Important Keyword: Direct Tax, Income Tax, ITR-1, ITR-2, ITR-3, ITR-4, Taxpayer Categories, TDS.
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ITR:What is Income Tax?
Income Tax serves as a primary source of revenue for the government, aiding in various developmental initiatives such as infrastructure projects and public service salaries. It falls under the category of direct taxes, along with capital gains tax and securities transaction tax. Tax Deducted at Source (TDS) is a mechanism employed by the government to ensure a consistent inflow of revenue by levying taxes directly at the source, such as salaries or other payments.
Every individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), firms, and companies are liable to pay Income Tax based on their income earned during the financial year. This tax is calculated as per the applicable tax rates and slabs determined by the government. Through the efficient collection of Income Tax and TDS, the government can effectively manage public finances and fund various developmental endeavors essential for societal progress.
Income Tax in India
In India, the realm of direct taxation operates under the provisions of the Income Tax Act of 1961, complemented by the Income Tax Rules of 1962, as well as notifications and circulars issued by the Central Board of Direct Taxes (CBDT). Income Tax is imposed according to various income categories and taxpayer classifications, delineated within the Income Tax Act.
Taxpayers in India fall under several categories:
Individual residents aged below 60 years.
Senior citizens aged between 60 to 80 years.
Super senior citizens aged above 80 years.
Non-residents (NRI).
Hindu Undivided Family (HUF).
Firms / AOP (Association of Persons) / BOI (Body of Individuals) / Local Authorities / Co-operative Societies.
Companies.
Income Tax for Resident Individuals
For resident individuals, income is parsed into different categories such as salary, house property, capital gains, business or profession, and other sources. Taxes are applied at slab rates, although there are exceptions for certain types of income.
Most individuals primarily derive income from salary, house property, and interest, rendering them eligible to file ITR-1 (SAHAJ).
If income emanates from multiple house properties, ITR-2 is applicable.
Individuals with capital gains, such as from casual stock trading or property sales, can file ITR-3.
Those with income from proprietary business or profession may choose between ITR-4 (SUGAM) or ITR-3.
Individuals who are partners in a firm and receive income via salary, remuneration, interest, or profit-sharing file ITR-3.
Individuals with proprietary business turnovers exceeding Rs. 2 crores or professionals with gross professional receipts surpassing Rs. 50 lakhs are required to have their books of account audited and file ITR-3.
Income Tax for NRI
For Non-Resident Indians (NRIs), the obligation to file an income tax return in India arises only if they have earned income within the country. Their foreign income from their country of residence does not need to be disclosed while filing the Indian tax return.
The types of return forms applicable to NRIs are the same as those for resident Indians. When filing their return, NRIs can claim credit if the income earned in India is also taxed in their country of residence. The fundamental principle is to prevent double taxation on the same income. Therefore, if income earned in India is also taxed in a foreign country with which India has a double taxation avoidance agreement, NRIs can claim credit for the tax paid in the foreign country while filing their Indian return.
Income Tax for HUF (Hindu Undivided Family)
The Income Tax Act recognizes Hindu Undivided Family (HUF) as a distinct legal entity apart from its members, with its own unique PAN. HUFs enjoy a basic exemption limit similar to that of individuals, set at Rs. 2,50,000.
Key points regarding HUF taxation:
HUFs are required to file their Income Tax Return separately.
All incomes derived from assets in the common pool of the HUF or from business activities conducted in the name of the HUF must be included in the tax return.
HUFs can earn income from various sources, excluding salary.
Income is taxed at slab rates applicable to individuals.
HUFs can file returns using ITR-2, ITR-3, and ITR-4 forms.
Similar to individuals, if an HUF is engaged in business and its turnover exceeds Rs. 2 crores, the books of account must be audited, and ITR-4 is to be filed.
Income Tax for Partnership Firms
Partnership firms and Limited Liability Partnerships (LLPs) are distinct legal entities with their own PAN.
These entities file income tax returns using ITR-5.
Income from business or profession, house property, capital gains, and other sources can be reported in ITR-5.
A flat rate of 30% tax applies to the firm’s income.
Profits distributed among partners, after tax payment, are tax-free in the hands of the partners.
However, any salary, remuneration, or interest paid to partners is taxable in the hands of the partners, while the firm can claim it as an expense.
Income Tax for Companies
Companies have separate legal identities and PANs, categorized as Domestic Companies and Foreign Companies.
Domestic companies file income tax returns using ITR-6.
It is mandatory for companies to file returns and provide details of statutory audits.
If the turnover from business exceeds Rs. 2 crores, a Tax Audit is required, with details to be provided in the Income Tax Return.
Companies can earn income from business, house property, capital gains, and other sources.
Companies claiming exemptions under section 11 file returns using ITR-7.
Domestic companies are taxed at a flat rate of 30%, while foreign companies are taxed at a flat rate of 40%
Important Keyword: F&O Trading, Income from Business & Profession, ITR-3, Tax Audit.
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Income Tax on F&O Trading
The rise in Futures and Options (F&O) trading, especially during the COVID-19 era, has been significant. F&O trading involves buying and selling futures contracts and options contracts, both of which are categorized as derivatives. Derivatives derive their value from the price movements of underlying assets such as stocks, commodities, or indices.
Given the popularity of F&O trading and its classification as derivatives, traders engaging in such activities are required to file income tax returns to report their income or losses from these trades. It’s crucial for traders to accurately report their F&O trading activities to ensure compliance with tax regulations and avoid any potential penalties or legal issues.
What is F&O Trading?
Futures and Options (F&O) trading involves agreements to buy or sell assets at a predetermined price and date in the future. These derivative instruments derive their value from the underlying assets, which could be stocks, commodities, currencies, or indices.
In Futures trading, traders agree to buy or sell assets at a specified future date and price, regardless of the market price at that time. This allows traders to hedge against price fluctuations and speculate on future price movements.
Options trading, on the other hand, gives traders the right, but not the obligation, to buy or sell assets at a predetermined price within a specified timeframe. Options traders pay a premium for this right, which provides them with flexibility and risk management strategies.
Both Futures and Options trading can be used for various purposes, including hedging, speculation, and arbitrage, making them essential components of financial markets worldwide.
Income Head, ITR Form, and Due Date for F&O Trading
Income Head
F&O Income or Loss is a non-speculative business income as per the Income Tax Act. Thus, it should be reported as Business Income under the head PGBP (Profits & Gains from Business and Profession).
ITR Form
Since F&O Income is a business income, the F&O trader should prepare financial statements and file ITR-3 (ITR Form for individuals and HUFs having PGBP Income) on the Income Tax Website.
Due Date
31st July is the due date for traders to whom audit is not applicable & 31st October is the due date for traders to whom Tax Audit is applicable
F&O Turnover Calculation
Determining whether a Tax Audit is applicable involves calculating Trading Turnover, which is crucial for tax assessment. However, it’s important to note that the tax liability doesn’t hinge on Turnover alone.
Trading Turnover in Futures & Options Trading is computed as the Absolute Profit. This involves summing up the positive and negative differences from trades. The calculation method can be either scrip-wise or trade-wise.
For instance, let’s consider Rahul’s trading activities:
He purchases 200 contracts of Heremotoco Futures at Rs. 100 on 05/05/2023 and sells them at Rs. 90 on 08/05/2023.
Next, he buys 150 contracts of Nifty Futures at Rs. 45 on 07/09/2023 and sells them at Rs. 50 on 12/09/2023.
From these trades:
Loss from Trade 1 = (90 – 100) * 200 = Rs. -2,000
Profit from Trade 2 = (50 – 45) * 150 = Rs. 750
Hence, the Absolute Profit is Rs. 2,750 (|Rs. -2,000| + Rs. 750). This figure is crucial for assessing whether a Tax Audit is necessary and for other tax-related evaluations.
Applicability of Tax Audit for F&O trading under section 44AB
Trading Turnover up to INR 2 Cr
If a taxpayer incurs a loss or the profit falls below 6% of the Trading Turnover, and they have opted out of the presumptive taxation scheme in any of the immediate 5 previous years, while their total income exceeds the basic exemption limit in any of the previous years, then a Tax Audit under section 44AB(e) is applicable. However, if the profit equals or exceeds 6% of the Trading Turnover, a Tax Audit is not necessary.
For Trading Turnovers ranging between INR 2 Cr and INR 10 Cr, the provisions of Section 44AB do not apply because the majority of transactions, over 95%, occur digitally through Demat. Consequently, Tax Audit is not required regardless of profit or loss.
In cases where the Trading Turnover exceeds INR 10 Cr, Tax Audit under section 44AB(a) is obligatory, irrespective of profit or loss. It’s noteworthy that for F&O Traders, since all transactions are digital, the prescribed rate under Sec 44AD would be 6% instead of the usual 8%.
Income Tax on F&O Trading
Income Tax on trading income is calculated at prescribed slab rates as per the Income Tax Act.
Slab Rates if F&O Traders Opt for Old Tax Regime
Taxable Income (INR
Slab Rate
Up to 2,50,000
NIL
2,50,001 to 5,00,000
5%
5,00,001 to 10,00,000
20%
More than 10,00,000
30%
Note: Surcharge is liable for the total income as per the prescribed surcharge slab rates. Cess is liable at 4% on Total Tax (i.e. basic tax + surcharge).
Slab Rates if F&O Traders Opt for New Tax Regime from AY 2024-25
Taxable Income (INR)
Slab Rate
Up to 3,00,000
NIL
3,00,001 to 6,00,000
5%
6,00,001 to 9,00,000
10%
9,00,001 to 12,00,000
15%
12,00,001 to 15,00,000
20%
More than 15,00,000
30%
Advance Tax for F&O Trading
If F&O Traders choose not to opt for presumptive taxation under Section 44AD and have profits from F&O trading, they are required to pay Advance Tax in four installments as outlined in the table below:
15% of the advance tax by June 15th of the financial year.
45% of the advance tax by September 15th of the financial year.
75% of the advance tax by December 15th of the financial year.
100% of the advance tax by March 15th of the financial year.
This schedule ensures timely payments of advance tax based on estimated F&O trading income, preventing last-minute financial burdens on the taxpayer.
Advance Tax Liability
Due Date
15% of Tax Liability
On or before 15th June
45% of Tax Liability
On or before 15th September
75% of Tax Liability
On or before 15th December
100% of Tax Liability
On or before 15th March
Advance Tax for F&O Traders who opt for Presumptive Taxation
For F&O traders who choose presumptive taxation under Section 44AD and generate profits from their F&O trading activities, the entire amount of Advance Tax must be paid in a single installment on or before March 15th.
New Tax Regime for F&O Trading
Under the new tax regime introduced by Section 115BAC of the Income Tax Act, F&O traders have the option to calculate their tax liability based on slab rates specified in the new regime. Notably, they are ineligible to claim Chapter VI-A deductions, and they must file Form 10IE on the income tax website.
Should a trader with business income opt for the new tax regime, they retain the flexibility to revert to the old regime. However, if they subsequently choose the new regime again, they forfeit the option to revert to the old regime for the remainder of their lifetime.
Carry Forward Loss for F&O Trading
Regarding the treatment of losses from F&O trading, such losses are classified as Non-Speculative Business Losses. In the current assessment year, they can be set off against any income except salary income. However, in subsequent years, they can only be set off against business income. F&O traders have the option to carry forward these losses for up to 8 years.
Important Keyword: Business and Profession Income, ITR-3, ITR-4
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Business and Profession Codes
In India, businesses and professions span a diverse spectrum, each requiring specific categorization for tax purposes. To ensure accurate classification, the income tax department has established a comprehensive list of business and profession codes. Taxpayers must diligently select the relevant code when filing their income tax returns. Incorrect reporting or omission of this code could prompt the tax department to issue a notice seeking clarification. Therefore, meticulous attention to this detail is essential to maintain compliance with tax regulations.
The Central Board of Direct Taxes (CBDT) has delineated specific business and profession codes for the purpose of Income Tax Return (ITR) filing. These codes are organized into distinct categories, including business income governed by Section 44AD, Section 44ADA, Section 44AE, and other businesses.
For taxpayers not opting for the Presumptive Taxation Scheme, the appropriate course of action is to compile financial statements and file ITR-3. During this process, it’s crucial to accurately select the relevant codes and category from the provided drop-down list. Additionally, taxpayers have the option to furnish details such as a description of the business or profession activity and the Trade Name associated with the business or profession. This meticulous approach ensures adherence to regulatory requirements and facilitates seamless tax compliance.
For taxpayers opting for the Presumptive Taxation Scheme under Section 44AD or 44ADA and earning income from business or profession, the process is simplified. They are exempted from the obligation of maintaining books of accounts and are required to file ITR-4.
During the filing process, it’s imperative for the taxpayer to accurately choose the relevant codes and category from the provided drop-down list. Additionally, they have the option to provide details such as a description of the business or profession activity and the Trade Name associated with their enterprise. This meticulous approach ensures adherence to regulatory guidelines and facilitates smooth tax compliance for taxpayers availing themselves of the Presumptive Taxation Scheme.
List of Codes for Professions
Select the code from the list below in case of Income from Profession under ITR-3 or for opting for Presumptive Taxation Scheme under Sec 44ADA under ITR-4.
Sub-Sector
Code
Software development
14001
Other software consultancy
14002
Data processing
14003
Database activities and distribution of electronic content
14004
Other IT enabled services
14005
BPO services
14006
Maintenance and repair of office, accounting and computing machinery
14008
Legal profession
16001
Accounting, book-keeping and auditing profession
16002
Tax consultancy
16003
Architectural profession
16004
Engineering and technical consultancy
16005
Fashion designing
16007
Interior decoration
16008
Photography
16009
Business and management consultancy activities
16013
Secretarial activities
16018
Medical Profession
16019_1
Film Artist
16020
General hospitals
18001
Speciality and super speciality hospitals
18002
Nursing homes
18003
Diagnostic centres
18004
Pathological laboratories
18005
Medical clinics
18010
Dental practice
18011
Ayurveda practice
18012
Unani practice
18013
Homeopathy practice
18014
Nurses, physiotherapists or other para-medical practitioners
18015
Veterinary hospitals and practice
18016
Medical education
18017
Medical research
18018
Practice of other alternative medicine
18019
Other healthcare services
18020
Individual artists excluding authors
20010
Literary activities
20011
Other cultural activities n.e.c.
20012
List of Codes for Businesses
Select the code from the list below in case of Income from Business under ITR-3 or for opting for the Presumptive Taxation Scheme under Sec 44AD under ITR-4.
Agricultural, Animal, Husbandry & Forestry
Sub-Sector
Code
Growing and manufacturing of tea
01001
Growing and manufacturing of coffee
01002
Growing and manufacturing of rubber
01003
Market gardening and horticulture specialties
01004
Raising of silk worms and production of silk
01005
Raising of bees and production of honey
01006
Raising of poultry and production of eggs
01007
Rearing of sheep and production of wool
01008
Rearing of animals and production of animal products
01009
Agricultural and animal husbandry services
01010
Soil conservation, soil testing and soil desalination services
01011
Hunting, trapping and game propagation services
01012
Growing of timber, plantation, operation of tree nurseries and conserving of forest
01013
Gathering of tendu leaves
01014
Gathering of other wild growing materials
01015
Forestry service activities, timber cruising, afforestation and reforestation
01016
Logging service activities, transport of logs within the forest
01017
Other agriculture, animal husbandry or forestry activity n.e.c
01018
Fish Farming
Sub-Sector
Code
Fishing on commercial basis in inland waters
02001
Fishing on commercial basis in ocean and coastal areas
02002
Fish farming
02003
Gathering of marine materials such as natural pearls, sponges, coral etc.
02004
Services related to marine and fresh water fisheries, fish hatcheries and fish farms
02005
Other Fish farming activity n.e.c
02006
Mining and Quarrying
Sub-Sector
Code
Mining and agglomeration of hard coal
03001
Mining and agglomeration of lignite
03002
Extraction and agglomeration of peat
03003
Extraction of crude petroleum and natural gas
03004
Service activities incidental to oil and gas extraction excluding surveying
03005
Mining of uranium and thorium ores
03006
Mining of iron ores
03007
Mining of non-ferrous metal ores, except uranium and thorium ores
03008
Mining of gemstones
03009
Mining of chemical and fertilizer minerals
03010
Mining of quarrying of abrasive materials
03011
Mining of mica, graphite and asbestos
03012
Quarrying of stones (marble/granite/dolomite), sand and clay
03013
Other mining and quarrying
03014
Mining and production of salt
03015
Other mining and quarrying n.e.c
03016
Manufacturing
Sub-Sector
Code
Production, processing and preservation of meat and meat products
04001
Production, processing and preservation of fish and fish products
04002
Manufacture of vegetable oil, animal oil and fats
04003
Processing of fruits, vegetables and edible nuts
04004
Manufacture of dairy products
04005
Manufacture of sugar
04006
Manufacture of cocoa, chocolates and sugar confectionery
04007
Flour milling
04008
Rice milling
04009
Dal milling
04010
Manufacture of other grain mill products
04011
Manufacture of bakery products
04012
Manufacture of starch products
04013
Manufacture of animal feeds
04014
Manufacture of other food products
04015
Manufacturing of wines
04016
Manufacture of beer
04017
Manufacture of malt liquors
04018
Distilling and blending of spirits, production of ethyl alcohol
04019
Manufacture of mineral water
04020
Manufacture of soft drinks
04021
Manufacture of other non-alcoholic beverages
04022
Manufacture of tobacco products
04023
Manufacture of textiles (other than by handloom)
04024
Manufacture of textiles using handlooms (khadi)
04025
Manufacture of carpet, rugs, blankets, shawls etc. (other than by hand)
04026
Manufacture of carpet, rugs, blankets, shawls etc. by hand
04027
Manufacture of wearing apparel
04028
Tanning and dressing of leather
04029
Manufacture of luggage, handbags and the like saddler and harness
04030
Manufacture of footwear
04031
Manufacture of wood and wood products, cork, straw and plaiting material
04032
Manufacture of paper and paper products
04033
Publishing, printing and reproduction of recorded media
04034
Manufacture of coke oven products
04035
Manufacture of refined petroleum products
04036
Processing of nuclear fuel
04037
Manufacture of fertilizers and nitrogen compounds
04038
Manufacture of plastics in primary forms and of synthetic rubber
04039
Manufacture of paints, varnishes and similar coatings
04040
Manufacture of pharmaceuticals, medicinal chemicals and botanical products
04041
Manufacture of soap and detergents
04042
Manufacture of other chemical products
04043
Manufacture of man-made fibers
04044
Manufacture of rubber products
04045
Manufacture of plastic products
04046
Manufacture of glass and glass products
04047
Manufacture of cement, lime and plaster
04048
Manufacture of articles of concrete, cement and plaster
04049
Manufacture of Bricks
04050
Manufacture of other clay and ceramic products
04051
Manufacture of other non-metallic mineral products
04052
Manufacture of pig iron, sponge iron, Direct Reduced Iron etc.
04053
Manufacture of Ferro alloys
04054
Manufacture of Ingots, billets, blooms and slabs etc.
04055
Manufacture of steel products
04056
Manufacture of basic precious and non-ferrous metals
04057
Manufacture of non-metallic mineral products
04058
Casting of metals
04059
Manufacture of fabricated metal products
04060
Manufacture of engines and turbines
04061
Manufacture of pumps and compressors
04062
Manufacture of bearings and gears
04063
Manufacture of ovens and furnaces
04064
Manufacture of lifting and handling equipment
04065
Manufacture of other general purpose machinery
04066
Manufacture of agricultural and forestry machinery
04067
Manufacture of Machine Tools
04068
Manufacture of machinery for metallurgy
04069
Manufacture of machinery for mining, quarrying and constructions
04070
Manufacture of machinery for processing of food and beverages
04071
Manufacture of machinery for leather and textile
04072
Manufacture of weapons and ammunition
04073
Manufacture of other special purpose machinery
04074
Manufacture of domestic appliances
04075
Manufacture of office, accounting and computing machinery
04076
Manufacture of electrical machinery and apparatus
04077
Manufacture of Radio, Television, communication equipment and apparatus
04078
Manufacture of medical and surgical equipment
04079
Manufacture of industrial process control equipment
04080
Manufacture of instruments and appliances for measurements and navigation
04081
Manufacture of optical instruments
04082
Manufacture of watches and clocks
04083
Manufacture of motor vehicles
04084
Manufacture of body of motor vehicles
04085
Manufacture of parts and accessories of motor vehicles and engines
04086
Building and repair of ships and boats
04087
Manufacture of railway locomotive and rolling stocks
04088
Manufacture of aircraft and spacecraft
04089
Manufacture of bicycles
04090
Manufacture of other transport equipment
04091
Manufacture of furniture
04092
Manufacture of jewellery
04093
Manufacture of sports goods
04094
Manufacture of musical instruments
04095
Manufacture of games and toys
04096
Other manufacturing n.e.c.
04097
Recycling of metal waste and scrap
04098
Recycling of non- metal waste and scrap
04099
Electricity, Gas and Water
Sub-Sector
Code
Production, collection and distribution of electricity
05001
Manufacture and distribution of gas
05002
Collection, purification and distribution of water
05003
Other essential commodity service n.e.c
05004
Construction
Sub-Sector
Code
Site preparation works
06001
Building of complete constructions or parts- civil contractors
06002
Building installation
06003
Building completion
06004
Construction and maintenance of roads, rails, bridges, tunnels, ports, harbour, runways etc.
06005
Construction and maintenance of power plants
06006
Construction and maintenance of industrial plants
06007
Construction and maintenance of power transmission and telecommunication lines
06008
Construction of water ways and water reservoirs
06009
Other construction activity n.e.c.
06010
Real Estate and Renting Services
Sub-Sector
Code
Purchase, sale and letting of leased buildings (residential and non-residential)
07001
Operating of real estate of self-owned buildings (residential and non-residential)
07002
Developing and sub-dividing real estate into lots
07003
Real estate activities on a fee or contract basis
07004
Other real estate/renting services n.e.c
07005
Renting of Machinery
Sub-Sector
Code
Renting of land transport equipment
08001
Renting of water transport equipment
08002
Renting of air transport equipment
08003
Renting of agricultural machinery and equipment
08004
Renting of construction and civil engineering machinery
08005
Renting of office machinery and equipment
08006
Renting of other machinery and equipment n.e.c.
08007
Renting of personal and household goods n.e.c.
08008
Renting of other machinery n.e.c.
08009
Wholesale and Retail Trade
Sub-Sector
Code
Wholesale and retail sale of motor vehicles
09001
Repair and maintenance of motor vehicles
09002
Sale of motor parts and accessories- wholesale and retail
09003
Retail sale of automotive fuel
09004
Wholesale of agricultural raw material
09006
Wholesale of food and beverages and tobacco
09007
Wholesale of household goods
09008
Wholesale of metals and metal ores
09009
Wholesale of household goods
09010
Wholesale of construction material
09011
Wholesale of hardware and sanitary fittings
09012
Wholesale of cotton and jute
09013
Wholesale of raw wool and raw silk
09014
Wholesale of other textile fibres
09015
Wholesale of industrial chemicals
09016
Wholesale of fertilizers and pesticides
09017
Wholesale of electronic parts and equipment
09018
Wholesale of other machinery, equipment and supplies
09019
Wholesale of waste, scrap and materials for re-cycling
09020
Retail sale of food, beverages and tobacco in specialized stores
09021
Retail sale of other goods in specialized stores
09022
Retail sale in non-specialized stores
09023
Retail sale of textiles, apparel, footwear, leather goods
09024
Retail sale of other household appliances
09025
Retail sale of hardware, paint, and glass
09026
Wholesale of other products n.e.c
09027
Retail sale of other products n.e.c
09028
Hotels, Restaurants and Hospitality Services
Sub-Sector
Code
Hotels – Star rated
10001
Hotels – Non-star-rated
10002
Motels, Inns and Dharmshalas
10003
Guest houses and circuit houses
10004
Dormitories and hostels at educational institutions
10005
Short stay accommodations n.e.c.
10006
Restaurants – with bars
10007
Restaurants – without bars
10008
Canteens
10009
Independent caterers
10010
Casinos and other games of chance
10011
Other hospitality services n.e.c.
10012
Transport & Logistics Services
Sub-Sector
Code
Travel agencies and tour operators
11001
Packers and movers
11002
Passenger land transport
11003
Air transport
11004
Transport by urban/sub-urban railways
11005
Inland water transport
11006
Sea and coastal water transport
11007
Freight transport by road
11008
Freight transport by railways
11009
Forwarding of freight
11010
Receiving and acceptance of freight
11011
Cargo handling
11012
Storage and warehousing
11013
Transport via pipelines (transport of gases, liquids, slurry and other commodities)
11014
Other Transport and Logistics services n.e.c
11015
Post and Telecommunication Services
Sub-Sector
Code
Post and courier activities
12001
Basic telecom services
12002
Value added telecom services
12003
Maintenance of telecom network
12004
Activities of the cable operators
12005
Other Post and Telecommunication services n.e.c
12006
Financial Intermediation Services
Sub-Sector
Code
Commercial, saving banks and discount houses
13001
Specialized institutions granting credit
13002
Financial leasing
13003
Hire-purchase financing
13004
Housing finance activities
13005
Commercial loan activities
13006
Credit cards
13007
Mutual funds
13008
Chit fund
13009
Investment activities
13010
Life insurance
13011
Pension funding
13012
Non-life insurance
13013
Administration of financial markets
13014
Stockbrokers, sub-brokers and related activities
13015
Financial advisers, Mortgage advisers, and brokers
13016
Foreign exchange services
13017
Other financial intermediation services n.e.c
13018
Computer and Related Services
Sub-Sector
Code
Cybercafe
14007
Computer training and educational institutes
14009
Other computation related services n.e.c
14010
Research and Development
Sub-Sector
Code
Natural sciences and engineering
15001
Social sciences and humanities
15002
Other Research & Development activities n.e.c.
15003
Professions
Sub-Sector
Code
Advertising
16006
Auctioneers
16010
Market research and public opinion polling
16012
Labour recruitment and provision of personnel
16014
Investigation and security services
16015
Building-cleaning and industrial cleaning activities
16016
Packaging activities
16017
Other professional services n.e.c.
16019
Education Services
Sub-Sector
Code
Primary education
17001
Secondary/senior secondary education
17002
Technical and vocational secondary/senior secondary education
17003
Higher education
17004
Education by correspondence
17005
Coaching centers tuitions
17006
Other education services n.e.c
17007
Health Care and Services
Sub-Sector
Code
Independent blood banks
18006
Medical transcription
18007
Independent ambulance services
18008
Medical suppliers, agencies and stores
18009
Social and Community Work
Sub-Sector
Code
Social work activities with accommodation (orphanages and old age homes)
19001
Social work activities without accommodation (Creches)
19002
Industry associations, chambers of commerce
19003
Professional organisations
19004
Trade unions
19005
Religious organizations
19006
Political organisations
19007
Other membership organisations n.e.c. (rotary clubs, book clubs and philatelic clubs)
19008
Other Social or community service n.e.c
19009
Culture and Sport
Sub-Sector
Code
Motion picture production
20001
Film distribution
20002
Film laboratories
20003
Television channel productions
20004
Television channels broadcast
20005
Video production and distribution
20006
Sound recording studios
20007
Radio – recording and distribution
20008
Stage production and related activities
20009
Circuses and race tracks
20013
Video Parlours
20014
News agency activities
20015
Library and archives activities
20016
Museum activities
20017
Preservation of historical sites and buildings
20018
Botanical and zoological gardens
20019
Operation and maintenance of sports facilities
20020
Activities of sports and game schools
20021
Organisation and operation of indoor/outdoor sports and promotion and production of sporting events
20022
Sports Management
20023_1
Other sporting activities n.e.c.
20023
Other recreational activities n.e.c.
20024
Other Services
Sub-Sector
Code
Hairdressing and other beauty treatment
21001
Funeral and related activities
21002
Marriage bureaus
21003
Pet care services
21004
Sauna and steam baths, massage salons, etc.
21005
Astrological and spiritualists’ activities
21006
Private households as employers of domestic staff
21007
Event Management
21008_1
Other services n.e.c
21008
Extra-Territorial Organizations and Bodies
Sub-Sector
Code
Extraterritorial organizations and bodies (IMF, World Bank, European Commission, etc.)
22001
Businesses opting for Section 44AE
Select the code from the list below in case of Income from Business under ITR-3 or for opting for Presumptive Taxation Scheme under Sec 44AE under ITR-4.
Renting of Machinery
Sub-Sector
Code
Renting of land transport equipment
08001
Transport & Logistic Services
Sub-Sector
Code
Packers and movers
11002
Freight transport by road
11008
Forwarding of freight
11010
Receiving and acceptance of freight
11011
Cargo handling
11012
Other Transport and Logistics services n.e.c
11015
Other codes for Business & Professions
In addition to the above-mentioned codes, below are other codes that can be opted for by such businesses for commission or brokerage income.
Wholesale & Retail Trade
Sub-Sector
Code
General commission agents, commodity brokers and auctioneers
Important Keyword: F&O Trading, Income from trading, Income Tax, ITR-3.
Table of Contents
Expenses a Traders Can Claim in ITR
Traders in financial markets encounter various expenses while conducting their business. Understanding which expenses qualify for tax deductions is crucial for sound financial management and adherence to tax laws.
Expenses a Traders can Claim
A trader can declare all expenses directly associated with their trading business as deductible business expenses. These expenses must be solely and exclusively related to generating business and professional income. Here’s a breakdown of expenses eligible for deduction against trading income:
Rent Expense: Rent paid for office premises is claimable, provided the trader retains valid rent receipts and agreements as proof.
Insurance Expense: Insurance expenses for assets used in the business, such as equipment or property, are deductible.
Repairs & Maintenance: Expenses for repairing equipment, furniture, or laptops used for business purposes are deductible.
Office Supplies: Stationery, printing, and refreshment expenses incurred for business operations are deductible.
Electricity Expense: Electricity expenses for the office can be claimed, or proportionally if working from home.
Membership Fees: Membership fees paid for trading platforms or related services can be claimed, but recreational club memberships cannot.
Legal & Professional Fees: Fees paid for services like tax filing, audits, legal advice, or consultancy are deductible.
Books & Subscriptions: Costs for trading-related magazine subscriptions or book purchases are deductible.
Depreciation: Traders can claim depreciation on assets used for business purposes over their useful life, according to Income Tax Act guidelines.
Mobile & Internet Expense: Expenses for mobile, telephone, and internet services used for business purposes are deductible.
Finance Costs: Interest paid on loans taken for trading business purposes is deductible.
Trading Expenses: Charges such as brokerage, turnover fees, clearing charges, exchange transaction charges, STT, stamp duty, and GST are deductible.
Other Business Expenses: Any other expenses directly related to the trading business can be claimed as deductions.
Keeping detailed records and valid documentation for all expenses is crucial for substantiating these claims during tax assessment.
Can I claim Tax paid as a Business Expense?
STT (Securities Transaction Tax), Stamp Duty, and CTT (Commodities Transaction Tax) are levies incurred during trading activities. Traders can claim these expenses as valid business deductions if they report their income as business income.
STT: This tax applies to various securities like equity shares, mutual funds, ETFs, futures, and options. Traders can deduct STT paid as a business expense.
Stamp Duty: Stamp Duty is applicable to securities transfers. Traders can claim Stamp Duty paid as a valid business expense.
CTT: Commodities Transaction Tax is imposed on commodity trading. Traders can deduct CTT paid as a valid business expense.
Input GST: Input GST, including CGST, SGST, and IGST paid on trading expenses, is deductible if the trader is not GST registered. GST registered traders can offset Input GST against Output GST.
However, traders cannot claim taxes on income, like Income Tax, or sales taxes like GST, as business expenses. These taxes are not considered deductible business expenses.
Expenses that a Trader cannot claim in an Income Tax Return
Personal expenses, fines, penalties, taxes, cash payments exceeding INR 10,000, and undeposited TDS are not deductible as business expenses according to the Income Tax Act.
Personal Expenses: Costs incurred for personal use cannot be claimed as business deductions.
Fines & Penalties: Expenses related to offenses or prohibited activities under the law are not deductible. However, penalties for contract breaches may be deductible.
Tax: Taxes paid on income, including Income Tax, Advance Tax, and GST, are not deductible as business expenses.
Cash Payments: Expenses paid in cash exceeding INR 10,000 are not deductible, except for certain exceptions mentioned in Rule 6DD of the Income Tax Act.
Undeposited TDS: Expenses for which TDS is not deducted or deposited are not deductible, including interest, commission, rent, royalty, and professional or technical fees.
Points to remember for Trader who claims Business Expenses
The trader should ensure that invoices are issued in their name and dated within the relevant financial year. If an expense serves both personal and business purposes, the trader can claim a reasonable portion for business.
It’s crucial to retain bills, invoices, or any payment proof as they’re required during Tax Audit by a Chartered Accountant or in case of an Income Tax Department notice.
Avoid cash payments, especially exceeding INR 10,000 per day to a single recipient. opt for non-cash payment methods to track expenses effectively.
For Income Tax calculation, traders can avail deductions under chapter VI-A.
If the business income exceeds INR 1,50,000 or total sales/gross receipts surpass INR 25 lakhs in any of the preceding 3 years, maintaining books of accounts becomes mandatory.
Traders opting for the Presumptive Scheme under section 44AD cannot claim expenses as they’re exempt from maintaining books of accounts.
Traders with Business Income should list valid business expenses in the Profit & Loss Statement. They also need to prepare financial statements and file ITR-3, along with calculating trading turnover to determine Tax Audit applicability.
Which expenses can a trader claim on the sale of shares?
Income from the sale of shares falls under the head “Income from Capital Gains.” Investors or traders can subtract expenses that are wholly and exclusively incurred during the transfer of shares from the sales consideration. This includes brokerage, stamp duty, sales commission, etc. These expenses are deductible solely for calculating Capital Gains. However, Securities Transaction Tax (STT) cannot be claimed as a deductible expense against capital gains, following the announcement made in Budget 2008.
