Updated: Apr 8

What exactly is ITR?


The Income Tax Return, or ITR, is a document used by taxpayers to report their income and tax payments to the income tax department. A taxpayer must submit an ITR on or before the due date. The ITR form relevant to a taxpayer is determined by the kind of taxpayer, such as individuals, HUFs, corporations, and so on, and you choose the ITR depending on the nature and type of income as well as total income. Before filing the ITR, every taxpayer should calculate the tax owed and make payments. In the event of a carry forward of losses and set off of carried forward losses, you must submit an ITR.


When submitting your ITR, go through form 26AS for information on TDS and other income, such as FD interest. You should also have your form 16 to fill out the details of your pay and tax saving deduction claims.


ITR Types


Based on the kind of taxpayer and income, the government specifies seven different ITR forms:


  • Individuals residing in India with a total income of up to Rs 50 lakh should file Form ITR-1. Individuals with income from salary, residential property, and other sources are eligible to submit ITR-1. ITR-1 cannot be filed by an NRI. Salaried taxpayers may submit their ITR using Form 16.


  • Individuals and HUFs must file ITR-2 for any income other than income from a business or profession. Individuals and NRIs with income from wages, real estate, capital gains, and other sources are eligible to submit ITR-2. Salaried persons who have profits or losses from stock purchases and sales should complete Form ITR-2.


  • ITR-3 is used by people to declare their earnings from a company or profession. Salaried persons who earn money from intraday trading in stocks or from futures and options must submit Form ITR-3. Individuals may utilise ITR-3 to record income from salary, real estate, capital gains, business or profession (including presumptive income), and other sources.


  • Individuals, HUFs, and partnership businesses must file Form ITR-4 to report their income under the presumptive taxation structure. ITR-4 is used to report revenue from a firm with a turnover of up to Rs 2 crore that is taxed under section 44AD. In addition, ITR-4 is for income from a profession with a turnover of up to Rs 50 lakh that is taxed under section 44ADA. ITR-4 may be filed by a freelancer who works in a notified profession.


  • ITR-5 forms are available for partnership businesses, LLPs, AOPs, and BOIs. Business entities such as LLPs, partnership companies, AOPs, and BOIs may submit ITR-5 to disclose revenue from their businesses and professions as well as any other source of income.


  • ITR-6 is the income tax return used by businesses to report income from their company or profession, as well as any other sources of revenue.


  • ITR-7 is the income tax return for corporations, partnerships, and trusts that seek income tax exemption.

ITR Frequently Asked Questions


My income is already subject to TDS; do I need to pay any more tax while completing my ITR?


TDS on income may vary from the actual tax due on earned income. TDS rates are often a predetermined proportion of payments, while your income is taxed at slab rates. If the TDS is smaller, you may be required to pay the remaining tax. If the TDS is too high, you may be eligible for a refund. In any event, while completing your ITR, you should total your yearly income from all sources and determine the tax due/refund claim.


Is there any interest owed on the tax owed based on my yearly income?


If your tax due before claiming TDS exceeds Rs 10,000, you may be liable for interest. The interest obligation is 1% each month determined on the tax balance. You may lower your interest obligation by paying your taxes on time. Before submitting the ITR, you must pay the remaining tax as well as any interest owed.

You may avoid paying interest by organizing your tax payments under 'advance tax' throughout the fiscal year.


How can I seek a tax rebate under Section 87A and a TDS refund?


If your total income after tax deductions and exemptions is less than Rs 5 lakh, you may receive a tax refund. The maximum rebate available is Rs 12,500. In this scenario, you may request a refund of the TDS you paid on your income.


Should I file an ITR if I suffer a loss from a company, a home, or the sale of stock?


Yes, you should submit an ITR if you have losses from a company, the sale of stock, or interest paid on a house loan. An ITR filing allows you to set off the loss and carry it forward to future years. Please keep in mind that you must submit your ITR on or before the due date.


What is the penalty for submitting an ITR after the deadline?


The late cost is Rs 5,000 for submitting a return beyond the due date but before December 31, 2020. For the fiscal year 2020-21, a late charge of Rs 5,000 is levied for returns filed between 1 December 2020 and 31 December 2020. For returns filed between 1 January 2021 and 31 March 2021, the late cost is Rs 10,000.


The late filing charge, however, should not exceed Rs 1,000 if a taxpayer's total income does not exceed Rs 5 lakh.



The Unique Identification Authority of India issues an Aadhaar card with a unique 12-digit number to every person in India (UIDAI). It serves as an identity number, allowing access to the cardholder's information from the government database, such as biometrics and contact information.


Anyone who is a resident of India, regardless of age or gender, may freely enrol in order to receive an Aadhaar number. The enrollment procedure is free of charge. When a person enrols, their information is permanently saved in the database. A person cannot have more than one Aadhaar number.


If you have a PAN and are eligible for Aadhaar or already have one, you must notify the income tax authorities. You may do this by connecting your PAN to your Aadhaar card. If you do not connect your PAN to Aadhar, your PAN will become 'inoperative.'


How to Link Aadhaar With Pan Card?


According to the income tax department statement, income tax returns may be e-filed without associating Aadhaar and PAN till August 5, 2017. However, the deadline for linking PAN with Aadhaar was extended to December 31, 2017, and the deadline was then extended many times more. According to the most recent information, the deadline for linking PAN with Aadhaar is March 31, 2022.


It is important to note that if you submit income tax returns without connecting, the income tax department will not process the returns until the PAN and Aadhaar are connected. People may go to the department's official e-filing website to connect the two identities in both circumstances – identical names in the two databases or a slight discrepancy.


FAQ:


When I attempt to connect my PAN to Aadhar, I receive a notice stating the authentication has failed.?


The authentication fails because there is a data discrepancy between your PAN and Aadhaar. You may verify the accuracy of data such as name, date of birth, and cellphone number, among others.


How can I connect my PAN and Aadhaar if there is a name or date of birth mismatch?


Begin the Aadhaar connection procedure by entering your PAN and Aadhaar number, as well as your name, date of birth, and mobile number data as shown on your Aadhaar card. The income tax department will send an OTP to the registered mobile number to authorise the linkage. If your date of birth is incorrect, you must change your Aadhaar card data.


Is it possible to submit an ITR if my PAN and Aadhaar are not linked?


When completing your income tax return, you must provide your Aadhaar number. In the absence of an Aadhaar number, the Aadhaar enrollment number must be used.


Is it necessary for a Non-Resident Indian (NRI) to connect their PAN and Aadhaar?


An Aadhaar number can only be obtained by a native Indian. A resident is someone who has spent at least 182 days in India in the preceding 12 months prior to the date of their Aadhaar application. An NRI is not required to get Aadhaar or connect their PAN to Aadhaar.



Updated: Apr 8

What exactly is Short-Term Capital Gains on Share Sale?


We are all aware that salary, rental, and business income are all subject to taxation. Similarly, income/loss from the sale of stock is classed as 'Capital Gains.'


So, what exactly is a capital gain?


A capital gain is any profit obtained from the sale of a capital asset. The profit made falls under the category of income. As a consequence, a tax must be paid on the earned income. The tax is known as capital gains tax and may be long-term or short-term.


This classification is based on how long the shares have been owned. The holding period is the amount of time that an investment is held from the moment it is purchased until it is sold or transferred.


Under the category 'Capital Gains,' income is further classified into two types:

  • Long-term capital Gain (LTCG)

  • Short term Capital Gain (STCG)

Important note: Under the Income Tax Act of India, capital gains tax is not payable if the shares are inherited and there is no sale.


Calculation of STCG Tax on Shares


If a stock exchange-traded equity share is sold within 12 months after purchase, the seller may realize a short-term capital gain (STCG) or incur a short-term capital loss (STCL) (STCL). When the selling price exceeds the buying price, the seller earns a profit, which is referred to as a short-term capital gain.


STCG = (Sale price) – negative (Purchase cost) – negative (expenses incurred on sale)


Important Reminders


  • You must pay taxes at the rate of 15%, regardless of your tax slab rate. Even if you are a senior citizen with a higher slab rate, you must pay 15% on your STCG.

  • If a stock exchange-traded equity share is sold within a year of acquisition, the seller may realize a long-term capital gain (LTCG) or suffer a long-term capital loss (LTCL) (LTCL).

  • Prior to the introduction of Budget 2018, long-term capital gains on the sale of equities shares or equity-oriented units of mutual funds were tax-free, which meant that no tax was due on profits on the sale of long-term equity investments.

  • This exemption was deleted from the Fiscal Budget for 2018. If the seller earns a profit on the sale of equity shares or mutual funds that exceeds Rs. 1 lakh, the seller would be liable to long-term capital gain taxes of 10%. (plus any cess if applicable). The seller will no longer profit from indexation as of April 1, 2018.


Applicable Taxes on Capital Gain on Sale of Shares


Note : Long Term capital gain more than Rs. 1 Lac are taxed at rate of 10% from Mar 2018


What about the taxes on shares sold at a loss?


Short Term Capital Loss


• Any short-term capital loss resulting from the sale of equity shares may be offset by any short-term or long-term capital gain resulting from the sale of any capital asset. If the loss is not set off, it may be carried forward for a further eight years and offset against any short or long-term capital gains achieved during that time.


• It is critical to note that a taxpayer may only carry forward losses if his income tax return is filed on or before the due date. As a consequence, even if your total income for the year is less than the statutory minimum, you must submit an income tax return in order to carry forward these losses.


Long term Capital loss


• Long-term capital loss on equity shares was considered a dead loss until Budget 2018 and could not be amended or carried forward. This is due to the exclusion of long-term capital gains from listed equity shares. They were also not able to set aside or carry forward their losses.


• Following the revision to the law in Budget 2018 to tax such earnings of more than Rs 1 lakh at 10%, the government has also said that any losses incurred from such listed stocks, shares, mutual funds, and so on would be carried forward.


Carry Forward Provisions related to Capital Loss on Shares Sold



What exactly is the Securities Transaction Tax (STT)?


All equity shares exchanged or acquired on a stock exchange are subject to STT. The above-mentioned tax effects only apply to shares traded on a stock exchange. STT applies to any stock market transaction or purchase. As a consequence, the above-mentioned tax concerns only apply to shares on which STT is paid.


Profit on the sale of non-STT Paid Shares:



Short-term capital gain tax exemptions and deductions for shares


1. Unlisted Shares Sale


The department has issued an opinion on the selling of shares that are not listed on any stock exchange and does not have any official trading data. To reduce disputes/litigation and preserve consistency, income derived from the transfer of unlisted shares would be taxed under the head 'Capital Gain,' regardless of holding time (as per CBDT circular Folio No.225/12/2016/ITA.1I dated May 2, 2016).


2. But what if you're in the business of selling stock?


If you have a lot of share trading activity (for example, if you are a day trader with a lot of activity or trade Futures and Options on a regular basis), your income is usually classified as business income. In this case, you must file an ITR-3, and your share trading revenue is recorded under 'income from business and profession.'


Earnings or losses from the sale of shares are classified as "income from a firm" by some taxpayers, while capital gains are classified as "capital gains" by others. It has long been argued whether your profits/losses from selling shares should be categorised as business income or capital gains.


3. What if selling stocks is part of my usual business?


When you report the sale of stock as company revenue, you may subtract the expenses of making that money. In such cases, your profits are added to your total income for the fiscal year and taxed at slab rates.


Why Taxpayers get letters from the tax department and spend considerable time and effort explaining why they choose a certain tax treatment for the sale of shares.


The CBDT has issued the following instructions (CBDT circular number 6/2016 dated February 29, 2016) to reduce litigation in similar cases: If the taxpayer elects to treat his listed shares as stock-in-trade, the income is treated as business income. A listed share has been held for any amount of time. The taxpayer's favoured viewpoint must be accepted by the AO.


• If the taxpayer elects to treat the income as capital gains, the AO will not object. This applies to listed shares that have been held for more than a year. This viewpoint, however, is applicable in subsequent assessment years once accepted by a taxpayer in a particular assessment year. And taxpayers will be unable to modify their minds in the coming years.


• Taxpayers now have the choice of how they want to handle such revenue. They must, however, apply the same process in subsequent years unless the circumstances of the case alter significantly. It should be noted that the option is only available for publicly traded shares or assets.


Tips for Reducing the STCG Burden on Shares


You may lower your short-term capital gain tax burden with smart tax preparation. Some fundamental pointers are as follows:


1. Use the Basic Exemption Limit: You may also create a Demat account in the name of your spouse and trade shares. If your spouse does not work, you may take advantage of the basic exemption limit. If your spouse is above the age of 65, you may lower your tax burden even more since elderly people have larger exemption limits. Refer to the most recent tax slab rates for the year.


2. Setting off losses may help you save money on your current year taxes: Short-term financing Short-term capital gains might be offset by losses suffered in the selling of shares. This contributes to a lower tax burden. As a result, it is critical that you keep accurate transaction records in order to account for losses.


3. Carry your losses forward to save on future taxes: Unused short-term capital Losses may also be carried forward and deducted from future short-term capital gains. To take advantage of this benefit in the next year, you must compute the losses and submit them in your current ITR filing. As a result, it's essential to submit your ITR with the assistance of a tax professional so that you don't lose out on carrying over these losses to the next year.


Some Examples of STCG Calculation


Eg 1:


Mr Janak is a salaried employee. He purchased 100 equity shares of X Ltd. from the Bombay Stock Exchange in December 2020 for Rs. 1,400 each share. In August 2021, these shares were auctioned on the BSE for Rs. 2,000 per share (a securities transaction tax of 2 percent was paid at the time of sale). What is the nature of the capital gain in this scenario?


Answers:


• The shares were purchased in December of 2020 and sold in August of 2021, meaning that they were sold after less than a year of ownership, and hence the gain will be a short-term capital gain.


• Section 111A applies to STCG derived through the transfer of equity shares, units of equity-oriented mutual funds, or units of business trusts via a recognised stock exchange on or after 1-10-2004 if the transaction is subject to the securities transaction tax.


• Section 111A applies to STCG derived through the transfer of equity shares, units of equity-oriented mutual funds, or units of business trusts via a recognised stock exchange on or after 1-10-2004 if the transaction is subject to the securities transaction tax.


• If the section 111A conditions are completed, the STCG is referred to as STCG covered by section 111A. This gain is taxed at a rate of 15%. (plus relevant surcharges and cess).


• In the case presented, shares were sold on a recognised stock exchange after being held for less than 12 months, and the transaction was subject to STT; hence, the STCG may be categorised as STCG covered by Section 111A. This STCG will be taxed at a rate of 15%. (plus surcharge and cess as applicable).


Eg 2:


Mr. Poddar is a paid employee. In December 2020, he purchased 100 equity shares in ABC Ltd. for USD 70 each share. These shares were sold in August 2021 for $85 per share. There was no STT on the transfer of shares since it was exchanged in an existing recognised international financial hub.


Answers:


• Section 111A applies to STCG arising from the transfer of equity shares through a recognised stock exchange where the transaction is subject to the securities transaction tax.


• STCG subject to Section 111A taxation is taxed at a rate of 15%. (plus relevant surcharges and cess).


• However, beginning with Assessment Year 2018-19, a 15 percent concessional tax rate will be available even if STT is not paid, if the transaction is conducted on a recognised stock exchange located in any International Financial Service Centre and the consideration is paid or payable in foreign currency.


• In the indicated case, Mr. Poddar sold shares of ABC Ltd. that were listed on a recognised stock exchange in an International Financial Services Centre (IFSC). In addition, payment is done in foreign currency.


• Shares were purchased in December 2020 and sold in August 2021, reflecting less than a year of ownership. As a consequence, the gain will be a capital gain in the near run.


• Because the shares were sold on a recognised stock market, the IFSC, and the payment was made in foreign currency, i.e., USD.


• As a consequence, even though the selling transaction was not subject to STT, the STCG may be referred to as STCG covered by section 111A.


• Such STCG will be taxed at a 15% rate (plus surcharge and cess as applicable).


FAQs


Q. Can I transfer shares to family members to avoid paying short-term capital gains tax?


Yes, you may give your current shares to your spouse or kid, which is also regarded prudent tax planning.


Q. Will it be considered a sale if I give my shares as a gift to my spouse?


No, Because the concept of capital asset transfer excludes gifts to family members, any transfer will not be deemed a sale of securities. If there is no transfer, it will not be regarded for capital gain, and hence no tax will be levied on the gift to your spouse.


Q. Will my spouse have to pay capital gains tax on the given shares when she sells them?


Yes, capital gain will occur when the given shares are sold in the market for a profit. The capital gain will be determined by collecting the actual purchase price of the shares from the person who purchased them. This will be useful if your spouse is not working and can take use of the basic exemption.


Q. Can I deduct my trade area's electricity and rental costs?


It is dependent on whether the trading revenue is treated as capital gain or business income. If you choose to view it as company revenue, you may deduct the expenditures that were spent to create that money, such as power or rental costs. However, you must pay taxes on your gain at slab rates, and the short-term capital gain rate will not apply.


Q. As an NRI, do I have to pay taxes on short-term capital gains on the sale of shares?


Yes, if an NRI person makes a profit or gain from the sale of shares, it will be taxed as a capital gain, just like any other resident. As a result, he must pay short-term capital gain.