1. ITR-3 form is required to be filed by individual or HUF whose total income for a given assessment year includes Income from a profession or business (both audit and non-audit cases), Income earned from one or multiple house properties, Income from Other Sources, Income generated from short or long-term capital gains. A salaried person engaged in F&O or intraday trading shall use ITR 3 to file the return.

2. ITR-3 is viewed as the most complicated ITR form for taxpayers, especially for a layman. In this article, an attempt has been made to simplify the filing of ITR 3 with the help of Illustrations and relevant provisions.

3. INTRADAY TRADING Intraday trading means buying and selling stocks on the same trading day. Intraday trading is also known as Day Trading. Share prices keep fluctuating throughout the day, and intraday traders try to draw profits from these price movements by buying and selling shares during the same trading day.

Intraday equity transactions are speculative in nature and hence income gained from intraday stock trading is regarded as speculative business income. Intraday trading is done through a Demat account of the trader.

4. FUTURE AND OPTIONS ( F&O) Futures and options are stock derivatives that are traded in the share market and are a type of contract between two parties for trading stock or index at a specific price or level at a future date.

The income/loss arising from trading in F&O transactions would be treated as a Business Income / Loss for the purpose of taxation. This means that taxpayers who have made money or incurred losses in the derivatives market will have to file their income tax returns through ITR Form-3 or Form-4.

5. DEMAT ACCOUNT STATEMENT: The first step for a taxpayer towards such return filing is to download/obtain a Demat Statement.

The demat Account statement is a summary of all the shares in the demat account. The statement provides the relevant details like quantity, buy date, buy price, buy value sale date , sale price , sale value , P&L value etc. of each transaction. These inputs are needed for reporting details in ITR Schedules.

Demat Statement can be downloaded either directly from the website of the relevant national depository or through a broker with whom the taxpayer maintains a demat account.

6. PRELIMINARY STEPS :

(a) Download utility from the income tax website www.incometax.gov.in

(b) Login to the portal and download prefill data. Upload this data in the downloaded utility.

(c) Select: AY 2021-22(Current AY) >. Start New filing > Individual> Select ITR Form > ITR 3> Let’s Get Started. Tick on the reason for filing Tax. Taxable income is more than the basic exemption limit.

(d) Select Schedules: Uncheck the schedules not required / applicable for ascertaining tax on share market transactions. You may find some irrelevant schedules, not getting unchecked. Just ignore.

7. ILLUSTRATION: TRANSACTION DETAILS FOR PY 2020-21

Sl Particulars Amount(Rs.) Amount(Rs.)
(a) Income From Salary  25,00,000
Less: Professional Tax  (2,500)
Less: Standard Deduction  (50,000)
Taxable Salary (25,00,000- 52500)  24,47,500
(b) F&O Business ( Sale Value )  12,00,000
F&O Business ( Purchase Value )  15,00,000
Exp incurred for F&O  1,25,000
Net Profit/ Loss from F&O Business  ( 4,25,000)
F&O Turnover ** 18,00,000
(c ) Intraday turnover ( Absolute)  75,000
Profit from Intraday transactions  6,500
Turnover in the case of Intraday Trading or F&O transaction is Absolute Turnover, Absolute Turnover is the Sum total of absolute profits minus losses made on daily transactions.

Turnover is only to determine if a tax audit is required or not. The tax liability does not get affected by turnover.

8. REPORTING THE DETAILS IN SCHEDULES

8.1 Nature of Business Select Code from the drop-down list. A trade name can be your name / Firm’s name. Enter description as F&O / Intraday business in the given box. This will give a fair idea about the nature of the business of the assessee.

Nature of Business

There is no specific business code mentioned for F&O or intraday business. You may also select 09028 –Retail sale of other products.

8.2 Audit Information: Are you liable to maintain accounts under section 44AA:

Statutory Provision

An individual or HUF, carrying business or profession (other than a specified profession) needs to maintain Books of Accounts if his income from business exceeds Rs. 2.50 lakhs and total turnover from business exceeds Rs 25 lakhs in any of the 3 preceding years – Section 44AA

In the Illustration above, income from the business is not exceeding Rs 2.50 lakhs or total sales in business is not exceeding Rs.25.00 lakh, Accounts are not required to be maintained under sec 44AA of Income tax Act.

However, the utility in the portal is not allowing to enter losses under the heading “No Account “. So, the option, yes need to be clicked and sales and purchase value of F&O transaction need to be reported in the schedule Part A – P&L Account.

schedule Part A

8.3 Are you liable for Audit Under Sec 44AB

Statutory Provision :
(a) A person carrying on business, if his total sales in business for the year exceed or exceed Rs. 10 crores is required to get his Accounts Audited. The threshold limit of Rs 10 crores is applicable as in the case of share trading more than 95% of the business transactions are done through banking channels.
(b) Tax audit under Section 44AB also becomes mandatory for taxpayers who opt for a presumptive scheme of taxation in any of the preceding 5 years and now declare an income lower than the presumptive income and such income (after setting off F & O losses or other business losses if any) exceeds the maximum amount not chargeable to tax i.e. Rs 2.5 lakhs.

There is a difference of opinion amongst the experts, whether presumptive taxation scheme under section 44AD can be availed for F&O business.

In my view, F&O transactions are executed through recognized stock exchange and accounts cum records are maintained by the agencies / brokers of demat account. Hence presumptive tax scheme under sec 44AD cannot be availed in case of F&O income.

Thus, the relevant clause of audit requirement under section 44AB for presumptive tax is not applicable on a person carrying F&O business.

An individual engages in F&O business whose absolute turnover is less than Rs 10 crore and incurred loss is not required to get Tax Audit.

8.4 PART A -P&L Enter the sale value of F&O under the heading other Income Credited to P & L account and purchase value and expenditure in another expenditure debit to P & L Account

Part A -P&L

8.5 Intraday Transaction: – Part A – Profit & Loss – No Account > Speculative Activity

Intraday Transaction

8.6 Schedule Salary: -Enter the relevant details in Salary Schedule

Schedule Salary

8.7 Other Schedules: Click on Schedule BP (Income from Business & profession), CYLA (Current Year Loss Adjustment), BFLA (Brought Forward Loss Adjustment) & CFL Carry Forward Losses) and confirm.

These schedules will automatically fetch the amount from the details entered. You just need to confirm.

8.8 Schedule Part II – TTI (Tax on total Income) – Provide confirmation of Tax Computation by clicking on it.

8.9 Preview Return > Proceed to preview > Proceed to Validation

9. Validation Error It is quite irritating to find the number of Validation errors after doing all the above exercises. Common validation errors and the way to rectify such errors are as follows: –

9.1 The total of all the quarter of respective CG must be equal to the final figures of schedule BFLA.” This is because you have not entered the quarter-wise details in Schedule Capital Gain.

schedule BFLA

Click on Sl. No. F ” of Schedule CG (Information about Accrual / Receipt of Capital Gain). Add details and enter the quarter-wise details of Capital Gain. Enter 0 if there is NIL CG in any quarter.

9.2 Validation error in TDS Schedule: Please select the radio button for the field TDS credit relating to Self/Other Person. Select the drop-down of the head of income for which corresponding income offered

Go to Schedule Tax Paid. Select Tax deducts at the source. There will be two options. Self and others. Click on Self

Tax deducts at the source

In the same schedule, scroll down and select the head of income from the drop-down menu:-

drop-down menu

10. Frequently Asked Questions

Q.1 Is it mandatory to report F&O losses in ITR 3

Ans. Though it is not mandatory under the I tax Act but highly recommended to report losses in ITR. As not only these losses can be set off against other income but also can be carried forward for 8 subsequent years.

Q 2. What is the Business code (Nature of Business) for F&O Traders to be mentioned in ITR3 for FY 2020-21? Is it 13018 – Other financial intermediation services n.e.c (OR) 09028 – Retail sale of other products n.e.c (OR) any other appropriate code?

Ans. There is no specific code under the category, you may select “others” under Trading

Q3. Can I carry forward F&O losses without setting off in the current year’s profits.

Ans. No

Q4. An assessee, whose business turnover on options trading is Rs 20 lakhs in the year and incurred a loss of Rs 4 lakhs and did not maintain books of accounts as per sec44 AA. He has other income from Other Sources more than taxable exemption limit says Rs. 2.5lakhs. Is there any need for tax audit and to maintain books of accounts as specified?

Ans. Tax audit is not applicable if there is no cash receipts/payment involved as such, however, books may only be in form of a ledger statement, P&L given by the broker.

Disclaimer: The article is for education purposes only.

The Author can be approached at [email protected]

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Income Tax

27 Comments

  1. R K Mohta says:

    Your article is very nice. I would appreciate, if you clarify my two doubts.
    1) Scenerio : I have income from retail business for which I used to opt for presumptive income u/s 44AD ( T.O. 60 Lacs Net Profit 5 Lacs) and now this year, I have the Income/ loss from option/ Future trading also.
    Q1 : Can I file ITR 3 by taking 44AD for the retail business and simultaneously fill Profit & loss account for reporting Income/ loss from option/ Future trading.
    Q2. If my actual Sale value is 2 Cr and buy value is 2.01 cr from F & O business, resulting in loss of Rs 1 Lac from F & O business. The sum total of positive & negative differences of future & Option is 2.55 lacs.( ie TO as per ICAI guideline)
    Then which figure should be reported in Profit & Loss account of ITR 3 as TO ?
    a) Actual T O of 2 Cr . or,
    b) The sum total of positive & negative differences of future & Option ie 2.55 Lacs

    Further
    in purchase
    a) 2.01 Cr or
    b) The balancing figure of Rs 3.55 lacs to bring the loss of Rs 1 lac in P/L account.
    I think tax audit would not be applicable in this case as the total TO is less than 1Cr even if I add the following.
    i) TO of Rs 2.5 lac of F & O
    ii) 60 Lacs of retails business

  2. Pritam Kad says:

    I have mistakenly filed ITR3 in FY20-21. How to file revised return with ITR2 form now? I tried but on IT portal I’m getting message not eligible to file ITR2..

  3. INDU says:

    RES MAM
    I HAVE INCOME FROM F&O,INTRADAY TRADING AND STCG FROM SHARE TRADING ACTIVITIES AND MAINTAIN MY ACCOUNT BOOKS.HOW TO PREPARE TRADING ACCOUNT IN ITR 3.PLEASE HELP ME

  4. Viswanath says:

    Can a professional introduce mutual fund income in ITR 4 under section 44 Ada.for last two years I filled ITR 4 under section 44 Ada.but in current year I have mutual fund income also.My income from profession is 280000 and from mutual fund income is 20000. Total income is 3 lakh

  5. Ritesh Pant says:

    Sale value is 33 crore, but turn over is 32 lacs in f and o. Please sugest me can I do computation in same manner as suggest u above. Few Tax expert suggst me fill itr 1 and so only stgc, but then how I set of my f and o lossese inn subsequent years? Your way of explaining is very good mam.

    1. ANITA BHADRA says:

      In my view, computation shall be in the manner I suggested above. You can’t even report STGC in ITR 1.
      As you rightly said, you can’t set off F&O losses in subsequent years if you will not select the right ITR and report F&O losses.
      One more point, I want to add here. Forward & Set of losses in subsequent years will not be allowed, If you have not filed return for FY 20-21 till due date i.e. 31st Dec 2021,

  6. Ritesh Pant says:

    F & O losses can set off with income from other source? If yes then please reply me a govt salaried person receiving 4 years arrears in salary, can claim relief after filing 10 e form as this form is showing under tab persons without business or profession income head. Second thing is that while computing current year taxable income for 10e, we have 20000 income from other source, if we taken it for computing taxable income then how we set off it from lossess of f & o.

    1. RITESH Pant says:

      Mam, my over all turn over from intra day, stgc and f and o is 52 lacs approx. But my F & O turnover as shown by angel one is 3442976( 34 lac approx) and net loss is -226766 and sale and purchase value is not in p and loss statement provided by them but when I calculated it, it is 392194892 and pur is 392421659 and loss is matched with p and l statement. On the basis of sale value of f and o, 44ab audit is required, if I calculate my tax compution as suggest above.

      1. ANITA BHADRA says:

        In my view. Tax Audit is not required under section 44AB unless you had opted presumptive taxation scheme in any of the last 5 previous years and now, in the current FY , would like to report capital loss in ITR

    1. ANITA BHADRA says:

      An individual or HUF is liable to maintain Books of Accounts if turnover from business exceeds Rs 25 Lakhs or Income from business exceeds Rs 1.50 Lakhs – Proviso to Section 44A(2)

  7. SHUJATH ALI AHMED says:

    I have a doubt if you consider the intraday transactions and derivatives as Business income the Assessing officer might argue that the same should be considered under the head Capital Gains and Form ITR 2 has to be filed.Kindly mention the section where it is mentioned that such transactions are to be considered under the head Business income so that there is no problem from the department.

    1. ANITA BHADRA says:

      These two are covered under altogether different sections of Income tax Act .
      F&O and intra day under section income from business ( Sec 43) whereas Capital gain under 111A / 112 /54 etc

  8. Mohan says:

    Hello, I have loss from F&O trading = INR 6000/- (six thousand only). I filed ITR 3 – under no accounts case loss is restricted. I followed P&L account and declared loss. Validation is successful. No errors. However during submitting the return the error displayed is – ” you are submitting defective return. Your profit is less than 6% of turnover and Audit information is not filled up ” I double checked for and confirmed that No audit case is ticked. No matter what I tried this error does not go away. The declaration ” turnover more than one crore but less than 10 crore ” ” yes or no” is the source of problem. If I say yes it means my turnover is more than 10 crore and if I say no it means my turnover is more than 1 crore. I do not understand how to resolve this issue? Appreciate your guidance. BRgds, Mohan.

    1. ANITA BHADRA says:

      Under the Audit information TAB , click all No except the 1st one ” Liable to maintain Books of Account”
      P&L – Part A schedule – credit the sale value and debit the purchase value.
      Loss will b calculated automatically
      Hope this will resolve the issue

  9. Elvira says:

    Thanks for this article . It is very helpful. Can you help clarify whether for salaried employee filing ITR 3 Balance sheet for F&O trading is mandatory . If yes, then do we prepare only based on Demat statement or need to include personal assets as well eg: Bank accounts, Fixed deposits, etc.

    1. ANITA BHADRA says:

      Balance Sheet is not mandatory . Since Utility of new portal is not allowing to enter details under the heading ” No Account ” , you need to select the schedule BS.
      Demat base details are good enough for the purpose.

  10. Sanjiv says:

    There are many expert who advocate to have audit of your accounts if there is loss in F&O business and likely chance of being issued notice if you file the return without audit. There is lot of confusion on the subject.

  11. Mukesh says:

    Salary and other income is above the basic exemption limit. Intraday loss is 1.25L(including charges) and FO loss is 44 thousand. Can we carry forward losses, do we need to maintain books and tax audit applicability in this ?

    Thank you in advance. I appreciate it.

    1. ANITA BHADRA says:

      You can carry forward Intraday for 4 years and F&O for 8 years
      If your income from business ( F&O / Intraday in your case) is less than Rs 2.5 lakh and turnover from such business is less than Rs 25 Lakhs – you are not required to maintain BOA or get Audit

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

May 2022
M T W T F S S
 1
2345678
9101112131415
16171819202122
23242526272829
3031