Choosing the Correct ITR Form for Income from Salary and Share Sales

For individuals earning income from both salary and share sales, determining the appropriate Income Tax Return (ITR) form is crucial. This guide helps taxpayers understand which form to use based on their specific situation, ensuring accurate tax reporting and compliance with Indian tax laws.

Overview of ITR Forms

India has several ITR forms, each designed for different types of income and business activities. Here’s a brief overview:

ITR 1: For those whose only source of income is salary and rent from one house property. ITR 2: For individuals with salary, capital gains from the stock market or sale of property, and rent from multiple house properties. ITR 3: For those involved in proprietory businesses, including speculation or intraday trading profits from the stock market. ITR 4: For presumptive business activities under Sections 44AD and 44ADA. ITR 5: For firms engaged in business or profession. ITR 6: For companies. ITR 7: For trusts.

Types of Income for Different Tax Regimes

The choice of ITR form depends on the types of income the individual has:

ITR 1: Income is limited to salary and rent from one house property.

ITR 2: In addition to salary, it includes capital gains from the stock market or property, and rent from multiple house properties.

ITR 3: Includes salary, capital gains, and income from business activities, such as intraday or forward trades (FO).

ITR 4: Suitable for presumptive business activities where turnover is presumed to be a profit.

ITR 5: For firms in business or professional activities.

ITR 6: For companies.

ITR 7: For trusts.

Specific Situations and ITR Forms

If you are salaried and:

Dealing in Forward Orders (FO) or Intraday Trading:

1. And Tax Audit Applies: Use ITR 3.

2. And Tax Audit Does Not Apply:

Not Opting for Presumptive Taxation: Use ITR 3. Opting for Presumptive Taxation: Use ITR 4.

3. Dealing in Short-Term Delivery Based Trades: Use ITR 2.

4. Dealing in FO/Intraday Trading, Whether Presumptive or Tax Audit, and Any Short-Term Delivery-Based Trades: Use ITR 3.

Taxation of Income from Stock Market Trading

Income from stock market trading is taxed under the head "Profits and Gains of Business and Profession." Individuals with both salary income and income from intraday trading, whether with or without capital gains, should file ITR Form 3. This form also allows traders to carry forward trading losses for future years.

Profits made from intraday trading of equity shares are considered speculative income, subject to specific tax rates. Traders can also take advantage of the Presumptive Taxation Scheme under Section 44AD, which considers a minimum of 6% of turnover as profit.

Conclusion

Proper tax planning and selecting the appropriate ITR form is crucial to ensure tax compliance and avoid penalties. If you are unsure about which form to use, consulting with a tax professional can provide valuable guidance.

For Further Assistance

If you need assistance with your tax returns or have any questions related to ITR forms or tax compliance, please feel free to contact me.

Abhinandan Sethia

Email: abhinandansethia90@