Module 7   Markets and TaxationChapter 7

ITR Forms (The Finale)

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7.1 – Income Tax Return (ITR) Forms

The last step of taxation is filing your Income tax returns (ITR), and this can be done using ITR forms. Find below a brief explanation of everything important on ITR that you need to know as an investor/trader.

I have noticed from my interactions with many that they are confused between the two actions i.e ‘paying income tax’ and ‘filing income tax’. Many are of the opinion that if they pay income tax the act of filing income tax is not really necessary. This is not true, let me explain why.

Paying Income tax – If you are employed and draw a salary you very clearly know that your employer on your behalf deducts tax (based on your tax slab) and pays the income tax on your behalf. This is usually called ‘Tax Deducted at Source (TDS)’. Now, what if you have an income source besides your salary?

For example for the given year assume besides drawing a salary, you also made a profit by actively trading delivery based equity trading. As we now know this activity falls under “Non-speculative Business Income”. Since the employer is not privy to this activity it becomes your responsibility to declare this source of income to the Income-tax department and paying the appropriate amount as tax.

Filing Income tax returns – Filing income tax returns is a mandatory way of communicating to the IT department all the sources of income you have including your salary. An Income Tax Return Form (ITR) form is simply a form that you need to fill up declaring your sources of income. There are different ITR forms for different sources of income. You may wonder why I should file my returns when I don’t have any other source of income besides salary. Well, in such a case by virtue of filing your income tax returns (via appropriate ITR form) you are officially communicating to the income tax department that you do not have any other source of income.

So in essence, the act of filing your returns is your official communication to the IT department about all the sources of income that you have along with the tax you have paid against that income. You do this via the prescribed ITR forms.

More formally, an ITR is a prescribed form through which the particulars of income earned by a person in a financial year and taxes paid on such income are communicated to the Income-tax Department. There are different types of ITR forms, one needs to select the appropriate ITR form, based on the different sources of income. These forms can be downloaded from here https://incometaxindiaefiling.gov.in/

7.2 – Different ITR forms

In the context of this module, which is focused on individuals having investments as capital gains or trading as a business income, the important ITR forms to know about are:

ITR 1 – when you earn a salary, interest income, or rental income from only one house property, you can use ITR 1 forms to file your income tax returns (total income up to Rs 50lks). This is the most common type, but if you have capital gains or trading as a business income, you can’t use this ITR form.

ITR 2 – for individuals and HUF not carrying out any business/profession and when you have a salary, interest income, income from house property or income from capital gains, you can use ITR 2. So if you are an individual who only invests in the market (remember investor, hence capital gains), you need to use ITR2

ITR 3(ITR 4 renamed to ITR3 from 2017) – when you have a salary, interest income, income from house property, income from capital gains, and income from business/profession, you can use ITR 3.

So if you are an individual who is declaring trading as a business income, you have to use ITR 3. If you are an investor and trader, you can show trading under business income and investments as capital gains on the same ITR 3 form.

ITR 4 (ITR 4S earlier) – this is similar to ITR3 but with a presumptive scheme, if section 44AD and 44AE used for computation of business income. ITR 4 can’t be used to declare any capital gains or if losses have to be carried forward. So you can use ITR 4 only if you have business income (speculative + non-speculative), but it is best avoided if by use of this form you are reducing your tax liability. 

7.3 – Exploring ITR 4 (4S until 2017)

The advantage of ITR 4 is that it can be used by taxpayers who do not maintain a regular book of accounts or want it to be audited (refer chapter 2) provided your turnover is lesser than Rs 5 Crores for the year.

You can get away without maintaining books or getting audited if you firstly calculate turnover based on section 44AD (check the previous chapter) and then declare 6%* of this turnover as your presumptive income. You have to then pay taxes adding this 6%* of the turnover to your other income and pay tax as per the slabs. 

So if you are a trader with turnover less than Rs 5 Crores for the year (was Rs 2 crore until FY 19/20) and profit less than 6%* of the turnover with only business income (not possible if you have capital gains), you can declare presumptive income of 6%* of the turnover, and get away from the need to get your books audited. There is no need to pay advance taxes if you are using ITR4 (4S earlier), but you are not allowed to deduct any business expenses against your income. 

For example, assume my salary was Rs.500,000/- for the last FY, and I had incurred F&O loss of Rs.25,000/- on a turnover of Rs.400,000/-. Since my profit is less than 6%* (25,000/400,000) of my turnover I will need to use ITR4, maintain books, and have them audited. Instead of this, I could use ITR4S and declare 6%* of Rs.400,000/- (business turnover) or Rs.24,000/- as my presumptive trading business income even though I have incurred a loss.

Update% is reduced from 8% to 6% from AY 2017/18 or FY 2016/17

My total income for the year is Rs 500,000 (salary) + R 24,000 (business income) = Rs.524,000/-. Therefore my tax liability would be as follows –

Upto Rs.250,000 – No Tax

Between Rs.250,000 to Rs.500,000 – 5% – Rs.12,500/-

Between Rs.500,000 to Rs.524,000 – 20% –  Rs.4,800/-

Total tax = Rs.12,500 + Rs.4,800 = Rs.17,300/-

Here, by virtue of declaring a presumptive business income of Rs.24,000/- I’m paying an additional tax of Rs.4,800/-. This works out to be a cheaper alternative than getting an audit done for which the CA fees could have been Rs.15,000/- and above. So using ITR4 would make sense only if your turnover is low, hence declaring 6% of turnover as income would work out cheaper than paying an audit fee to the CA.

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7.4 – Quick FAQ and notes

How to file the return of income electronically?
The income-tax department has established an independent portal for e-filing of return of income. You can log on to www.incometaxindiaefiling.gov.in for e-filing the return of income. Check this very nice video on e-filing put by the IT department.

Is it necessary to attach documents along with the return of income?
ITR return forms are attachment-less forms. Hence along with the ITR form (whether filed manually or filed electronically), you are not required to attach any document (like proof of investment, TDS certificates, etc) unless if you fall under the audit case.

However, these documents should be retained by you and should be produced before the tax authorities when demanded in situations like assessment, inquiry, scrutiny, etc. But in audit cases, a soft copy of the balance sheet, P&L, and any notes along with the audit report needs to be attached.

What is the difference between e-payment and e-filing?
E-payment is the process of electronic payment of tax (i.e., by net banking or SBI’s debit/credit card)

E-filing is the process of electronically furnishing (filing) of return of income.

Using the e-payment and e-filing facility, payment of tax and furnishing of return is quick, easy, and hassle-free.

Is it necessary to file the return of income when I do not have any positive income?
If you have sustained a loss in the financial year, which you propose to carry forward to the subsequent year for adjustment against subsequent year(s) positive income, you must make a claim of loss by filing your return before the due date.

What are the due dates for filing returns of income/loss?
If no audit: July 31st

If audit: September 30th

What is to be mentioned as the “nature of business” on ITR 3 (ITR 4 until 2017)? 

Nature of business can be mentioned as Trading-Others (Code: 0204) – until 2017

For FY 2017/18, Code: 13010 – Financial intermediation/Investment activities. This seems to be the closest category to investment/trading related activity.

If I fail to furnish my return within the due date, will I be fined or penalized?
Yes, if you have not furnished the return within the due date, you will have to pay interest on tax due. If the return is not filed up to the end of the assessment year, in addition to interest, a penalty of Rs. 5,000 shall be levied under section 271F.

How to show profit and loss on the balance sheet?  

You can show all positive turnover as gross receipts, and negative turnover as gross sales.

Can a return be filed after the due date?
Yes, you can. Return filed after the prescribed due date is called a belated return. If one could not file the return of income on or before the prescribed due date, then he can file a belated return. A belated return can be filed within a period of one year from the end of the financial year or before completion of the assessment, whichever is earlier. A belated return attracts interest and penalty as discussed in the previous FAQ.

For Example – In the case of income earned during FY 2013-14, the belated return can be filed up to 31st March 2016. However, if the return is filed after 31st March 2016, the penalty under section 271F can be levied.

If I have committed any mistake in my original return, am I permitted to file a revised return to correct the mistake?
Yes, provided the original return has been filed before the due date and the IT Department has not completed the assessment. It is expected that the mistake in the original return is of a genuine and bonafide nature and not rectification of any deliberate mistake. However, a belated return (being a return filed after the due date) cannot be revised.

Return can be revised within a period of one year from the end of the relevant assessment year or before completion of the assessment whichever is earlier.

For example, in case of income earned during FY 2013-14, the due date of filing the return of income (considering no audit) is 31st July 2014. If the return of income is filed on or before 31st July 2014 then the return can be revised up to 31st March 2016 (assuming assessment is not completed by that date). However, if the return is filed after 31st July 2014, then it will be a belated return and a belated return cannot be revised. 

ITR forms are typically Microsoft Excel sheets where you can fill all the relevant details, and the calculations happen automatically.

Find attached an ITR 4 form with all types of income, salary, capital gains, trading as a business, and rental income. This should act as an easy reference if you are trying to fill this on your own. This is the ITR4 form from AY 14/15(FY 13/14). 

xlsSample ITR4 Form (2014-15)

xlsSample ITR4 Form (2015-16)

xlsSample Computation

Here is a Sample ITR 3 form (FY 2018-19)


Key takeaways from this chapter

  1. The act of paying your taxes is called “Tax Payment”, which can be done via e-payment
  2. The act of communicating different sources of income and tax paid against that is called “Income Tax Return filing”
  3. Filing income tax returns is mandatory, even though you have paid taxes
  4. An ITR form should be used to file taxes
  5. Use different ITRs for different sources of income
  6. ITR 4S for presumptive business income. Use this to lower your cash outflow (paying taxes versus audit fees)

Phew! That brings us to the end of the taxation module. Keeping it simple is most challenging, especially a topic like this where almost every other word is a jargon. Hopefully, I have done a decent job with it, and this module acts as your ready reckoner for everything on taxation when trading and investing.

Financial discipline is the key to long term wealth creation, and it starts with the compliant filing of your income tax returns. It is best not to avoid or postpone especially with the advancement of technology and reach of our income tax department.

Do help spread the word,

Happy Trading,

Nithin Kamath
Zerodha

Special thanks to  Tax IQ for providing valuable inputs throughout this module.

Disclaimer – Do consult a chartered accountant (CA) before filing your returns. The content above is in the context of taxation for retail individual investors/traders only.

1,875 comments

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  1. rao says:

    my total income is less than 250000 per year includes trading losses/gains ,can i pay income tax or not ? or any other forms to fill and submit

    • Nithin Kamath says:

      You don’t need to pay any tax if your total income is less than Rs 2.5lks. But do go ahead and file your income tax returns using ITR4.

      • Vinod says:

        Nithin , My salary is less than 2.5k after adding my total gross is also less than 2.5k,you have mentioned that less than 2.5k is not required to pay tax,But you insisted to file ITR-4 is that mandatory..in that case what should I attach.

        • Nithin Kamath says:

          Vinod, if your total income is less than 2.5lks, then filing ITR is not mandatory. But it is advisable to do so. There is nothing you need to attach, you just have to fill the ITR4 using the help of CA and file it online.

          • rajesh says:

            Thanks for providing nice material, but little confusion.. I do intraday(some times), STCG LTCG, but overall income is less than 2.5lakhs.. Whether I have to use ITR3 or ITR 4( I dont have any other income source)?

          • Nithin Kamath says:

            ITR3

          • Haja Varu says:

            I m government salaried employee and do intraday (loss of around 11500) then which form i fill?
            I read today that govt employee cant do intraday then what can i do now?

          • Nithin Kamath says:

            ITR3, I don’t think it is any issue if you file using ITR3.

          • Saranya says:

            Hi,
            I am getting scholarship for the cost of education which is coming under tax exempted income and i used to file itr 1 earlier to declare this income under exempted income for reporting purposes. Last year i made a profit of rs 3000 from equity. So which itr should i file to include both scholarship income and equity income?

          • Nithin Kamath says:

            ITR2.

      • Gouranga Sarangi says:

        Hi,
        I am a salaried person having a salary of 3 lacs p.a and i do intraday equity trading and on which my turnover is 1 lac and from this i have made a profit of rs 10000.
        Should i need to be get audited my tax details and what sort of ITR form needs to be use on this case.
        Thanks

        • Nithin Kamath says:

          ITR3. Since your profit is more than 8% of turnover, no need of audit.

          • nikhil2 says:

            HI Sir,
            I got 3.3 L salary last year, and short term gain of 2,08,000. I don’t do trading. No LongTerm Gain as well.
            But I got Chit fund Dividend of 65000 approx.
            Could you please suggest me which ITR should I be filling and also for chit fund dividend income should I be filling it as “Income from Other Sources” (or) “Dividend Income”.
            Thanking You in Advance.

          • Nithin Kamath says:

            ITR2. Chit fund income is in the nature of interest income, so can be declared under that on ITR2.

          • Anuradha says:

            Sir,
            I have salary of 240000 pa. I have intraday loss of 6000. F&o loss of 11000, short term gain of 25000. Long term gain of 40000. And Gain of 30000 in NCD(Muthooot finance).
            Turnover is:
            1. Intraday– 120000
            2. F&o – – 35000
            3. Delivery(sell) – – 550000

            What ITR form to be used?
            Need of audit or not?
            Delivery turnover to be added in total turnover or not?

          • Nithin Kamath says:

            ITR3. If you have no taxes to pay, then you can avoid audit. No need to add delivery turnover, it is capital gains.

          • lokesh says:

            Hi Sir,

            I have
            Salary – 6.6LPA
            Intraday Loss – 6000/-
            Short Term Gain – 2500/-
            Long Term Gain – 200/-
            F&0 Loss – 4000/- with 62,000/- turnover.

            Which form I have to choose?

          • Nithin Kamath says:

            ITR3

          • Subhankar Mandal says:

            Sir
            I am an psu employee. My salary income 5.3 lakh. I trade on zerodha kite platform in Intrady, BTST & delivery basis. From zerodha back office I found these data
            Intraday profit = – 37059 (loss)
            Intraday Turnovers = 57768
            Short Term profit = – 23081 (loss)
            Short term turnovers = 630232
            Long term gain or turn over = N/A

            What ITR should I filled and any audit is required or not. Kindly help.

          • Nithin Kamath says:

            ITR3. If you want to carry forward intraday loss, you will need audit.

      • Haja Varu says:

        Hello sir,
        I m govt employee and do intraday( loss of 11000) so which itr for i fill?
        My salary 4.5 lac per annum and loss in intraday so i need to tax audit?
        Govt employee can do intraday?

        • Nithin Kamath says:

          ITR3. Ideally yeah audit, but if you don’t want to carry forward loss you can show 6% of turnover as profit. Best to find out from your department if you can intraday trade.

      • Vikas says:

        Hello Nithin,

        I dont have any salary income

        I do only trading

        Short term Loss 1Lakhs

        Long term loss 10k

        Intraday loss 50k

        FNO Gain 10K

        total turnover 10lakhs

        Can i file ITR using ITR4 form by showing preassumptive income if dont want to carry loss?

        Can you please recommend which form require to file an ITR?

  2. L V S RAO says:

    My salary is Rs 7,00,000/-PA and i have trading loss of around Rs 5,00,000/-. 99% of my trading was in Future & Option & only 1% in equity cash.Total turnover is below 1 crore. Please advice which ITR to be filled.

    • Nithin Kamath says:

      You will need to use ITR4, and you would also need to have it audited. Check out chapters 5 & 6 on turnover and audit.

      • DG says:

        Mine is similar case, have huge losses in F&O and want submit them in ITR.
        I was trying to fill the ITR 4 without audit(0.5% of my gross turnover is way less then what I have to pay to CA audit)
        1) I am unable to enter negative value
        2) Note has been mentioned saying that if profit is less than mentioned limits, audit is mandatory and ITR 3 or 5 must be used

        Can you help me here

        • Nithin Kamath says:

          1. You can’t enter negative on ITR4, you have to mandatorily show 6% of turnover as profits. You should use ITR3.

          • Charles says:

            Hi Nithin,

            I have the following for FY 2017-18:

            Intraday trading loss -Rs 9,140
            STCG from delivery trades – Rs 65,415
            Interest from bank deposits – Rs. 202,415

            My query:

            1. Should I be using ITR form 3?
            2. In ITR form 3, what should I select for “Nature of Business” as the trading option is not available.
            3. In ITR form 3 under the profit and loss tab, what should be inputted in serial number 53 for gross receipt and gross profit on the intraday loss?
            4. Is audit required considering my above income and loss?

            Kindly assist with my queries.

          • Nithin Kamath says:

            1.Yes
            2. You can show under Financial intermediation services and under that Investment activities. The closest I can find.
            3. No audit not required.

    • L V S RAO says:

      thanks nithin for guidance

    • anil k rawat says:

      i ‘m govt employ salary about 8 lakh &total trade in f &o loss 115658and mutual fund as sip

      • Kesav says:

        Can a govt employee do trading…? how can a govt employee trade when trading timings are equal to office timings.

        • Nithin Kamath says:

          Can a govt employee do trading is something best to be asked with your department itself. There are many govt employees who trade in the name of their family, and yeah do it very actively.

  3. shiva says:

    I think u forgot to mention about rebate of 2000, which is provided to resident individual

    • Nithin Kamath says:

      Shiva, we are trying to focus only on taxation around trading, not general aspects on taxation.

      • pooja says:

        if i m earning from trading in stock market then how much tax i ll hv to pay when we r alredy paying all taxes like STT, STAMP DUTY, GST and all. kindly reply in detail. thanx in advance

  4. Manish Agrawal says:

    Sir, my business income (personal business, not intraday or FnO) is less than Rs 2.5lac. My turnover is less than 1 crore and I have losses of about 70000. I have traded in delivery based, intraday and options. Do I need an audit?

    Since my total income is less than 2.5 lac, I thought that I won’t need an audit.

    • Nithin Kamath says:

      Manish yes you are right, no audit as you don’t have any tax liability as your total income less than 2.5lks

  5. Kathir says:

    I have been searching in the internet for taxation on trading as a business. I am delighted to see such a comprehensive coverage of the concept explained well in one place. It is wonderful to see links to some other relevant articles also. Thanks for the nice work!!!

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