How To File Income Tax Returns

The concluding phase of taxation involves filing Income Tax Returns (ITR), accomplished through ITR forms. For FY 2024-25 (AY 2025-26): This section provides essential information every investor and trader requires regarding these forms.

Many individuals remain uncertain about the distinction between paying and filing income tax. Some assume that paying tax eliminates the need for filing. This assumption proves incorrect.

Paying Income Tax

If income exists beyond salary, employers deduct tax according to the applicable tax bracket and remit income tax on one’s behalf through Tax Deducted at Source (TDS).

For FY 2024-25: Consider this scenario: salary income exists alongside profits from delivery-based equity trading or F&O trading during FY 2024-25. Since employers lack awareness of trading income, individuals must declare this income to the Income Tax department and remit due taxes independently through advance tax payments (by 15th June, 15th September, 15th December, and 15th March).

Filing Income Tax Returns

For FY 2024-25 (AY 2025-26): Filing Income Tax Returns represents a mandatory process for informing the tax department about all income sources, including salary. An Income Tax Return Form constitutes a document requiring completion that reports these sources.

Various ITR forms exist depending upon income types. One might question why filing proves necessary when salary represents the sole income source—submitting the appropriate ITR form demonstrates to tax authorities that this indeed constitutes the complete income picture and ensures compliance.

Essentially, with returns filed for FY 2024-25, you inform the IT department of all income sources earned between 1st April 2024 and 31st March 2025, and the tax paid against them through prescribed ITR forms.

ITR for AY 2025-26: An ITR form communicates details of income earned during FY 2024-25 and taxes paid on that amount to the Income Tax Department. Several form types exist, depending upon various income sources. All forms are available at https://www.incometax.gov.in/ (the new e-filing portal launched in 2021). Selecting the most appropriate form for one’s situation proves essential.

Understanding Different ITR Forms for AY 2025-26

For this module, centring on individuals with investments as capital gains or trading as business income, understanding various ITR forms proves essential:

ITR-1 (SAHAJ)

For FY 2024-25: ITR-1 generally suits situations involving income from:

Salary/pension

One house property

Other sources (interest, etc.)

Total income up to Rs 50 lakh

Cannot use ITR-1 if you have:

Capital gains (STCG or LTCG)

Business/professional income

More than one house property

Income from lottery/racehorses

Agricultural income > Rs 5,000

Assets outside India

Directorship in any company

For stock market participants: ITR-1 is generally NOT applicable as most will have capital gains or business income.

ITR-2

For FY 2024-25 (AY 2025-26): Individuals and HUFs with the following income can file ITR-2:

Salary/pension

House property (single or multiple)

Capital gains (STCG/LTCG)

Other sources (interest, dividends, etc.)

Foreign income or foreign assets

Cannot use ITR-2 if you have:

Business or professional income

Income from partnership firms

No income limit restriction

Use ITR-2 if you:

Only invest in stock market (delivery-based)

Have capital gains from equity/mutual funds

Are salaried with capital gains

Have no F&O or intraday trading

Just hold stocks for investment

For FY 2024-25: This is the form for pure investors who don’t trade actively.

ITR-3

For FY 2024-25 (AY 2025-26): ITR-3 applies to individuals and HUFs with income from:

Business or profession (including speculative and non-speculative)

Salary

House property

Capital gains

Other sources

Must use ITR-3 if you have:

F&O trading income (non-speculative business)

Intraday equity trading (speculative business)

Frequent delivery-based trading (declared as business)

Partnership firm income

Any business/professional income

ITR-3 is mandatory for:

All F&O traders (even one trade makes it mandatory)

Intraday equity traders

Anyone declaring trading as business income

Professionals (CAs, doctors, lawyers, consultants)

For FY 2024-25: If you engaged in any F&O or intraday trading during FY 2024-25, you must file ITR-3 regardless of your primary income source (even if salaried).

Key Feature: ITR-3 requires preparing:

Balance Sheet (as of 31st March 2025)

Profit & Loss Account (for FY 2024-25)

Details of business income separately for speculative and non-speculative

ITR-4 (SUGAM)

For FY 2024-25 (AY 2025-26): ITR-4 is for individuals, HUFs, and partnership firms (other than LLP) with:

Presumptive business income under Section 44AD, 44ADA, or 44AE

Total income up to Rs 50 lakh

Income from salary/pension, one house property, other sources

Cannot use ITR-4 if:

You want to carry forward losses

You have capital gains

Total income exceeds Rs 50 lakh

You are a director in a company

You have agricultural income > Rs 5,000

You have foreign income/assets

Presumptive Taxation (Section 44AD):

Declare 6% of turnover as income (for digital transactions)

No need to maintain books of accounts

No audit required (if following Section 44AD)

Cannot claim actual expenses

For FY 2024-25: ITR-4 can be used by small traders with:

Turnover < Rs 5 crore

Willing to declare 6% of turnover as income

No capital gains

Not wanting to carry forward losses

Wanting to avoid audit

Important Limitation: If you use ITR-4 under presumptive taxation, you:

Cannot claim actual expenses (even if higher than deemed profit)

Cannot carry forward losses

Must show minimum 6% profit regardless of actual result

Cannot show capital gains separately

Which ITR Form for Different Situations (FY 2024-25)?

Your SituationAppropriate ITR FormSalary + Equity investment (delivery only)ITR-2Salary + Mutual fund investmentITR-2Only capital gains (no salary)ITR-2Salary + F&O tradingITR-3 (mandatory)Salary + Intraday equityITR-3 (mandatory)Only F&O/Intraday (no salary)ITR-3Frequent delivery trading (as business)ITR-3Both investor and traderITR-3Small trader wanting presumptive taxationITR-4Professional income (CA, doctor, lawyer)ITR-3

Exploring ITR-4 Presumptive Taxation (Section 44AD)

For FY 2024-25 (AY 2025-26): ITR-4 represents a simplified option for small traders who wish to avoid maintaining detailed books of accounts and undergoing audit.

Eligibility Criteria:

Trading turnover < Rs 5 crore in FY 2024-25

Willing to declare 6% of turnover as income (for digital transactions – which stock trading is)

No requirement to claim actual losses or carry them forward

Not a director in any company

Total income < Rs 50 lakh

How Presumptive Taxation Works:

Instead of calculating actual profit/loss, you simply:

Calculate turnover (as per methods discussed)

Declare 6% of turnover as presumptive income

Add to other income and pay tax

Benefits:

No need to maintain detailed books of accounts

No audit required

Simplified compliance

Lower CA fees

Less documentation

Drawbacks:

Cannot claim actual losses

Cannot carry forward losses

Must pay tax on 6% even if actual profit is lower or loss occurred

Cannot claim actual expenses if higher than 6%

Cannot show capital gains (must treat everything as business income)

Practical Example for FY 2024-25:

Scenario:

Salary: Rs 9,00,000

F&O turnover: Rs 7,50,000

Actual F&O loss: Rs 45,000

Option 1: Regular ITR-3

Total income = Rs 9,00,000 – Rs 45,000 (loss cannot offset salary)

Taxable income = Rs 9,00,000

Loss of Rs 45,000 carried forward

Must maintain books, may need audit if other conditions apply

CA fees: Rs 15,000-25,000

Tax (New Regime):

Up to Rs 4,00,000: Rs 0

Rs 4,00,000 to Rs 8,00,000: 5% = Rs 20,000

Rs 8,00,000 to Rs 9,00,000: 10% = Rs 10,000

Total: Rs 30,000 + 4% cess = Rs 31,200

Option 2: ITR-4 (Presumptive – Section 44AD)

Presumptive business income = 6% of Rs 7,50,000 = Rs 45,000

Total income = Rs 9,00,000 + Rs 45,000 = Rs 9,45,000

No books of accounts needed

No audit needed

CA fees: Rs 5,000-10,000

Tax (New Regime):

Up to Rs 4,00,000: Rs 0

Rs 4,00,000 to Rs 8,00,000: 5% = Rs 20,000

Rs 8,00,000 to Rs 9,45,000: 10% = Rs 14,500

Total: Rs 34,500 + 4% cess = Rs 35,880

Comparison:

ITR-3: Tax Rs 31,200, CA fees ~Rs 20,000, Total: ~Rs 51,200

ITR-4: Tax Rs 35,880, CA fees ~Rs 7,500, Total: ~Rs 43,380

ITR-4 saves approximately Rs 7,820 in this case

Plus, loss carry forward benefit in ITR-3 (can use in next 8 years).

When to Use ITR-4 for FY 2024-25:

Consider ITR-4 if:

Small turnover (< Rs 2-3 crore)

Profit margin close to or above 6%

Don’t want hassle of detailed bookkeeping

Want to avoid audit

No significant losses to carry forward

Want simplified compliance

Avoid ITR-4 if:

Actual loss or profit < 6%

Want to carry forward losses

Turnover close to Rs 5 crore (audit threshold)

Have capital gains to report separately

Want to claim actual expenses (if significantly higher)

Important Update for FY 2024-25:

The presumptive rate was reduced from 8% to 6% from AY 2017-18 onwards, making it more attractive. For digital transactions (which stock trading is), the rate is 6%. For non-digital transactions, it remains 8%, but this doesn’t apply to stock trading.

Advance Tax for Presumptive Taxation:

Good news for FY 2024-25: If you opt for presumptive taxation under Section 44AD and file ITR-4:

You can pay entire tax by 31st March 2025 (instead of quarterly advance tax)

No interest under Section 234C for not paying quarterly advance tax

Still need to pay by 31st March to avoid Section 234B interest

This is a significant benefit – avoids the complexity of quarterly advance tax estimates.

Critical Decision for FY 2024-25:

Choosing between ITR-3 (regular) and ITR-4 (presumptive) depends on:

Your actual profit margin:

If actual profit > 6%: ITR-4 beneficial

If actual profit < 6% or loss: ITR-3 better (to claim actual lower income/loss)

Turnover level:

Small turnover (< Rs 50 lakh): ITR-4 can be convenient

Large turnover (> Rs 3 crore): ITR-3 more appropriate

Loss carry forward needs:

Need to carry forward losses: Must use ITR-3

No losses to carry: ITR-4 possible

Compliance preference:

Want simple compliance: ITR-4

Want accurate profit/loss reporting: ITR-3

Future plans:

Occasional trader: ITR-4 acceptable

Professional trader: ITR-3 more appropriate

Advisory for FY 2024-25: Discuss with your CA before deciding. Run calculations for both scenarios to see which results in lower total cost (tax + compliance costs). Most active traders with significant volumes prefer ITR-3 for accurate reporting and loss carry forward benefits, while occasional traders with small turnover may find ITR-4 more convenient.