I understand that I must file an ITR 3 income tax return as I have trading income. However, while filing the form, I must choose whether I am eligible to maintain accounts. How do I know if this applies to me? If books are required, are the trading reports provided by my broker enough?
If you have trading income, you need to check whether you’re required to maintain books of accounts. You must maintain them if:
- Your annual profit from trading is more than ₹2.5L, or
- Your trading turnover exceeds ₹25L.
Books of accounts are records that help prepare financial statements like the profit & loss (P&L) statement and balance sheet. As per the Income Tax Act, these include journals, ledgers, cash books, and expense records.
Your stockbroker provides multiple reports, such as Tax P&L reports, trade books, holdings statements, contract notes, etc. These, along with your bank statements and business expense receipts, will help you maintain proper books of accounts.
Here’s how traders can maintain books using available documents:
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Journal – A daily log of transactions. You can use your trade book, contract notes, and expense receipts for this.
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Ledger – Groups transactions into categories (like purchases, sales, expenses). Any report with trade-level data from your broker should help.
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Cash Book – Tracks money coming in and going out. This can be maintained using your bank statements.
These records, along with your broker’s tax P&L report, will be needed to fill in the balance sheet and P&L statement while filing ITR.
You must keep these books for at least six years from the end of the relevant assessment year, as the tax department may ask for them in case of a notice or scrutiny.