You may solely convey enterprise losses ahead when you file ITR earlier than the deadline

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Income or loss on account of trading in derivatives (F&O) transactions may be considered as business income or STCG or STCL

I trade stocks and futures and options (F&O). Let’s say I posted a profit of about £5.50 lakh in FY21 but made a loss of £3.50 lakh in fiscal 20. What is my tax liability? What form of income tax return (ITR) should I submit and how should I present my loss on my tax return so that I can carry that loss forward and offset my liability in FY21?

– Rajeevan P. Nair

Income or losses from the sale of units of shares are regarded as short-term capital gain or loss (STCG or STCL) or long-term capital gain or loss (LTCG or LTCL) depending on the holding period of the respective shares.

Income or losses from trading in derivatives (F&O) can be considered business income or STCG or STCL (depending on a detailed review of factors such as trading volume, frequency of transactions, average holding period and type of funding).

If the revenue from F&O is considered business revenue, ITR3 applies to you (assuming you meet all other conditions). The details of the sale and the related purchase in relation to capital gains would need to be set out in Appendix CG. In addition, similar details would need to be provided for business income on Schedule P & L and Schedule BP, respectively. However, if the income from F&O is considered to be capital gains, ITR2 applies to you (provided you meet all other conditions). The details of the sale and the related purchase in relation to capital gains would need to be set out in Appendix CG.

According to the Income Tax Act, LTCL can be offset against LTCG within a fiscal year. STCL can also be offset against both STCG and LTCG. An unadjusted loss on capitals gains cannot be offset against other income in the same fiscal year. However, you can transfer the unadjusted STCL or LTCL for eight FYs immediately following the current FY and offset against future STCG or LTCG as required. In your case, the capital losses incurred in FY 20 can be offset against the profits made in FY 21, depending on the type of loss (STCL or LTCL).

According to the tax law, any loss of business (other than speculative business) within a fiscal year can be offset against any income manager other than salary income. Any unadjusted loss can be carried forward for eight fiscal years immediately following the current fiscal year and offset against any business income as required. In your case, the business losses incurred in fiscal year 20 can be offset against the business results in fiscal year 21.

Please note that the tax return is submitted in accordance with the due date specified in Section 139 (1) so that you can carry forward the loss of business and capital that occurred in fiscal year 20. The due date for Fiscal Year 20 was January 10, 2021. Only if your ITR was submitted on or before January 10, 2021 can the stated losses be carried forward.

Depending on the turnover, the gross receipts, the company’s revenue, the applicability of keeping business books and the performance of tax audits would also have to be assessed. If a tax audit is required in your case, the due dates for filing the tax audit report and ITR for fiscal year 20 are January 15, 2021 and February 15, 2021, respectively.

Parizad Sirwalla is Partner and Head of Global Mobility Services, Taxes and KPMG in India

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