal mutual funds that the investor can buy and sell from the AMC. Income Tax on ETFs (Exchange Traded Funds) in India is similar to the tax treatment of mutual funds.

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Types of Exchange Traded Funds (ETF)

The different types of ETFs can be classified on the basis of the securities in which they invest. Following are types of ETF:

  • Equity ETF – ETFs that invest in equity shares are and other equity-related instruments.
  • Debt ETF – ETFs that invest in fixed return securities like bonds and debentures.
  • Gold ETF – ETFs that invest in physical gold assets.
  • Currency ETF – ETFs that invest in currency instruments.

Income Heads for Income from ETFs

Capital Gain on Sale of ETF (Exchange Traded Funds)

  1. Equity ETFs – Since these ETFs invest in equity-oriented instruments, the treatment is the same as equity shares.
    • Long Term Capital Gain (LTCG): Any gain arising on the sale of equity ETF held for more than 12 months is considered as Long Term Capital Gain.
    • Short Term Capital Gain (STCG): Any gain arising on the sale of equity ETF held for less than 12 months is considered as Short Term Capital Gain.
  2. Other ETFs – ETFs such as Gold ETF, International ETF, Debt ETF, etc has tax treatment similar to other capital assets.
    • Long Term Capital Gain (LTCG): Any gain arising on the sale of other ETF held for more than 36 months is considered as Long Term Capital Gain.
    • Short Term Capital Gain (STCG): Any gain arising on the sale of other ETF held for less than 36 months is considered as Short Term Capital Gain.
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Other Income from ETF (Exchange Traded Funds)

  • Interest Income
  • Dividend Income
    • In most cases, the dividend is reinvested in the scheme. However, the ETF Fund may decide to distribute dividends to the investors.
    • Up to FY 2019-20 – Exempt Income.
    • FY 2020-21 onwards – Taxable Income under the head Income From Other Sources (IFOS) at slab rates.

Income Tax on ETF (Exchange Traded Funds)

Income Tax on Trading in ETFs is similar to the tax treatment of mutual funds. Following are the income tax rates:

Type of ETF Period of Holding Long Term Capital Gain Short Term Capital Gain
Equity ETF 12 months 10% in excess of INR 1,00,000 under Section 112A 15% under Sec 111A
Other ETF 36 months 20% with Indexation Slab Rates

ITR Form, Due Date and Tax Audit Applicability for ETF Investors

  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
FY 2019-20: Due Date to file Income Tax Return for non-audit cases has been extended to 10th January 2021 and for audit cases to 15th February 2021
Tip
FY 2019-20: Due Date to file Income Tax Return for non-audit cases has been extended to 10th January 2021 and for audit cases to 15th February 2021

Carry Forward Loss for sale of ETFs

Gain or Loss on sale of ETFs is a Capital Gain or Capital Loss. Here are the rules for set-off and carry forward of loss on sale of ETFs.

  • The investor can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). Also, they can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
  • The investor can set off Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG) only. Further, they can carry forward the remaining loss for 8 years and set off against LTCG only.
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FAQs

How do I report income from sale of ETFs in the Income Tax Return i.e. ITR?

Traders should file ITR-2 and report income from sale of ETFs as Capital Gains.
– Equity ETF – Tax on LTCG is 10% in excess of INR 1 lac and tax on STCG is 15%.
– Other ETF – Tax on LTCG is 20% with indexation and tax on STCG is as per slab rates.
The investor can set off LTCL with LTCG and STCL with both STCG and LTCG, remaining loss can be carried forward for 8 years

Is ETF a better investment option than Mutual Funds?

Yes. ETFs are better than Mutual Funds for the following reasons:
1. The investor can buy and sell an ETF directly on the stock exchange, unlike the normal mutual funds.
2. Fees and investments in ETFs are lower than Mutual Funds since there is no fund manager to make investment decisions on behalf of the investor.
3. ETFs do not have a lock-in period and investors can sell it anytime. Mutual Funds like ELSS of 3 years reduces the liquidity of investors.

In the case of Mutual Funds, it is managed by an experienced Fund Manager who makes investment decisions for the investors. No such decision-maker is available in the case of ETFs.

How are Gold ETFs different from Gold Mutual Funds?

Gold ETFs are funds that invest in physical gold assets. Thus, asset base of the ETF is 90 to 100% gold. They are traded on exchanges and offer better liquidity.
Gold funds are mutual funds that invest in gold ETFs and other related assets. They do not invest in physical gold but Gold ETFs.

What is ETF Fund?

ETF is a basket of stocks that reflects the composition of an index like BSE Sensex or CNX Nifty. It is an Index Fund that is listed and traded on a stock exchange just like a stock. Therefore, it is a mutual fund that the investor can buy and sell on the stock exchange. IT on ETFs in India is similar to the tax treatment of mutual funds.

Income Tax on Bonds & Debentures

Bonds are government securities issued by the government of India to borrow money from investors. A debenture is an interest bearing bond or unsecured loan issued by a Company. If you have invested in bonds or debentures, you need to file your ITR and pay tax on the income. Sale of Bonds and Debentures is considered to be a Capital Gains Income. As per the Income Tax Act, both Bonds and Debentures are considered as Securities.

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Types of Bonds in India include government bonds, taxable and tax-free bonds, sovereign gold bonds, capital gains bonds by NHAI & REC, IRFC tax-free bonds, etc. Types of Debentures in India include non-convertible and convertible debentures, secured and unsecured debentures, redeemable and irredeemable debentures, registered and bearer debentures. SEBI (Securities Exchange Board of India) has prescribed guidelines for public issue of debentures under ICDR Regulations.

Income Heads for Income from Bonds & Debentures

Capital Gains on Sale of Bonds & Debentures

Period of Holding means the time period for which the assessee held the capital asset. Period of holding is counted from the date of acquisition (purchase) of an asset to the date of transfer (sale) of assets.

The period of holding is used to determine the nature of income on the sale of the capital asset i.e. Long Term Capital Gain or Short Term Capital Gain. Eg: If the assessee sells listed bonds within 12 months from the date of purchase, it is considered as a Short Term Capital Gain (STCG).

Type of Asset Period of Holding Capital Gains
Listed Bonds & Debentures Less than 12 months Short Term Capital Gains
Listed Bonds & Debentures More than 12 months Long Term Capital Gains
Unlisted Bonds & Debentures Less than 36 months Short Term Capital Gains
Unlisted Bonds & Debentures More than 36 months Long Term Capital Gains

IFOS Income from Bonds & Debentures

Interest Income from Bonds and Debentures is taxable under the head ‘Income from Other Sources‘ i.e. IFOS. The Interest Income is taxed at slab rates. If the assessee has incurred an expense (like commission or fees or remuneration etc) to realize such Interest, it can be claimed as a deduction from the Interest Income.

Interest Income from Tax-free bonds is fully exempt. Tax-free bonds are the bonds issued by public undertakings like National Highway Authority of India, Rural Electrification Corporation, NTPC Limited and Indian Railways, Indian Renewable Energy Development Agency, Housing and Urban Development Corporation, Power Finance Corporation and Rural Electrification Limited.

Income Tax on Bonds & Debentures

Income Tax on Trading in Bonds & Debentures is similar to the tax treatment of other capital assets. Following are the income tax rates:

Income Tax on Sale of Bonds & Debentures

Type of Asset Capital Gains Tax Rate
Listed Bonds & Debentures Short Term Capital Gains Slab Rate
Listed Bonds & Debentures Long Term Capital Gains 10% without Indexation
Unlisted Bonds & Debentures Short Term Capital Gains Slab Rate
Unlisted Bonds & Debentures Long Term Capital Gains 20% without Indexation

Note: Assessee cannot take benefit of indexation for the Long Term Capital Gain (LTCG) on the sale of Bonds or Debentures. However, the indexation benefit is available on Capital Indexed Bonds (issued by the Government) and Sovereign Gold Bonds (issued by the RBI under the Sovereign Gold Bond Scheme, 2015).

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Income Tax on Other Income from Bonds & Debentures

Interest Income from Bonds & Debentures is taxed as per slab rates. Usually, the interest on bonds is taxable income. However, in the case of tax-free bonds, the interest income is exempt from tax.

An investor who invests in tax-free bonds should calculate the pre-tax yield before making the investment decision. To calculate the pre-tax yield, use this formula – ROI / (100-TR) * 100. (TR means Taxable Rate)

Example

Tax-Free Bonds has an interest rate of 5%. Let us assume that the investor falls in tax slab of 30%. Whether he/she invest in the tax-free bond?

Effective Tax Rate – 30% + 4% Cess = 31.2%
Calculate the pre-tax yield = 5% / (1-31.2%) = 7.16%

Thus, an investor who pays 31.2% tax, making an investment in a taxable bond with 7.16% interest is the same as investing in a tax-free bond with 5% interest.

Capital Gains Exemption under Section 54EC

An assessee who has sold Long Term Capital Asset like land or building or both can claim exemption by investing into NHAI or REC Bonds. The amount of exemption will be lower of:

  1. Cost of NHAI or REC Bonds
  2. Capital Gain on sale of land or building or both

ITR Form, Due Date and Tax Audit for Investors of Bonds & Debentures

  • ITR Form: Trader should file ITR-2 (ITR for Capital Gains Income) on Income Tax Website if income is treated as Capital Gains.
  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020
Tip
FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020
  • Tax Audit: Since the income is treated as Capital Gains, the applicability of tax audit under Section 44AB need not be determined.

Carry Forward Loss from Sale of Bonds & Debentures

  • Short Term Capital Loss (STCL) can be set off against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). Remaining loss can be carried forward for 8 years and set off against STCG and LTCG only.
  • Long Term Capital Loss (LTCL) can be set off against Long Term Capital Gain (LTCG) only. Remaining loss can be carried forward for 8 years and set off against LTCG only.

Example

For example, Mr. Rahul is a salaried individual and has invested in listed bonds and debentures in FY 2019-20. His total salary income for a year is INR 8,70,000. And has Short Term Capital Loss of Rs. 30000 and Long Term Capital Gain of INR 1,50,000.

Now in the above example, Rahul needs to file ITR-2 for FY 2019-20. And his total income and tax liability will be as follows:

Particulars Amount Amount
Salary Income   870000
Capital Gains    
Short Term Capital Loss 30000  
Long Term Capital Gain 150000  
Total Capital Gains after set-off of losses (taxed @10% without indexation)   120000
Total Taxable Income   990000
Tax at slab rate 86500  
Tax at special rate 12000  
Total Income Tax   98500
Health & Education Cess @4%   3940
Total Tax Liability   102440
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FAQs

How do I report income from sale of Bonds and Debentures in the Income Tax Return?

The investor should file ITR-2 and report income from the sale of Bonds and Debentures as Capital Gains.
– Listed Bonds & Debentures – Tax on LTCG is 10% without indexation and tax on STCG is as per slab rates.
– Unlisted Bonds & Debentures – Tax on LTCG is 20% without indexation and tax on STCG is as per slab rates.
The trader can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

What is Income Tax on Capital Indexed Bonds issued by government and Sovereign Gold Bonds issued by RBI?

Tax on Interest on SGB Bond
It is taxable at slab rates under the head IFOS (Income from Other Sources). TDS on Interest is not applicable since they are government securities.

Tax Treatment on Sale or Redemption
A. Individual Investor
Capital Gain on Redemption of SG Bond by an individual investor is exempt from tax since the definition of transfer as per Section 47 of the Income Tax Act excludes such redemption.
If the individual investor transfers the SG Bond by selling it on the stock exchange, it is taxable as LTCG at the rate of 20% with indexation benefit.

B. Other Investors – The redemption or transfer of SG Bond in case of investors other than individuals is taxed at slab rates if STCG and at 20% with indexation benefit if LTCG.

Tax on Equity Share Trading

If you have invested in Equity trading you need to file your ITR and pay tax on this income. Trading in equity shares and stocks have become very easy due to the availability of online trading platforms. Therefore, under Income Tax, trading in equity share can be categorized into two types:

  1. Delivery Trading (Capital Gains or Non-Speculative Business Income)
  2. Intraday Trading (Speculative Business Income)

Equity Delivery Trading means buying an equity share, hence you need to take its delivery and sell it on a different trading day. The ownership of the share is then transferred to the trader and it is delivered to the trader’s Demat account. The profit or loss from equity delivery trading may be considered as Capital Gains or Non-Speculative Business Income.

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Tax Heads For Equity Share Trading

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): Any gain arising on the sale of Long Term Capital Asset is considered as LTCG. Any shares/ stocks held for more than 12 months are considered Long Term Capital Assets.
  • Short Term Capital Gain (STCG): Any gain arising on the sale of Short Term Capital Asset is considered as Short Term Capital Gain. Any shares/ stocks held for less than 12 months are considered as Short Term Capital Assets.


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 as 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

The rate of Income Tax on trading in equity share depends on the income head. If it is considered as 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.

Treated as Capital Gains Income

  Type of Security Period of Holding LTCG Short Term Capital Gain
Domestic Company Listed Equity Share (STT paid) 12 months 10% in excess of Rs. 1,00,000 under Sec 112A 15% under Sec 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

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

  • ITR Form: Trader should file ITR-2 on Income Tax Website if income is treated as Capital Gains. However, if income is considered as Non-Speculative Business Income, trader should file ITR-3 and prepare financial statements.
  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 10th January 2021. If tax audit is applicable the due date to submit the audit report is 15th January 2021 and ITR filing when tax audit is applicable is 15th February 2021
Tip
FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 10th January 2021. If tax audit is applicable the due date to submit the audit report is 15th January 2021 and ITR filing when tax audit is applicable is 15th February 2021
  • Tax Audit: If the income is treated as Business Income, the trader should check if 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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Carry Forward Loss for Equity Trading

  • Short Term Capital Loss (STCL) can be set off against both Short Term Capital Gain (STCG) and LTCG. The remaining loss can be carried forward for 8 years and set off against STCG and LTCG only.
  • The long term losses can be set off against LTCG only. The remaining loss can be carried forward for 8 years and set off against LTCG only.

Let’s take an example to understand it better

For example, Mr. Ajay is a salaried individual and has done some share trading in the FY 2019-20. His total salary income for a year is INR 8,70,000. And has a Short Term Capital Loss of INR 30000 and LTCG of INR 2,50,000.

Now in the above example, Ajay needs to file ITR-2 for FY 2019-19. And his total income and tax liability will be as follows:

Particulars Amount Amount
Salary Income   870000
Capital Gains    
Short Term Capital Loss 30000  
LTCG 250000  
Less: Exemption u/s 112A (100000)  
Taxable LTCG 150000  
Total Capital Gains after set-off of losses (taxed @10%)   120000
Total Taxable Income   990000
Tax at slab rate 86500  
Tax at special rate 12000  
Total Income Tax   98500
Health & Education Cess @4%   3940
Total Tax Liability   102440

FAQs

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

Since you have only capital gains income you need to file ITR-2.

What is Tax Loss Harvesting?

It means to realize(by selling your loss-making investments) your unrealized losses before the end of the financial year in order to reduce your tax liability.

Can I open multiple trading accounts?

Yes. An Individual can have as many trading accounts as they want. You can also link the same bank account with different trading accounts. However, you can’t have multiple accounts linked with the same broker.

What is Income Tax?

Income Tax is a tax on income collected by the government to fund infrastructure development, pay salaries, etc. Income Tax is a direct tax like capital gains tax and securities transaction tax etc. Tax Deducted at Source (TDS) is means through which the government generates steady revenues by levying taxes at sources such as salary or other payments. Additionally, Income Tax is to be paid by every Individual, HUF, AOP, BOI, Firms, and Companies.

Income Tax in India

In India, a direct tax is governed as per Income Tax Act, 1961 along with Income Tax Rules, 1962, Notifications and Circulars issued by Central Board of Direct Taxes. Moreover, Income Tax is levied based on the different types of incomes and taxpayers. Furthermore, there are different categories of taxpayers under the Income Tax Act.

  • Individual residents aged below 60 years
  • Senior citizen aged between 60 to 80 years
  • Super senior citizen aged above 80 years
  • Non-residents (NRI)
  • Hindu Undivided Family (HUF)
  • Firms / AOP / BOI / Local Authorities / Co-operative Societies
  • Company

Income Tax for Resident Individuals

An individual’s income is divided under different income heads such as salary, house property, capital gains, business or profession, and other sources. Income is taxed at slab rates except for a few special rate incomes.

  • The majority of individuals have income from salary, house property, and interest which makes them eligible to file ITR-1 (SAHAJ).
  • In the case of income from multiple house properties, ITR-2 can be filed.
  • Those with income from capital gains (say by way of casual stock trading or sale of the property) can file ITR-3.
  • Individuals having income from proprietary business or profession can file ITR-4 (SUGAM) or ITR-3.
  • Any Individuals who are partners in a firm and earn income by way of salary, remuneration, interest or profits sharing, can file ITR-3
  • Individuals whose turnover from proprietary Business exceed Rs. 2 crores have to get the books of account audited and file ITR-3.
  • Similarly, professionals’ gross professional receipts exceed Rs 50 Lakhs have to get the books of accounts audited and file ITR-3.
  • For a Resident Indian, global income will be taxable in India i.e income earned in India as well as outside India will be taxable in India. A tax credit will be available if such income is already taxed in a foreign country and India has a treaty with such a foreign country to avoid double taxation.
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Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Income Tax for NRI

A Non-Resident Indian (NRI) has to file an income tax return in India only if he has earned any income in India. He does not have to disclose his foreign income from the country of residence while filing the tax return.

The type of return forms will be the same as applicable to resident India. While filing the return, NRI can claim the credit if the income earned in India is also taxed in the country of his residence. The basic principle here is that a single income should not be taxed twice. So if income earned in India is taxed in a foreign country as well, then NRI can claim the credit of the taxed paid in a foreign country while filing return in India. Credit will be allowed only if India has an agreement to avoid double taxation with a foreign country.

Income Tax for HUF (Hindu Undivided Family)

Income Tax Act recognizes Hindu Undivided Family (HUF) as a separate legal entity from its members. It has a unique PAN which if different from its Karta and members. HUF also enjoys a basic exemption limit of Rs. 2,50,000 just like the individuals.

  • HUFs have to file their Income Tax Return separately
  • Incomes earned out of assets in the common pool of HUF or any business activities run in the name of HUF are to be included in a tax return.
  • HUF can have income from all sources, except for salary.
  • Income will be taxed at slab rates applicable to individuals
  • HUF can file a return in ITR-2, ITR-3, and ITR-4
  • Just like individuals, if HUF is carrying business and turnover exceeds Rs. 2 crores then books of account have to be audited and ITR-4 is to be filed.

Income Tax for Partnership Firms

Partnership firm / LLP is a separate legal entity, independent from its partners. It has its own PAN.

  • Partnership firms / LLPs have to file an income tax return in ITR-5
  • Income from business or profession, house property, capital gains and other sources can be filed in ITR-5
  • The tax will be applied at a flat rate of 30% on a firm’s income.
  • The firm’s profits (after payment of tax) which are distributed amongst partners are tax-free in the hands of the partners.
  • However, any salary, remuneration or interest paid to partners will be taxable in the hands of the partner. And a firm can claim the same as an expense from its income.

Income Tax for Companies

Companies have a separate legal identity and a unique PAN. In India, there are Domestic Companies and Foreign Companies.

  • Companies have to file an income tax return in ITR-6
  • It is mandatory for companies to file an income tax return and provide details of the Statutory Audit in the return.
  • If turnover from business exceeds Rs. 2 crores, then companies have to carry of Tax Audit as per Income Tax Act and provide the details of the same in Income Tax Return.
  • Companies can have income from the business, house property, capital gains and other sources.
  • However, companies claiming an exemption under section 11 of the income tax act will be called trusts and they have to file return in ITR-7
  • The income of Domestic company is taxed at a flat rate of 30% whereas the income of Foreign company is taxed at a flat rate of 40%

FAQs

What is Income Tax Return (ITR)?

An income tax return is a form used to report income and file taxes with tax authorities such as the Income Tax Department (ITD) in India. Commonly known as ITR, tax return allows the taxpayer to calculate his/her tax liability and pay dues or request refunds. There are different prescribed ITR forms in India depending on one’s income situation.

How to calculate Income Tax?

Income Tax can be calculated by applying slab rates on taxable income, which is the addition of all the gross incomes such as salary, rent, business or profession, minus Chapter VI A deductions such as Provident Fund, Life Insurance Premium, ELSS, NSC, Medical Insurance Premium, etc.

Who can file Income Tax Return (ITR)?

It is mandatory to file the Income Tax Returns (ITR) online for all the registered taxpayers whose taxable income. However, paper returns can be filed by those who are above 80 years of age and do not have any income from regular business or profession.

Clubbing of Income under section 64

​​Normally, a person is taxed in respect of income earned by him only. However, in certain special cases the income of other person is included (i.e. clubbed) in the taxable income of the taxpayer. In such a case he will be liable to pay tax in respect of his income (if any) as well as the income of other people too. The situation in which the income of another person is included in the income of the taxpayer is called clubbing of income.

What is Clubbing of Income under section 64 of the Income Tax Act?

Clubbing of income means income of other person included in assessee’s total income. This is allowed under Section 64 of the IT Act. This means that a person cannot divert his income to any other person. For example: If the income of your spouse is included in your total income and also taxed in your hand, then this is known as clubbing of income.

However, there would not be any clubbing of the income, earned from the investment of clubbed income. For example, Hari transfers INR 10,000 to his wife Priya and Priya invests the money in an FD scheme. Now the interest earned on this FD would get clubbed in the total income of Hari and he would be liable to pay tax on the same. However, if Priya re-invests the interest earned (i.e. clubbed income) in some FD or any other investment scheme then the income from such re-investment would be taxable in the hands of Priya only. This interest income from reinvestment will not be clubbed with Hari’s income.

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Specified persons to club income

We cannot club income of any person on random basis while computing total income of an individual and also not all income of specified person can be clubbed. As per Section 64 of Income Tax Act, there are only certain specified income of specified persons which can be clubbed while computing total income of an individual.

When does Clubbing apply?

In case of following situations, clubbing provisions will apply:

Section Specified person Specified scenario Income to be clubbed
Section 60 Any person
Transfer of Income without transfer of Assets either by way of an agreement or any other way,

– Any income from such asset will be clubbed in the hands of the transferor.

– Irrespective of whether such transfer is revocable or not.

Section 61 Any person Transferring asset on the condition that it can be revoked Any income from such asset will be clubbed in the hands of the transferor
Section 64(1A) Minor child Any income arising or accruing to your minor child [Child includes step child, adopted child and minor married daughter] – Income will be clubbed in the hands of higher earning parent.
Note:
If marriage of child’s parents does not subsist, income shall be clubbed in the income of that parent who maintains the minor child in the previous year

– If minor child’s income is clubbed in the hands of parent, then exemption of INR 1,500 is allowed to the parent.

– Exceptions to clubbing
Income of a disabled child (disability of the nature specified in section 80U)

– Income earned by manual work done by the child or by activity involving application of his skill and talent or specialized knowledge and experience

– Income earned by a major child. This would also include income earned from investments made out of money gifted to the adult child. Also, money gifted to an adult child is exempt from gift tax under gifts to ‘relative’.
Section 64(1)(ii) Spouse If your spouse receives any remuneration irrespective of its nomenclatures such as Salary, commission, fees, or any other form and by any mode i.e., cash or in-kind from any concern in which you have a substantial interest

–  Income shall be clubbed in the hands of the taxpayer or spouse, whose income is greater (before clubbing).

The exception to clubbing: – Clubbing is not attracted if the spouse possesses technical or professional qualifications in relation to any income arising to the spouse and such income is solely attributable to the application of his/her technical or professional knowledge and experience

Section 64(1)(iv) Spouse Income from assets transferred directly or indirectly to the spouse without adequate consideration. – Income from out of such asset is clubbed in the hands of the transferor. Provided the asset is other than the house property.

– Exceptions to clubbing No clubbing of income in the following cases:

a. Where the asset is received as part of the divorce settlement

b. If assets are transferred before marriage

c. No husband and wife relationship subsists on the date of accrual of income

Section 64(1)(vi) Daughter-in-law Income from the assets transferred to son’s wife for inadequate consideration Any income from such assets transferred is clubbed in the hands of the transferor
Section 64(1)(vii) Any person or association of person
Transferring any assets directly or directly for inadequate consideration to any person or AOP to benefit your daughter-in-law either immediately or on a deferred basis
Income from such assets will be considered as your income and clubbed in your hands
Section 64(1)(viii) Any person or association of person Transferring any assets directly or directly for inadequate consideration to any person or association of persons to benefit your spouse either immediately or on a deferred basis Income from such assets will be considered as your income and clubbed in your hands
Section 64(2) Hindu Undivided Family In case, a member of HUF transfers his individual property to HUF for inadequate consideration or converts such property into HUF property Income from such converted property shall be clubbed in the hands of individual

Transfer of income without transfer of an asset to any person

Clubbing applies when you (transferor) transfer your income to some other person without transferring the ownership of the asset from which the income is derived. Therefore the income so transferred will still be included in your total income and also taxable in your hands.

For Example: Pranav transferred the income from his rental property, to his wife Divya. The property is in the name of Pranav only and ownership of the property is not transferred to Divya. In this situation, rental income will be taxed in the hands of Pranav only.

Transfer of asset (revocable transfer) to any person

  • In case of a revocable transfer* of asset the clubbing will apply and hence the income from such asset will be taxable in the hands of transferor even though asset has been transferred.
  • Clubbing not applicable if transfer by way of trust which is irrevocable during the lifetime of beneficiaries/ transferee

*Revocable transfer of asset means where a transferor retains the right or power to re-acquire the whole or any part of the asset or the income from such asset at any time in future during the lifetime of the transferee.

For Example: If in the earlier example, Pranav transfers the rental income as well as the property to Divya, with a condition that he can re-acquire the property whenever he wishes. In this situation, rental income from the property will be taxed in the hands of Pranav only.

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Clubbing of Spouse Income

Income earned by your Spouse from the firm/company in which you have substantial interest

  • Your spouse income from such a firm/company will get clubbed with the income of the person (you or your spouse) having a higher total income. While comparing the total incomes, income from such a firm/company should be ignored.
  • A person is said to have substantial interest if he/she individually or along with his/her relative holds 20% or above shares of the company or exercise the voting power of 20% or above. In the case of a firm if a person is entitled to have a share of 20% or above in profits.
  • However the above clubbing provision shall not apply if the income earned by your spouse is due to practical application of professional/technical skill he/she possesses.
  • Income other than salary, commission, fees or remuneration is not clubbed under this clause

Eg: Pranav holds 51% of the shares in a private limited company. His wife Divya is getting a salary of Rs. 20,000 per month from the same company. She is not an active employee and does not contribute towards the company’s operations. Pranav’s total annual income is Rs. 10,00,000 whereas Divya’s total income (Excluding salary from the company) is Rs. 5,00,000. In this situation, Divya’s annual salary of Rs. 2,40,000 will be clubbed with Pranav’s income and it will be taxable in the hands of Pranav.

Income from the asset transferred to the Spouse against inadequate consideration

  • The above income will get clubbed in your total income and you would be liable to pay tax on that income.
  • However, the clubbing shall not apply if the above transfer is in a connection with an agreement to live apart or divorce.
  • Let us understand the above provision with the help of the below examples:
    • First Scenario: Rohan transferred an asset worth Rs.1,50,000 to his wife for a consideration of INR 50,000. Here ⅔ rd (two-thirds) of the income from the asset would get clubbed in Rohan’s income and he would be liable to pay tax on this income. However, balance ⅓ rd will be taxable in the hands of his wife as she has paid INR 50,000 being 1/3rd (one-third) of the value of the property.
    • Second scenario: Mr. Aksh gifted INR 5,00,000 to his wife. She invested this amount in the fixed deposit and received interest of 4,500 INR p.a. (Gift received from husband is exempt in the hands of his wife.) Since cash (asset) received was converted into another asset (FD) by Mrs. Aksh, the interest earned of INR 4,500 would be clubbed in the income of Mr. Aksh as per Section 64(1)(iv) of the Income Tax Act.

Note: As per the judgement in R Dalmia Vs CIT (1982) and few other judgments, pin money (i.e. an allowance given to the wife by her husband for her personal and usual household expenses) is not taxable. Further, if the asset is acquired by the spouse out of pin money then the income from such assets cannot be clubbed with the income of her husband.

When an asset is transferred to any person or association of person for the immediate or deferred benefit of Your Spouse

In such a situation, any income out of such an asset would get clubbed in your total income and you would be liable to pay tax on the same.

Clubbing of Income of Son’s Wife

When asset is transferred to Son’s wife

Income earned by your Son’s wife from the asset transferred to her against inadequate consideration would get clubbed in your total income and you would be liable to pay tax on it. Cross transfers are also covered.

When an asset is transferred to any person or association of person for the immediate or deferred benefit of Son’s wife

Here the Income earned from the asset transferred against inadequate consideration would get clubbed in your total income and you would be liable to pay tax on it.

Note: Clubbing would be applicable only when your relationship with spouse and Son’s Wife exist both at the time of transfer of asset and at the time when income is earned.

Clubbing of Income of a Minor child

Any income earned by a minor child (including married minor daughter) will get clubbed with income of the parent whose total income is higher (before inclusion of income of minor child).

In case of a minor child, whose parents are living apart because their marriage relationship does not exist, any income earned by such minor child would get clubbed in the total income of the parent who is maintaining the child.

The income of a minor child would not be clubbed in following circumstances:

  • The minor child has earned income through his/her manual work
  • The minor child has applied his/her skill, talent, specialized knowledge and experience for earning the income.
  • If the minor child is suffering from any disability (disability defined as per section 80U)
  • In case of transfer of House property to married minor daughter, the clubbing will not apply here. Hence any income generated by House property would not be taxable in the hands of Parents.

Clubbing of Income of a Major child

There will not be any clubbing of the income earned by major child (18 years and above) with the total income of the Parents. Whether the major child is earning using his own specialization/skill or on investment of money or asset transferred to him by his Parents.

For example: Rohan who is 18 years old gets Rs. 50,000 as gift from his Father/Mother. He invest the money in a FD scheme. Now the interest income on FD would be taxable in the hands of Rohan only. It would not get clubbed with the total income of the Parents.

Clubbing of Income from H.U.F Property

If you are a member of a HUF and you transfer your property to the common pool of such HUF for inadequate consideration then the income from such property will get clubbed with your total income and you would be liable to pay tax on it.

However, when this transferred asset gets distributed among family members as a result of the complete or partial partition of HUF, the income from the asset received by your spouse would get clubbed in your total income and you would be liable to pay tax on it.

FAQs

How to show clubbed income in ITR?

Except for ITR-1 & ITR-4S, every other ITR contains a section where you can add the income of other persons included in your income. The details which you have to provide are:
– Name of person
– PAN of a person (Optional)
– Relationship
– Nature of Income
– Amount
You also need to make sure that whatever income you enter over here has already been added to the incomes in their respective heads while filing ITR on Income Tax Portal.

Can losses be clubbed?

Clubbing provisions will be equally applicable for losses because: For example, if a person has incurred some loss, in such a situation, such a loss is not allowed to be transferred to anyone and it will be clubbed in his/her own income.

Do any clubbing provisions exist in case of a revocable transfer?

​​Revocable transfer is generally a transfer in which the transferor directly or indirectly exercises control/right over the asset transferred or over the income from the asset.
As per section 61​, if a transfer is held to be a revocable, then income from the asset covered under revocable transfer is taxed in the hands of the transferor. The provisions of section 61 will not apply in case of a transfer by way of trust which is not revocable during the life time of the beneficiary or a transfer which is not revocable during the lifetime of the transferee.

What is Pre-construction Interest?

The pre construction period is from the day of approval of home loan until the day of completion of the construction of house property. The interest deduction is not allowed while the property is still under construction. However, the interest paid during the pre construction, namely the Pre-construction Interest, is allowed as a deduction in 5 equal installments starting from the year in which the construction of the property is completed.

How to calculate Pre construction Interest?

  1. Calculate the Pre construction period of constructed house property.

    It is from the year of home loan taken till the year in which construction is completed. However, the interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed.

  2. Calculate the interest paid during the pre-construction period from the interest certificate issued by the bank.

    Each year the lending bank issues an annual home loan certificate which provides details of total EMI paid along with Interest and Principal Repayment.

  3. Divide the total pre construction interest in 5 equal installments.

    Claim the deduction of pre-construction interest from the financial year of completion of construction while filing ITR on the Income Tax e-Filing portal under the head “Income from House Property”.

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Example

Kunal has taken a loan for the construction of house property in Pune. Here are the loan details:

Loan amountRs. 30,00,000
Loan taken inNovember 2017
EMIRs. 25,000
Construction completed inDecember 2019

Right after the completion of construction, Kunal was able to find a tenant and so he gave the property on rent right away. Kunal wants to know how much tax deduction he can claim for this home loan while filing his return for the FY 2019-20.

As discussed earlier, the homeowner can claim interest deduction from the year in which the construction of the property is completed. Hence Kunal will be able to claim deduction on Pre-construction interest from the FY 2019-20.

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Calculation of EMI payments for FY 2019-20

  • Total EMI payments in FY 2019-20 = Rs. 25,000 x 12 = Rs. 3,00,000. Out of this Rs. 3,00,000, Rs. 1,35,000 is towards principal repayment
  • Hence Rs. 1,35,000 is allowed as a deduction under section 80C of the income tax act.
  • So total interest payment for the FY 2019-20 comes to Rs. 1,65,000 and since the property is rented out, Kunal can claim the deduction for the entire interest amount u/s 24(b) while filing ITR.

Calculation of amount paid for Pre-construction interest

  • As explained above, the pre construction interest will be allowed in five equal installments from the year in which the construction is completed
  • The interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed.
  • In this case, the construction is completed in December 2019 so the pre-construction interest will be calculated for 17 months for the period November 2017 till March 2019.
Financial yearPeriodEMI calculation
2017-18November 2017 to March 2018Rs. 25,000 x 5 = Rs. 1,25,000
2018-19April 2018 to March 2019Rs. 25,000 x 12 = Rs. 3,00,000
Total
= Rs. 4,25,000
  • Out of this Rs. 4,25,000, Rs. 1,91,250 is towards principal repayment.
  • So the remaining part of Rs. 2,33,750 (Rs 4,25,000 – Rs. 1,91,250) is the pre-construction interest which can be claimed in five equal installments of Rs. 46,750 starting from FY 2019-20.

So Kunal will be able to claim Rs. 1,65,000 + Rs. 46,750 = Rs. 2,11,750 as deduction towards home loan interest in FY 2019-20.

FAQs

What is pre construction period in income tax?

The period from borrowing money until construction of the house is completed is called the pre construction period. Interest paid during this time can be claimed as a tax deduction in five equal installments starting from the year in which the construction of the property is complete.

What is the maximum limit of interest on housing loan exemption?

Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs. 2,00,000. However, there is no limit on the interest payment deduction of the property is rented.

Can the husband and wife both claim interest on the housing loan?

Each joint owner/ co-owner and a borrower can claim Rs 2 Lakhs interest deduction – In case of a joint home loan for self-occupied house property, each of the owners can claim Rs 2 Lakhs in their tax return. The total interest is allocated between them based on their share of ownership.

Which ITR needs to be filed for claiming pre construction interest?

The taxpayer can file ITR-1 if no co-owner is present. Otherwise, you need to file ITR-2.

Understand Income Tax Notices

Identifying the type of Notice Taxpayer has Received

Before responding to any Income Tax notice, you need to make sure that it is a genuine notice and it is addressed to you. You can do that by checking the basic details as shown in a sample notice below:

You need to check:

  • Your name and address
  • Your PAN number
  • Assessment year, type return, ITR type
  • Name and designation of issuing officer
  • Communication reference number

Once you have verified the above details. Understand the intent of Income Tax Notice and requirements stated by the Department. Let’s take a look at the scenarios in which the income tax department may issue Notice.

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Defective Return

In case of any defects in the Income Tax Return, Assessing Office can issue notice u/s 139(9). You need to file a return within 15 days of issue of notice in this case.

Here are some of the instances when a return can be considered a defective return:

  • Any required details are not provided in the annexures, statements and columns of the income tax return.
  • Any tax dues are not paid before filing the income tax return.
  • Assessee is required to maintain books of accounts but he/she has filed the return without providing details of the balance sheet and profit and loss account.
  • Details of auditor and audit report are not provided in case of audit applicability.

Probable resolution

In case of a notice of defective return u/s 139(9), the notice will contain ‘Annexure-A’. which will contain error description & probable resolution. Here’s an example:

Annexure – A
Sl. No Error Code Error Description Probably Resolution
1 31 Taxpayer having income under the income head “Profits and gains of business and profession” but has not filled balance sheet and loss account as required in explanation(d) under section 139(9) read with section 44AA The part A of the profit and loss account and part A of the balance sheet should be entered in the corrected return without which the return filed earlier is liable to be treated as invalid 

 

Time limit

The assessee has to rectify the defect prescribed in the notice within 15 days from the date of the notice. The Assessing officer may condone the delay and treat the return as a valid return. Provided a return is filed before completion of an assessment.

Scrutiny Assessment

Assessing officer (AO) may issue a notice for scrutiny assessment u/s 143(2) to confirm any of the following:

  • A taxpayer has not understated the income; or
  • Has not claimed excessive loss; or
  • Has not underpaid the tax in any manner

The AO will issue a notice requiring the taxpayer to attend his office or to produce any evidence, supporting documents or information in support of his return.

Probable resolution

The taxpayer or his representative has to appear before the assessing officer. Present his arguments, supporting documents and information on the matters/issues required by the officer.

Time limit

Notice issued by AO u/s 143(2) will contain date and time on which the taxpayer needs to appear in his office. The taxpayer may ask for an extension in case of unavoidable circumstances. Notice u/s 143(2) can be issued within 6 months from the end of the financial year in which return is is filed.

Tax Credit Mismatch

When TDS amount or self-assessment tax/advance tax details entered in return do not match with your Form-26AS then you will receive an intimation u/s 143(1) with a tax credit mismatch.

The notice will contain amounts entered by you and the amount calculated by the income tax department as shown below:

In case of any mismatch resulting in “TAX PAYABLE”. You will have to verify the details and take a proper course of action to correct any errors.

Probable resolution

It is possible that your employer/deductor has made any mistakes while filing TDS return. As a result, the amount which you have claimed and the amount in your Form-26AS will vary. You have to ask your employer/deductor to revise the TDS return. So that you can claim credit for TDS which was deducted from your income.

Once the return is revised and correct figures are reflected in Form-26AS. You have to rectify your return u/s 154 due to tax credit mismatch.

If the details entered are correct but the tax computation is not proper, then it will vary with the tax calculation provided by Income Tax Department. Here you may have to pay the remaining tax dues and submit the response for outstanding tax demand.

Tax Return not Filed

This is one of the most common income tax notices. In this case, the IT Department will send you a notice to file a return without further delay. Department can send a notice for past 6 assessment years.

Department also has a system called ‘Non Filers Monitoring System’.  Where based on your transactions, a department may send you a notice to file a tax return.

Probable resolution

The taxpayer needs to respond to a notice within the time limit provided in the notice. If his total income is not taxable then he can respond to notice and provide the same reason.

If his total income is taxable then he must file a return at the earliest otherwise he may be penalized. In case of delayed filing, the department can levy a penalty of Rs 5,000 per year. However, the penalty is not mandatory and depends upon the discretion of the assessing officer. However, if any tax is due, the department charges 1% interest per month from the due date of filing.

Discovery, Production of Evidence

In the case of concealment of income, IT Authority may issue notice u/s 131(1A). Present before him and produce books of accounts and other relevant documents. Failure to comply with this notice is punishable with a penalty of Rs. 10,000 for each default. The books of accounts and other evidence produced by the taxpayer may be impounded by IT Authorities for the proceedings.

Probable resolution

The taxpayer or his representative has to appear before the assessing officer. Present his arguments, supporting documents and information on the matters/issues required by the officer.

FAQs

How do I respond to an income tax notice?

Login to your account on the Income Tax e-filing website by entering your credentials: User ID (PAN), password, and captcha code.
Click on the ‘e-file’ tab and select ‘Response to outstanding Tax Demand’ option.

What is intimation u/s 143(2)?

The notice u/s 143(2) is issued with the aim of ensuring that the taxpayers has not understated any income or shown excessive loss or has paid lower tax. This notice is also known as scrutiny notice. Moreover, notice u/s 143(2) can only be issued if income tax return has been filed by the taxpayer.

Consequences for non-payment of tax demand?

1. Non payment of tax demand attracts penalty and prosecution as per the provisions of the Income tax Act,1961.
2. You are also liable to pay simple interest at the rate of one per cent for every month or part of a month for the period of default in accordance with section 220(2) of Income Tax Act, 1961

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
Download
ITR 2 Form for Capital Gains Income
Download the ITR 2 Form for Capital Gains Income for AY 2021-22
Download

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
Capital Gains

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Capital Gains

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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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Earned Capital Gain during the year?
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Sample ITR-2 Form for AY 2021-22

Income Tax Calendar
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Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
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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.
Explore

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.