Many salaried people have interest in stock markets and they casually do intra-day trading or invest in stocks in small amounts, resulting into gains or losses.

Many salaried people have interest in stock markets and they casually do intra-day trading or invest in stocks in small amounts, resulting into gains or losses. As they deal in small quantities in a casual manner and the net short-term capital gain (STCG) and/or long-term capital gain (LTCG) is not very significant compared to their salary, such taxpayers, at the time of e-filing of Income Tax Return, often ignore to mention these transactions in their ITR.

Although non-disclosure of these insignificant gains or losses is mainly due to their casual attitude, the fear of filing a complex ITR-2 instead of filing an easy ITR-1 may also make them reluctant to disclose.

However, it should be kept in mind that be it significant or insignificant, gain or loss, a person involved in transaction of securities must disclose it in his/her ITR, provided the total income exceeds the tax-free limit of Rs 2.5 lakh in a financial year. In case a person wants to carry forward the unadjusted capital loss, or to brought forward such a loss from the previous year, filing of ITR will be necessary.

“A notice may be issued in such cases of non-disclosure,” said CA Karan Batra, Founder, and CEO of CharteredClub.com, when asked what the Income Tax (I-T) Department may do if taxpayers fail to disclose such transactions in their ITRs.

The benefit of mentioning the transactions in ITR is that in case of any short-term capital loss (STCL), it may be set off against both STCG and LTCG. However, in case of any long-term capital loss (LTCL), it may be adjusted against LTCG only. If transactions in capital assets (like share, mutual fund (MF), land & building, machinery, etc) are not mentioned in ITR, the opportunity of setting off capital losses will be lost.

Apart from the loss of opportunity, non-disclosure may also invite some penal actions for avoidance of paying capital gain tax. If an asset or security is sold or redeemed within 3 years from the date of investment, the resultant gain or loss will be short-term capital gain or a short-term capital loss. On the other hand, if such an asset or security is sold after 3 years from the date of investment, the resultant gain or loss will be treated as long-term capital gain or a long-term capital loss.

At present, the tax rate on STCG on sale of equity or equity-oriented assets or funds is 15 percent, while the tax rate on LTCG on such assets is 10 percent on the excess amount if such gains on redemptions made in a financial year exceed Rs 1 lakh.

So, in case there are some gains after setting off the permissible losses, you have to pay the tax at the prevailing rates. As no tax is deducted at source (TDS) on securities transactions (only securities transaction tax (STT) is deducted), the taxpayers have to disclose the transactions in the ITR, so that the system calculates the net gains/losses and asks the assessee to pay the tax, if any.

Hence, omitting such transactions would not only invite a notice for non-disclosure but may also attract penal actions due to tax avoidance. “It would attract 300 percent penalty on the tax evaded,” said Batra.

So, you may have been dealing in securities in a casual manner, but never ever casually omit such transactions while filing your ITR.

Courtesy: Financial Express