Tax Filing for Traders in India

Last Updated at: Dec 03, 2020
Tax filing for Traders in India
Anyone who actively invests in the stock market has to file income tax returns showing trading as a business income using the ITR-3 form. This also means that a small trader has to comply with tax audit requirements, maintain books of accounts, get a chartered accountant to audit, etc.


Computing income and filing tax returns are considered to be one of the most tedious tasks. It further complicates itself when the filing is for traders. While trading is on a rise in the country, it is important that tax filing for traders be properly understood for efficient filing. The dynamic nature of indirect taxation law requires the traders to comply with certain mandatory criterion for tax filing and returns. Here are some must-knows for traders while dealing with tax-filing and tax returns.

Filing and computing income tax returns is one of the tedious tasks that traders might come across. It could be a really complicated task for many traders. As trading is increasing, it is crucial to understand the process of filing and computing tax returns. Here, you will get to know how you can deal with tax-filing and returns.

 Computation of Income for the purpose of taxation: Income tax returns has a head of Income from business or profession, which includes business income as well. In order to operate a Futures and Options Business (F&O], it is not necessary that a business entity is incorporated. Rather even individuals can take-up F&O business operations. Therefore, income in F&O trading transactions shall be mentioned under the head of Business Income as it is helpful in many ways of claiming expenses in returns. Expenses claimed must be pertaining to the expenditure borne in way of the transaction, pertaining to which the income has been stated in the filing documents.

For instance, it may include rent of the premises, charges relating to internet or telecommunication, transportation etc. The applicable ITR in the cases of Business Income is ITR3. That means that income in the form of even salary income, income from house property or income from other sources, can be disclosed and listed along with such income along with F&O income in ITR 3.

File Your Taxes and Stay Stree-free

Recording Losses borne by the F&O Business Operations: The layman understanding is that there is no requirement for reporting the losses incurred in the functioning of the trading business because it is not a matter which is required for tax computation. However, ITR makes it absolutely mandatory to report losses under ITR, or it may result in serving of the notice by the Income Tax Department. The unknown benefit of reporting the losses is that often it is settled against the business income, however not with the income for salary. Therefore, by reporting of losses and its set-off with the income, reduces the tax burden on the taxing enterprise or individual carrying such a trade.

Maintenance of Books of Account: The statutory requirement of maintaining the books of accounts occurs only in certain situations. Therefore it is mandated that books of account be maintained in the following cases:

  1. If the income reported exceeds the amount of Rs 2,50,000. This limit was introduced from the Financial Year 2017-18. Earlier this limit was set at Rs 1,20,000; or
  2. The computation of total sales and turnover more than Rs. 25,00,000/- (in all preceding 3 years).

Moreover, under the presumptive income scheme, the maintenance of books of accounts is dependent upon the percentage of profit discloses. The rule is that if the profit is more than 8% such maintenance is not required. However, it is mandated if the profit is more than 8%. The format and list of books to be maintained by trading enterprises and individuals have not been mentioned anywhere.

However, it is by the common understanding that books may be maintained in a manner such that it is adequate for the Assessing Officer to calculate taxing income as per the Income Tax Act. There has to be a clear record of expenses, investment schemes etc. The non-maintenance of books of account, when the same is mandated attracts penalty to the assessee.

Conducting Audit:

The case attracting the conduction of audit in the business is based on the turnover of the trading company. Turnover here means the absolute sum of settlement profits & losses for F&O per scrip and the sell side value of the option contract. Therefore, when the turnover of your business exceeds Rs 2 crores since the financial year 2016-17. Earlier the limit was set up at Rupees 1 crore. The penalty of not conducting an audit is 0.5% of the total turnover, not exceeding Rupees 1.5 lakh in a financial year.

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If your GST application has been rejected after you complete the registration process, you can use another chance and apply gain.Understand the procedure for GST registration and GST returns here.

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For the MSMEs, the government of India as launched schemes such as Udyog Aadhaar memorandum, quality management standards, zero defect zero effect, incubation and more.More on Income Tax Return Filing.

When is it mandatory to file return of income?

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Increased profit, efficiency, and productivity. Improved customer satisfaction. Steadiness in operations. Less wastage and defects. Accomplish global recognition. Enhanced attractiveness in the market.More info on NGO Registration in india.

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