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Compliance Portal: Tax liability from Investment in Securities

by | Apr 24, 2024 | Income Tax | 0 comments

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Important Keyword: E-Verify, Income Tax Compliance, Investment in Securities, ITR.

Investment in Securities ITR

When a taxpayer engages in securities investments, they incur tax liabilities on the income generated from these transactions. The classification of this income as either Business Income or Capital Gains depends on factors such as the nature of the security, the type of transaction, and the duration of holding. Here are some transaction types to consider:

  1. Speculative Transactions: These transactions involve executing a contract for the purchase or sale of commodities or securities through alternative methods, rather than by actual delivery. Income from speculative transactions is treated separately and is subject to specific tax regulations.
  2. Business Income: Income derived from trading in shares is categorized as business income. This applies to individuals engaged in frequent and substantial trading activities in the securities market.
  3. Long-term Capital Gains: Profits from dealing in equity shares, equity-oriented mutual funds, or units of business trusts are considered long-term capital gains if the transaction is exempt under section 10(38) and subjected to Securities Transaction Tax. The tax rate for such gains is 20%. However, for listed securities, a reduced tax rate of 10% applies on gains computed without indexation. Short-term capital gains in these cases are taxed at a rate of 15%.
  4. Short-term Capital Gains: For other short-term capital gains, tax is levied based on the taxpayer’s regular income slabs.
Understanding these distinctions is crucial for accurate tax reporting and compliance with relevant regulations.

When taxpayers receive notifications from the Income Tax Department (ITD) via SMS, calls, or emails, it often indicates potential verification issues in their Income Tax Returns (ITRs). These notifications typically arise for three primary reasons:

  1. Non-filing of ITR: If a taxpayer fails to file their ITR for a specific assessment year, especially when there’s a potential tax liability pending, they may receive such notifications.
  2. Discrepancies in Information: Sometimes, the details provided by taxpayers do not align with the information received by the ITD for a particular assessment year. This mismatch can trigger verification procedures.
  3. Significant Transactions: If significant transactions are reported to the Income Tax Department during a financial year, which appear abnormal or inconsistent with the taxpayer’s profile, it can lead to verification queries.

Taxpayers who encounter such verification issues are required to respond promptly. This response must be submitted online through the compliance portal by logging in to their accounts. By addressing the raised issues in a timely and accurate manner, taxpayers can ensure compliance with tax regulations and avoid any potential penalties or complications.

Verification issue in the computation of tax liability on Investment in securities
A1Total receipts as per taxpayer pertaining to the above informationAmount
A2Less: Amount relating to another year/PAN PAN year-wise list
A3Less: Amount covered in other informationAmount
A4Less: Exemption/Deduction/Expenditure/ Set off of LossExemption/Deduction wise list
A5Income/Gains/Loss (A1-A2-A3-A4)Computed
Section A1: Total Receipts

When computing total receipts from securities transactions, it’s crucial to include the gross value of each transaction. The final amount should be clearly stated to provide a comprehensive overview of the total value of securities dealings.

Section A2: Amount Relating to Other Year or PAN

If a portion of the gross receipts pertains to another individual’s PAN or is attributed to a different assessment year, it must be duly noted. Details of such receipts should be listed according to the PAN table provided, ensuring accurate reporting and compliance.

Section A3: Amount Repeatedly Covered

In the event of any duplicated entries, where an amount is mistakenly covered twice, it should be explicitly mentioned in the Remarks section of the preceding table. This corrective action nullifies any repeated income, gains, or losses, ensuring accuracy in financial reporting.

Section A4: Exemption, Deduction, Expenditure, Set Off of Loss

This section encompasses various allowances that are exempt from taxation. Taxpayers must select the appropriate category from the provided drop-down list, which includes:

  1. Exempt Long-term Capital Gain on shares under section 10(38).
  2. Cost of acquisition under section 48.
  3. Expenditure incurred wholly and exclusively in connection with transfer under section 48.
  4. Deductions from capital gains under sections 54EC, 54EE, or 54F.
  5. Set off of Loss.
  6. Others.

Details pertaining to each category should be submitted as per the expenditure table provided, ensuring thorough disclosure and compliance with tax regulations.

Section A5: Income, Gain, Loss

This section involves the self-computation of taxable securities transactions, calculated as A5 = (A1 – (A2 + A3 + A4)). If the computed income exceeds the minimum threshold of 2.5 lakh rupees, taxpayers are required to file their Income Tax Returns (ITRs). By accurately determining and reporting these figures, taxpayers fulfill their tax obligations and ensure compliance with regulatory standards.

Read More: Understanding Income Tax Department Notifications: What You Need to Know

Web Stories: Understanding Income Tax Department Notifications: What You Need to Know

Official Income Tax Return (ITRs) filing website: https://incometaxindia.gov.in/


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