The tax filing season for Financial Year 2024-25 (Assessment Year 2025-26) is underway, and with over a crore returns already submitted, it’s crucial to pick the right Income Tax Return (ITR) form. While ITR-1 and ITR-4 utilities are currently active for e-filing, ITR-2 and ITR-3 are expected to be enabled soon. Good news for taxpayers: the deadline has been extended to September 15, 2025, giving you more time to file accurately and avoid mistakes.
Why Choosing the Correct ITR Form Matters
The Income Tax Department has specific ITR forms for different types of income. Using the wrong form can lead to your return being deemed defective, potentially resulting in notices or even penalties. To choose correctly, you need to understand your income sources.
Understanding Your Income Types and Tax Treatment
- Salary Income: This is taxed under ‘Income from Salary’ and is generally straightforward, permitted in most ITR forms.
- Delivery-based Equity Investments:
- Profits from shares held for over 12 months are Long-Term Capital Gains (LTCG).
- Profits from shares sold within 12 months are Short-Term Capital Gains (STCG).
- Both are taxed under ‘Capital Gains’.
- Intraday Stock Trading: This is considered ‘speculative’ income and is taxed under ‘Profits and Gains from Business or Profession’. Losses from intraday trading can only be set off against speculative gains.
- Futures & Options (F&O) Trading: This is treated as non-speculative business income, regardless of whether it’s intraday or delivery. It’s also eligible for presumptive taxation under Section 44AD.
- Dividend Income: Dividends from Indian companies are taxed as ‘income from other sources’ at your slab rates and may be subject to TDS under Section 194 of the I-T Act.
Which ITR Form Should You Choose?
- ITR-1 (Sahaj): You cannot use this form if you have LTCG over ₹1.25 lakh or any STCG. It’s also not for business income.
- ITR-2: This form is for those with salary income, LTCG (including over ₹1.25 lakh), and delivery-based STCG. However, it’s not for business income.
- ITR-3: This is the form you’ll need if you have salary income combined with business income (from F&O and/or intraday trading), whether or not you also have capital gains.
F&O Trading and Salary: Is ITR-3 Necessary?
Yes, if you have even one F&O trade, you’re considered to be carrying on a business, and you must use ITR-3. F&O trading is categorized as a non-speculative business and must be reported under ‘Business & Profession’. Even minor profits or losses must be declared; failing to do so could lead to a notice for misreporting income.
As Suresh Surana, a Mumbai-based chartered accountant, explains, “For taxpayers engaged in trading activities such as futures and options (F&O) or intraday equity trades, the income is characterised as business income. Intraday equity trading income is considered speculative business income, whereas income from F&O is treated as non-speculative business income. In such cases, the correct form for filing is ITR-3, which is designed for taxpayers having income under the head ‘Profits and Gains of Business or Profession’.”
When is a Tax Audit Required?
According to tax experts, a tax audit under Section 44AB might be necessary in specific situations:
- If your total trading turnover exceeds ₹10 crore.
- If your turnover is below ₹2 crore, but you declare less than 6% profit and don’t opt for presumptive taxation.
Under presumptive taxation (Section 44AD), an audit is generally not required. However, this option isn’t available for intraday (speculative) trading. Also, if you opt for presumptive taxation, you generally need to continue it for at least 5 years, or you risk losing the benefits.
Do You Need to Maintain Books of Accounts?
If you don’t opt for presumptive taxation and your business income (from F&O or intraday) exceeds ₹2.5 lakh, you must maintain proper books of accounts. This includes records like a day-wise trading log, contract notes from brokers, profit & loss statements, and bank and demat account statements.
As per cleartax.in, for an existing business or profession, books of accounts/accounting records must be maintained if the income exceeds ₹1.2 lakh or turnover/gross receipts exceed ₹10 lakh in any of the three preceding years. For specified professionals (like lawyers, doctors, engineers), books are required if income exceeds ₹1.5 lakh in all three preceding years.
How to Calculate Turnover for F&O and Intraday?
This calculation is crucial for determining audit applicability and whether you can file under the presumptive scheme:
- F&O Turnover: This is the sum of the absolute profits and losses of all your trades.
- Intraday Turnover: This is the total of the positive and negative differences (absolute profit/loss) from your buying and selling transactions.
Given that you have salary income, capital gains, and income from F&O and/or intraday trading, ITR-3 is the correct form for you to file. It’s always a good idea to consult a tax professional if you have complex income scenarios to ensure accurate and compliant filing.