Guide to Individual Income for Filing Income Tax Returns in India

When filing income tax returns in India, the categorization of income depends on the nature of the transactions. Proper categorization ensures compliance and can optimize your tax liability. Here’s a detailed guide on how to categorize various types of income:

1. Salary Income

Income earned from employment falls under “Income from Salary.” This includes:

• Basic Salary
• Allowances
• Bonuses
• Other Benefits

2. Equity Trading

Equity trading income is divided into two categories based on the holding period of the shares:

a. Short-term Capital Gains

• Definition: Gains from selling equity shares within one year of purchase.
• Tax Rate: 15%
• Filing Category: “Capital Gains” – Select “Short-term Capital Gains.”

b. Long-term Capital Gains

• Definition: Gains from selling equity shares after one year of purchase.
• Tax Rate: 10% for gains exceeding ₹1 lakh
• Filing Category: “Capital Gains” – Select “Long-term Capital Gains.”

3. F&O (Futures & Options) Trading

Income from F&O trading is considered as business income and should be reported under “Income from Business or Profession.” Here are key points to note:

• Reporting: Calculate profits and losses from F&O trading and report them accordingly.
• Audit Requirement: If turnover exceeds ₹1 crore (or ₹2 crores for presumptive taxation under Section 44AD), accounts must be audited by a Chartered Accountant.
• Advance Tax: Significant income from F&O trading necessitates advance tax payments to avoid penalties.

Filing Categories and Forms

Based on your income sources, you will need to choose the appropriate ITR form:

• Income from Salary: Report under “Income from Salary.”
• Equity Trading:
  • Short-term Capital Gains: “Capital Gains” – Select “Short-term Capital Gains.”
  • Long-term Capital Gains: “Capital Gains” – Select “Long-term Capital Gains.”
• F&O Trading: “Income from Business or Profession.”

Additional Points

• ITR Forms: Depending on the income sources, you might need to file:
  • ITR-2: For individuals with income from salary and capital gains.
  • ITR-3: For individuals with income from salary, business or profession, including F&O trading.
• Audit Requirement: For F&O trading, accounts need to be audited if turnover exceeds ₹1 crore (or ₹2 crores for presumptive taxation under Section 44AD).
• Advance Tax: Ensure timely payment of advance tax to avoid interest penalties.

Tables for Better Understanding

Tax Rates for Equity Trading

ITR Forms Based on Income Source

Conclusion

Accurate categorization of income is crucial for compliant and optimized tax filing. If you need detailed assistance, consider consulting a tax professional or using the services offered by Efiletax.in to ensure accurate and compliant filing.