If you’re engaged in trading securities, it is generally advisable to file your Income Tax Return (ITR), even if your total income is below the basic exemption limit (which is ₹3 lakh in new regime for FY 2024-25).
Here’s why:
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Stock market transactions reported in the AIS
Since your PAN and Aadhaar are linked to your broker account, all your buy and sell transactions are reflected in the Annual Information Statement (AIS). It’s possible that traders might make significant investment in the market but earn only handful of profit in comparison.
Even if your total income is below the taxable limit, the Income Tax Department may still ask you to file an ITR because high-value transactions in your AIS can trigger scrutiny. Hence. filing your ITR ensures compliance and helps avoid unnecessary notices.
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Claim tax refunds
- For resident traders: If there is any TDS deducted on transactions, such as brokerage fees or bank interest, filing an ITR allows you to claim a refund of the same.
- For non-resident traders (NRIs): TDS is deducted at source when NRIs sell securities. However, their actual tax liability might be lower than the TDS deducted.
For example, if an NRI invests ₹1 lakh in equity shares and sells them for ₹1.25 lakh after two years, a TDS of 12.5% is deducted on the sale value (₹15,625). However, the actual tax liability may be lower because that’s calculated on the actual gains. In this case, the excess tax deducted can be claimed as a refund only by filing your ITR.
Apart from these, there are a few more reasons to file your ITR despite income being below taxable threshold:
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Set off losses against future profits
If you’ve incurred losses in a financial year, you can carry forward and set them off against future income, thereby reducing your net tax liability. However, this benefit is only available if you file your ITR before the due date.
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Documented proof of income earned over a period:
Even if your income is below the taxable threshold, your savings can accumulate into a larger corpus over time, which you may later invest in markets or make larger purchases.
If you have not filed an ITR in previous years but later make significant investments or purchases, such as property or vehicles, the Income Tax Department may question the source of funds. Regularly filing an ITR helps establish a financial record and can also help in availing loans.
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Mandatory tax audit for high turnover
While filing an ITR may not always be mandatory for small traders, a tax audit becomes compulsory if your turnover exceeds ₹10 crore for intraday or F&O trading. Even if you incur losses or low profits, a tax audit ensures compliance with regulatory requirements.
While the legal requirement to file an ITR depends on your total income, traders should consider filing voluntarily to avoid notices, claim refunds, and carry forward losses. If you have significant trading activity, filing an ITR ensures compliance and better financial planning.