Filing Income Tax Returns To Treat Share trading Losses
Posted on September 30 2020
Most of the people are aware how the sale of listed equity shares is taxed. At the rate of 15% short-term gains are taxed, while the long-term gains are exempt. But the critical part is how to report the intra-day stock trading? There are few taxpayers who do not report to these transactions in their tax return, especially when they have losses. What is the tax treatment, let us go through them.
Separate out investments from trading activity
Your investments or the activity in the stock market may involve enormous forms. As a first step, it is important to classify your activity in to enormous buckets. It follows:
* Intra-day stock trading activity
* Investments in the equity shares which is held for the longer term or mutual fund investments
* Futures and options (outgrowth) transactions
All of these have different tax treatment. Investments which are held for longer term are treated as capital assets and the capital gains tax rules are applied. But the Income-tax Act treats intra-day trades and F&O activity as a business. Even though you are a salaried employee, any gains or losses from these should be reported as a business in your income tax return. This holds off a lot of taxpayers.
There are few taxpayers who have never reported a business and are worried about how to continue with their tax returns. The detailed ITR-4 form should be filed for reporting a business. There are many tax benefits of treating the intra-day trades as a business. Also the business losses come with tax benefits, so it helps to go ahead with an extra mile and report about them. The income tax department receives reports of the stock activity of taxpayers from the financial institutions. So, in order to avoid receiving any kind of notices for non-compliance from the Income tax, make sure that you even report these in your tax returns.
Reporting intra-day trades as a business
Reporting your stock trading as a business then you can claim all the expenses from your receipts. Put all the expenses together that have been spent to earn this business income. It may include, broker’s commission, a portion of your phone bills, internet cost, demat account charges. If you have employed any person to help you then his/her salary can be deducted. Or else, if you are taking the help of a consultant, or attending investor workshops those can also be claimed.You should calculate all the income-related with each of your trading activity separately. Income received from F&O trades should be calculated separately from the intra-day stock trading activity. If you have important delivery-based stock market transactions, where the eagerness is not to stay invested for the longer term, can also be treated as a business, and calculate separately its income. You can use a reasonable ratio to appropriate the expenses to these different businesses. You can take the time that is spent by you on each type of trade as a ratio or another reasonable basis. These incomes can be gain or losses are all calculated separately, hence the tax treatment is different for them.
How to treat losses
Reporting the business losses can lower the taxable income. The Income Tax Act allows the business losses to be set off from any other incomes. Therefore, these are some rules you should know:
* Losses from experimental business can only be set off from the experimental income
* Losses from non-experimental business can be set off from any other sources of income such as salary, rental income or interest income
* Any intra-day trading is treated as an experimental business. So, you can only set it off from the intra-day trading income. Any losses which cannot be adjusted in the same year can be carried forward and can be claimed against the experimental income in the four succeeding years. Therefore, you should file your income tax return to be able to do so.
The income tax department has described that F&O trades should be considered as a non-experimental business. The losses can be carried forward for eight years.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.