How to File ITR on Trading Income? – Income Tax Return

By Advisorymandi
1-August-2018 4:29:39 AM
How to file ITR on trading income

Filing of income tax return (ITR) on money earned from trading in BSE and NSE could be really troublesome. Especially when the trading goes to business income and every person have to calculate the turnover (profits & losses) of the trading and show it while filing the ITR. So, what exactly is ITR? It can be defined as a mandatory way of communication with the Income-tax department declaring all the sources of income one have with the salary. In simple words, it is a document which provides all information about taxpayer’s tax liability to the tax collector. These taxes collected by the government in different ways on different types of income such as income from salaries, house property, profits and gains of business, capital gains, and other sources etc.

If you are here to understand how to file ITR as trading income source then you’ve come to the right place. Because, if you are trading in equity then the filling of income tax returns can be quite complicated.

Especially when the profits and losses are treated differently for income tax returns, based on whether you did intra-day trading, traded in F&O segment, or took delivery of stocks. Now that market is more bullish and the several IPOs hitting it time-to-time, many people have begun to participate in the stock market directly.

So, if you are an individual who is planning to file ITR only on trading income then first you need to choose the correct ITR form.

What is the Correct ITR form for me?

There are different types of ITR forms based on different conditions like taxes, types of income, and much more. The filing of ITR is straightforward as long as you are in delivery-based buying and selling and the trading earnings are only a fraction of your income. But, if you are keeping shares for more than a year and sold them off at a loss, you cannot set off those losses against long-term gains.

The main complications arise when one buys and sell stocks frequently and have a high income. In this case, one needs to fill the income tax returns as a business owner and go for an ITR-4 form.

According to many experts, a salaried individual should file ITR as a business owner in two situations:

  1. If the income from trading is close to salary then the taxpayer would be considered as a trader.
  2. If there are constantly buying and selling, it indicates the individual wants to benefit from the price fluctuation and definitely is not an investor!

Note: – Don’t ever mention the transactions of the stock market under capital gains (in the ITR forms) if you trade on a frequent basis.

Classify your Income

The second thing you must know is how to classify your income. In filing ITR the income generally classified into categories: long-term capital gain, short-term capital gain, speculative business income, and Non-speculative business income speculative.

Well, we don’t have to discuss the LTCG since long-term capital gains are especially for those who invested in long-term investments.

But, if you buy listed stocks or equity oriented mutual funds today for Rs 1,00,000 and sell the same within 1 year, let’s say 1,25,000 then the profit or gain of Rs 25,000 is taxed as STCG.

So, the tax on STCG = flat 15 percent (current tax on STCG in India).

What worth to discuss and consider are speculative and non-speculative business income.

As per the Indian section, 43(5) of the Income Tax Act, 1961, returns earned by trading stocks for intraday or non-delivery come under the speculative business income.

So, there is no fixed rate when you have a business income. So, the tax has to be paid by adding the business income with the rest of the income as per the tax slab. As per the same act, the income from trading futures & options on recognized exchanges (equity, commodity & currency) falls under the non-speculative business income and as discussed earlier, paid along with other income as per the tax slab.

Note: – ITR 4S or you can say Sugam can’t be used to declare any capital gains or if losses have to carry forward. This form can only be used if you have business income (speculative + nonspeculative).

Final Thoughts: –
Hope, this article helped you in understanding the income tax returns for trading income. Don’t forget to file ITR whether you are in profit or loss. There is no loss. On the contrary, you will be free to carryforward losses for the next four years.

Nevertheless, if you do have any query, don’t forget to mention in the comment section below.


Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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2 Comments on "How to File ITR on Trading Income? – Income Tax Return"

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Karan Sharma
5 months 21 days ago

A good article nevertheless. Electronically filed returns are faster than manual filing as the tax data is transmitted directly into the computers. There are numerous benefits in filing the income tax returns online such as accuracy, convenience, and time saving.E-filing has manifold benefits which have made this system of tax preparation increasingly popular in recent years; the taxpayer can file a tax return from the comfort of his or her home, at any convenient time, once the tax agency begins accepting returns. Thanks for the article.

Aisha Garg
Aisha Garg
3 months 5 days ago

Thanks for the information.
your article are very informative and helpful.