[FAQs] Income Tax Returns (ITR) | Requirement to File ITR

Individuals and HUFs must file an ITR if their income before claiming capital gain exemption and deductions under Chapter VI-A exceeds the maximum exemption limit. Although you have incurred a loss during the year and your income is below the exemption limit, you are still required to file an ITR to carry forward the F&O losses. Therefore, you should file your return of income on or before the due date to ensure the losses can be carried forward.

The gains or losses arising from trading in F&O are always taxable under the head of ‘Profits and Gains from Business or Profession’. Income or loss from F&O is considered normal business income (non-speculative business) even though delivery is not involved in such transactions.

Since your income from F&O falls under the business head, it is important to calculate your turnover to determine whether you are required to have your accounts audited. The turnover computation is crucial because the requirement for a tax audit is based on turnover. If your turnover exceeds the specified limit, you must have your accounts audited, and in that case, the due date for filing your ITR will be 31st October. However, if your turnover is below the specified limit, the due date to file the ITR will be 31st July.

The Income-tax Act does not provide specific provisions or guidance for the computation of turnover in F&O trading. However, the ‘Guidance Note on Tax Audit’ issued by the ICAI prescribes a method for determining turnover for tax audit purposes. The turnover in F&O transactions is to be determined as follows:

• The total of favourable and unfavourable differences is taken as turnover.
• Premiums received on the sale of options are also included in turnover. However, if the premium received is included to determine net profit for transactions, it should not be included separately.
• For reverse trades, the difference should also form part of the turnover.
• In the case of an open position at the end of the financial year (i.e., trades not squared off during the same financial year), the turnover arising from the said transaction should be considered in the financial year when the transaction is actually squared off.
• In the case of delivery-based settlement in a derivatives transaction, the difference between the trade price and the settlement price is considered turnover. Additionally, in the hands of the transferor of the underlying asset, the entire sale value is considered business turnover if the underlying asset is held as stock in trade.

For example, Mr A enters into the following transaction during the financial year:

In derivative transactions, the aggregate of both favourable and unfavourable differences (i.e., income and loss) is considered turnover. Further, the premium received on the sale of options is also included in turnover if it is not included while determining the net profit or loss from the transaction. Thus, the turnover of Mr A shall be as follows:

*Note: As the amount of premium received is already considered for computing the profit or loss from the transaction, it is not included again while computing the turnover.

Filing an ITR is not mandatory since your income is below the maximum exemption limit. However, if the tax paid by an individual exceeds the actual tax liability, the excess amount is considered an ‘income-tax refund’ that can be claimed by filing a return. Since the bank has deducted TDS from your interest income, filing the ITR to claim the refund of TDS is advisable. You cannot claim any refund if you do not file the return.

If you have income from transferring cryptocurrencies (Virtual Digital Assets), you should report such income in ‘Schedule VDA’ in ITR-2 or ITR-3. It is important to note that you cannot use ITR-1 or ITR-4 to report this income.

If you earn income only from cryptocurrencies, the due date for filing your ITR depends on the head under which you report this income. When reporting income from the transfer of virtual digital assets in ‘Schedule VDA’, you need to select whether it falls under the category of business income or capital gains. Here is how the due dates are determined based on the chosen category:

• Capital Gains – If you report the income as capital gains, your due date for filing the ITR will be 31st July.
• Business Income – If you report the income as business income, you need to compute the turnover to determine whether you must get your accounts audited. If your turnover exceeds the specified limit, you must have your accounts audited, and in that case, the due date for filing your ITR will be 31st October. However, if your turnover is below the specified limit, the due date for filing your ITR will be 31st July.

The Finance Act 2023 introduced a new Section 115BBJ to tax winnings from online games with effect from the assessment year 2024-25. Any winnings from online games shall be taxable under this provision at the rate of 30%. If you have winnings from online games, you should report such income in ‘Schedule OS’ in ITR-2 or ITR-3. It is important to note that you cannot use ITR-1 or ITR-4 to report this income.