This topic is very vast and there are many articles written on this. However, we are trying to stress the importance of Filing of ITR-3 for a Stock Market Trader. In this article, I tried to put the differences in the layman terms. Hope this article clears many of the doubts which you have to choose ITR-1 or ITR-3 being in Stock Market. Do share this article with your family and friends and help them to be aware of the right policy of Income Tax.
In this article, we are not going to discuss the Slabs, Different types of ITR’s and other sections. We are just going to see the difference between the filing of ITR-1 and ITR-3 being a salaried employee and Trading in Stock Market. After considering a couple of assumptions and with the scenario of A employee filing ITR-1 and ITR-3.
As India is developing Ecnomony and many are first-generation white-collar jobs and many are attracted towards the Stock Market for a secondary source of Income. And most of them enter the market without having any knowledge and they end of up in losing money. And coming to end of Financial year, they don’t have any knowledge as to how this loss to be treated and the end up in filing ITR-1 and ignore the losses which they made in Trading.
1: Salaried class employees.
2: Trading in Stock Market – Cash, Futures and Options.
Income Tax department Insists to file ITR-3 for all the Stock Market Traders who deals in Derivatives Instruments. Here we will depict the difference between An Employee having Loss in Stock Market and Filing ITR-1 and Filing ITR-3.
Scenario 1 – Filing ITR-1
Ramesh works in an MNC with Annual Package of 25 Lakhs Per annum for the Financial Year 2017-18 and he also incurs the Loss of 10 Lakhs in Trading in Future and Options. He is not aware of filing ITR-3 and he files ITR-1 by ignoring the Losses in the Stock Market.
Ramesh got increment in the company next year and his Annual Package has revised to 27 Lakhs Per annum for the Financial year 2018-19 and he also makes profits of 10 Lakhs in Stock Market. And this time also he files ITR-1. Now let’s look at his Tax Filing for the Assessment year 2020-21.
In the above image, it is very clear that Ramesh ignores the losses in the first year and filed ITR-1 and he has to pay the taxed in the second year for the profits which he made in the Stock Market. Now Let’s look at the second scenario.
Scenario 2 – Filing ITR-3
Suresh works in an MNC with Annual Package of 25 Lakhs Per annum for the Financial Year 2017-18 and he also incurs the Loss of 10 Lakhs in Trading in Future and Options. He is aware of filing ITR-3 and he files ITR-3 by considering his the Losses in the Stock Market.
Ramesh got increment in the company next year and his Annual Package has revised to 27 Lakhs Per annum for the Financial year 2018-19 and he also makes profits of 10 Lakhs in Stock Market. And this time also he files ITR-3. Now let’s look at his Tax Filing for the Assessment year 2020-21.
Now Ramesh understands the importance of Filing ITR-3 and he also knows that losses can be carry forwarded to the period of 8 years. He Files the ITR-3 and he pays the taxes as per the slab for his Salary Income and he also shows the losses of 10 Laksh in Stock Market along with the other expenses which involve in Trading (which included the brokerage charges, Telephone Charges, Any Stock Market Training Charges, Laptop and any other charges in regards with Stock Market Trading). His losses come up by 12 Lakhs and he carryforwards all his losses to Next year.
In the Next year once he makes profits of 10 Lakhs and he incurs 1 Lakh of additional expenses. So his overall profits come at 9 Lakhs. And how he offset the losses of 12 Lakhs from last year and he carryforward the 3 Laksh losses to next year. He will offset this 3 Laksh of Losses for Next Year. Ramesh clearly saved Tax of more than 3 Lakhs by doing the right thing as per the Income Tax Department.
This comparison clearly tells the difference between filing ITR-1 and ITR-3 for same class of people. Now you understood that what is the mistake you have made these years by filing ITR-1. There are many more advantages to filing ITR-3. Keep following us to get the latest updates.
1: This is the illustration as how is the difference between if you File ITR-1 and ITR-3.
2: Carryforwad of the Losses needs the assistance from CA and there are guidelines laid by the Income Tax Department.
3: As ITR-3 is considered as Business and all the expenses which you incur in your Stock market Trading can be claimed while paying Taxes.
4:Losses from Salary cannot be offset with your Tax payable on Salary.
5: You need to consider your TurnOver and other details for doing Tax Audit for your Losses.
3: Consult your tax advisor for the actual deductions and Tax Audit Details.
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