I trade in shares and futures and selections (F&O). Say, I booked a revenue of about ₹5.50 lakh in FY21 but made a loss of ₹3.50 lakh in FY20. What will be my tax liability? Which cash flow tax return (ITR) variety ought to I file and how should I characterize my loss in my return so that I can carry ahead this decline and offset my legal responsibility in FY21?
—Sajeevan P. Nair
Earnings or decline from the sale of investments in stocks would be regarded as brief-expression cash gain or reduction (STCG or STCL) or extended-term money gain or reduction (LTCG or LTCL), dependent on the holding time period of the respective shares.
Cash flow or loss on account of trading in derivatives (F&O) transactions could be thought of as enterprise profits or STCG or STCL (dependent on a in depth assessment of elements these as quantity of trade, frequency of transactions, common holding period and manner of funding).
If the income from F&O is viewed as business earnings, ITR3 will be relevant to you (assuming you fulfill all other ailments). The particulars of sale and corresponding acquire in relation to money gains would have to have to be disclosed in Schedule CG. Even more, very similar specifics for organization revenue would need to have to be disclosed in Agenda P&L and Program BP, respectively. However, in situation the money from F&O is thought of as money gains, ITR2 will be applicable to you (assuming you satisfy all other problems). The aspects of sale and corresponding buy in relation to cash gains would require to be disclosed in Program CG.
As per the money tax legislation, within an FY, LTCL can be set off towards LTCG. Also, STCL can be established off versus the two STCG and LTCG. Any unadjusted reduction less than the head money gains just can’t be established off towards any other profits in the similar FY. You can, nonetheless, have forward the unadjusted STCL or LTCL for eight FYs quickly succeeding the current FY and set off in opposition to potential STCG or LTCG, as recommended. In your scenario, the capital losses incurred in FY20 can be set off versus gains made in FY21, based on the nature of the loss (STCL or LTCL).
As for every the tax regulation, within just an FY, organization reduction (other than speculative business) can be set off from any head of cash flow other than money from salary. Any unadjusted loss can be carried forward for eight FYs instantly succeeding the latest FY and set off in opposition to any organization earnings, as recommended. In your case, the small business losses incurred in FY20 can be established off from small business income in FY21.
Notice that to allow you to carry forward business decline and money decline incurred in FY20, the tax return is filed in accordance with the because of date specified in Part 139(1). The thanks date for FY20 was 10 January 2021. Only if your ITR was filed on or before 10 January 2021, the mentioned losses can be carried ahead.
Even more, relying on the turnover, gross receipts, money of the business enterprise, applicability of protecting guides of accounts and conducting tax audit would have to have to be evaluated. In situation tax audit is essential in your case, the thanks dates for filing the tax audit report and ITR for FY20 are 15 January 2021 and 15 February 2021, respectively.
Parizad Sirwalla is spouse and head, worldwide mobility companies, tax, KPMG in India