Important keyword: File ITR, P&L Statement, Tax Audit, Trading Turnover, Zerodha Trader.
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How to File ITR for Zerodha?
A Zerodha trader needs to file an Income Tax Return (ITR) based on the income earned from trading in equities, mutual funds, or derivatives. Zerodha offers a Tax P&L Report that summarizes all the trading transactions for the financial year. This report helps traders decide which ITR form to use and whether a tax audit is necessary. If you are a Zerodha trader preparing to file your ITR, follow the detailed steps below.
Tax P&L Statement Tabs in Zerodha Explained
Therefore, as you can see from your image, your Tax P&L Statement is broken down into 7 different sections:
Equity Intraday Equity intraday trading involves buying and selling stocks within the same day. This means that all transactions are completed by the end of the trading day.
Equity Delivery Equity delivery trading refers to buying stocks and holding them for a period of time, during which they are kept in your Demat account. This category is further divided into:
Long-Term Trades: Investments held for more than a year. Short-Term Trades: Investments held for less than a year.
Mutual Funds Tax P&L Statement Debt Funds: These mutual funds invest in fixed-income securities like bonds and treasury bills. Equity Mutual Funds: These funds invest primarily in stocks of companies, such as those in banking or FMCG sectors.
Futures and Options Tax P&L Statement Equity Futures: Contracts to buy or sell a certain quantity of a stock at a future date for a predetermined price. Equity Options: Contracts giving the right, but not the obligation, to buy or sell a set number of shares at a certain price before a specific expiry date, for which a premium is paid.
Commodity Tax P&L Statement Commodities Futures: Contracts to buy or sell raw materials at a specific future date for a set price. Commodities Options: Contracts giving the right, but not the obligation, to buy or sell a commodity, like metals or oil, at a specific price until a certain date.
Currency Tax P&L Statement Currency Futures: Contracts to exchange one currency for another at a future date for a fixed price. Currency Options: Contracts giving the right, but not the obligation, to buy or sell a currency at a specific exchange rate by a certain date.
Other Credits and Debits This category includes charges and credits that are not directly related to trading activities.
Equity Dividends Breakdown Dividends are rewards paid to shareholders from a company’s profits.
Explanation of Sub-Tabs in Zerodha Tax P&L Report
Realized Profit Breakdown Realized profit comes from trades that have been completed and exited, with the profit typically deposited into the trader’s account.
Turnover Breakdown (Scripwise) Turnover calculation varies with the type of trading. For intraday trading, turnover equals the absolute profit, which is the sum of all positive and negative differences from transactions.
Other Debits/Credits Including Service Tax This includes charges and credits unrelated to trading activities, such as DP charges and payment gateway fees.
Account Head This term refers to the specific categories under which various transactions are recorded.
Short-Term Trades Short-term trading involves holding investments for a few hours to a few weeks.
Which ITR Form is Applicable to Zerodha?
Filing an Income Tax Return (ITR) is an annual responsibility for traders using Zerodha. Depending on their income, taxpayers must submit the appropriate ITR form. This process involves reporting all incomes, calculating and paying taxes, claiming TDS credits, and requesting refunds for any tax overpayments.
The Income Tax Department provides specific ITR forms based on various income scenarios. To determine which ITR form applies to your situation, you can use the following calculator.
For traders with income from trading activities, the relevant forms are ITR-2 or ITR-3, depending on the type of trading income:
- ITR-2: For income classified as Capital Gains.
- ITR-3: For income classified as Business Income.
Due Date to file ITR for Zerodha
Income Tax Return(ITR) filing is done after the completion of a financial year. So, the due dates for ITR filing are as per section 139 of the income tax act. Due dates for different category of taxpayers are as follows:
| Category | Due Date |
| Individuals to whom audit is not applicable | 31st July of the Assessment Year |
| Companies | 30th September of the Assessment Year |
| Individuals to whom audit is applicable | 30th September of the Assessment Year |
| Individuals/ HUF who are partners in a firm and firm’s accounts are subject to audit | 30th September of the Assessment Year |
Additionally: the above due dates can be extended by the IT Department via order.
Tax Audit Applicability for Zerodha
Stock traders typically engage in trading shares, securities, commodities, and currencies through online platforms. For income tax purposes, profits from Equity Intraday, Equity F&O, Commodity Trading, and Currency Trading are considered Business Income. Hence, it is crucial to understand the applicability of a Tax Audit according to the Income Tax Act provisions.
Tax Audit Applicability under Section 44AB
The turnover limit for requiring a tax audit under Section 44AB is generally Rs. 1 crore. However, under the Budget 2020 amendments, this limit has been raised to Rs. 5 crores if the following conditions are met:
- Cash Payments do not exceed 5% of Total Payments: Cash transactions must be less than 5% of all transactions in the financial year.
- Cash Receipts do not exceed 5% of Total Receipts: Cash income must also be less than 5% of the total income in the financial year.
Calculating Trading Turnover for Zerodha
For individuals earning income from trading shares and securities, this income should be reported as income from business and profession. The turnover needs to be calculated to determine if a Tax Audit is required under the Income Tax Act. Remember, tax liability is not based on turnover.
Trading Turnover Calculation:
- Equity Intraday: Turnover is the sum of absolute profits from all trades.
- Equity F&O: Turnover includes the sum of absolute profits plus premium received on sale of options.
- Commodity Trading: Similar to Equity F&O, includes the sum of absolute profits.
- Currency Trading: Also follows the same principle as Equity F&O.
It is important to calculate trading turnover only when the trading income is considered business income, not when it is considered capital gains income. This distinction helps in determining the applicability of the tax audit.
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Official Income Tax Return filing website: https://incometaxindia.gov.in/
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