FeMoney spoke to Archit Gupta, Founder & CEO ClearTax.com, to understand the tax filing requirements of stock traders and proprietary businesses.
Stock traders, who actively trade in equities, whether day-traders, short-term trades with high trading activity and those trading in the Futures & Options (F&O) are required to file their tax returns showing their gains or losses in the stock market. The deadline for them for filing their tax returns in September 30. The same tax filing deadline applies to proprietary businesses.
FeMoney spoke to Archit Gupta, Founder & CEO ClearTax.com, to understand the tax filing requirements of stock traders and proprietary businesses. “Traders must file a tax return. This is also important when they have a loss. To be able to carry forward a loss, return must be filed before the due date (due date of filing of tax return where audit is applicable is September 30),” Gupta said.
Here are excerpts from the interview.
What are the tax filing requirement for stock traders?
Traders may trade in several formats – futures & options trading or intra-day stock trading or buying and selling stocks in the very short term. Before we touch upon tax filing for traders, its important to note the following.
If there is a high volume of transactions and there is high frequency of trade, and the trader’s intention is to profit from the short term and not stay invested in the longer run; all of these trades shall be treated as a business and income (loss) shall be reported under the head ‘profits and gains of business/profession’ in the tax return.
Trading in F&O is usually considered as a business. When F&O trades are treated as a business, expenses are allowed to be deducted from income (loss) from F&O trades. As a result a trader may have a business loss.
Where there is high volume of intra-day stock trade, it is treated as a business. Income from F&O and intra-day stock trade should be calculated separately. This is because intra-day stock trading is considered as a speculative business and F&O trade is considered as a non-speculative business. This bifurcation is important as there is difference in treatment of losses in speculative and non-speculative businesses.
Losses from non-speculative businesses can be set from other incomes such as rental income, interest income (but not salary income). Any balance which remains after set off can be carried forward to 8 years. In the following 8 years it can only be set off from non-speculative income.
Losses from speculative business can be set off from only speculative income. Unadjusted losses can be carried forward for 4 year.
Traders must file a tax return. This is also important when they have a loss. To be able to carry forward a loss, return must be filed before the due date (due date of filing of tax return where audit is applicable is September 30).
What are the tax filing requirements for proprietary businesses? Is the tax returns filing deadline the same for stock traders and proprietary businesses?
If you trading activity is a business, its important to first test whether you are required to get your accounts audited. Those with turnover in excess of Rs 1 crore have to get their accounts audited.
Those with business income have to file ITR-4, whether they are individuals, proprietorship or companies. And if they need to get their accounts audited, their due date for tax filing is also September 30. They have to submit the audit certificate and forms, along with the tax return.
Accounting and book-keeping requirements also apply to businesses (including those carried on by an individual) in the following situation – where income is more than Rs 1,20,000 or total sales, turnover or gross receipts are more than Rs 10,00,000 in all preceding 3 years, such businesses must maintain books of accounts and other documents which may enable the Assessing Officer to calculate their taxable income as per the Income Tax Act. No specific records are prescribed. In case of a newly set up profession or business the same rule applies when income is expected to be more than Rs 1,20,000 or sales/turnover/gross receipts are expected to be more than Rs 10,00,000 in the first year. For a trader, maintaining details of bank accounts, on a monthly basis, keeping receipts of all expenses, and trading statements, contract notes shall be required. Profit and loss account and balance sheet can be prepared from these.
When do individuals have to file ITR-4?
Where individuals meet the criteria for applicability of audit (mentioned above), the due date for submission for ITR-4 shall be September 30.