Can you opt for ITR 4 (presumptive income) if you have capital gains?

Taxation
1

Hi,

I have income from the following sources:
a) STCG profits of Rs.850,
b) options trading profit,
c) intraday equity trading profit,
d) LIQUIDBEES dividend
e) Savings bank interest
f) Freelance (professional) income

I have been filing ITR 3 till previous financial year. But would like to file ITR 4 (presumptive income) from this year.
But the ITR-4 form has no field for entering Capital gains.

  1. Can I enter capital gains as business income? Last year I reported them as capital gains and not as business income, and have a carry forward loss of Rs.150 in this head. Will that be a problem?

  2. If not, can I do some more STCG trades till I make a loss of Rs. 850 so that net STCG is zero, and then go for ITR4? I know this could sound funny, but I really want to go for the presumptive scheme.

  3. I have brought forward loss of Rs.7000 under the speculative business income head. Can I still opt for filing returns under presumptive income? I don’t wish to claim these losses.

Thanks a lot for helping out!

2

Capital gains can be technically shown as non-speculative business income if trading is your prirmary source of income. But you cannot really change this stand point every year, can cause you trouble tomorrow.

Check this: Markets and Taxation – Varsity by Zerodha

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4

Oh so you mean to say that I can file my CG and speculative income in ITR3, and still file my income as presumptive income?

I did not know that ITR3 could also be used for claiming presumptive income under 44AD/44ADA. I thought you had to use ITR4 if you wanted to take advantage of the presumptive income scheme.

Thanks!

5

No you can’t file as presumptive income. But yeah you can declare your profits more than 6% of your turnover to avoid audit if turnover is under 2 crores.

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6

Ok, so you don’t have to answer this, as at this point I should pay a CA to answer my queries; but I checked and there is a place in ITR3 where you can mention your income under section AD and section ADA (in schedule BP). So does that mean that I can file my unspeculative business/profession income as presumptive under sections AD and ADA, while still mentioning the speculative and CG income under their respective heads?

Also, the varsity text on ITRs mentions that

you can use ITR 4S only if you have business income (speculative + non speculative), but it is best avoided if by use of this form you are reducing your tax liability

So is this text incorrect in that speculative income is not allowed under presumptive?

7

My bad, have edited my earlier answer. Capital gains can’t be shown under ITR4 (earlier ITR 4S).

@TAXIQ.IN @Ca_Omprakash_Jain , can you answer this?

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8

The Forms is designed to fill for all assessee. In our view if you are a professional having professional Income , you will come under ADA and you should file accordingly. And in the ITR 3 you have provision for Capital Gain Income separately.

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9

Thank you so much. If I got you correctly, my F&O income would come under 44AD and professional income under 44ADA, and both can be filed under ITR3 with the CG and speculative income mentioned separately?

Thanks again. This has been really helpful.

10

Our view is in case of Business Income , it should be consolidated either under 44AD or 44ADA or with regular books with Audit. You cant take both the section as if you are a professional then only 44 ADA is applicable. Regarding capital Gain yes there is provision in the ITR 3 .

Regards

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11

Thank you so much nithin and taxiq for helping me out.

12

I was going over section 44AD, and it seems that the subsection (5) which mandated an audit in case of profits less than 8% has been taken out?

The following section in 44AD which mandated getting

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

has been replaced by

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.]

Where the subsection 4 referred is:

(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

So am I missing something or has the clause that mandated audit in case of profit less than 8%/6% of turnover been removed from 44AD? And instead of that now those businesses who switch between presumptive and non-presumptive income in less than 5 years need to get their books audited?

As this would mean that people with F&O losses and net taxable income no longer have to get audits.

Thanks!

13

You need to read the Section as a whole. In case of Equity trade our advice to all would be to file with actual profit / losses . And get the books audited in case of Losses. The Section 44 AD has been amended from Budget 2016 where if some one uses this section and not not using the section for succeeding year , then the person wont be able to use the section for next 5 years.

The rate is reduced to 6% for Bank transactions. If further doubt do call , will explain at 8026608240

Regards

14

Thank you so much for your time and support. You have been really helpful.

15

@jl999
Can you please share answers you found for your tax filing.
I am also in same situation currently. I have intraday loss and STCG loss but both are very small amount, less than the amount required for audit.

  1. Which itr you filled ? ITR3 or ITR4
  2. Can we show 6% of turnover to avoid audit even if there were losses.
  3. Have you found where to put STCG gain/loss in itr4. Should I club intraday loss and STCG loss and show it under speculative business income in itr4?
  4. Like in your case I am also a freelancer.
16

First of all, to the best of my understanding an audit is no longer required if your (business) profits are less than 8/6% of your turnover and turnover less than 1 crore. If you read the latest text of sections 44AD and 44AB, the clause that mandated as such has been removed. You can read them on the income tax website and come to a conclusion yourself. I searched around and I’m not the only one who thinks so - there are many articles on this like this one from taxguru.

Next, since you have STCG losses you have two routes - file your STCG losses as business losses, or show them separately as STCG losses (in schedule CG). If you have filed returns in the past you have to stick to the choice you made then - there’s no turning back. If however this is the first time you are filing STCG losses, you can characterise them as business losses which may allow you to file the much simpler ITR-4.

The shorter form is tempting, but I would suggest you to consider filing them separately in the ITR-3. The reason is that STCG gains are taxed at 15% but if you show them as business income, they would get charged at your income tax slab. And that would mean 30% (even if you are not at the 30% slab right now, you would surely be there in the future when your income rises). Remember, you cannot change this once you make a choice.

And you can still take advantage of the presumptive tax provisions (44AD and 44ADA - the 6% and 50% ones) in ITR-3 as well. ITR-3 is the general purpose tax form. Anyone who files an ITR-4 can also file an ITR-3 with the same effect.

Like you, I have mixed income from business as well as profession. Ideally, I should be able to claim 44ADA for my professional income and 44AD for business income. However, there are mixed opinions on weather you can do this. Honestly the rules are written in a language that assumes that a person will only conduct a business or a profession, but what if like us he is engaged in both? The rules are a bit muddy when it comes to that.

To be on the safe side I am not taking advantage of these provisions, and filing ITR-3 manually stating actual income and maintaining book of accounts. The safest option according to practicing CAs is to go for an audit on top of this if you can afford it, even if it is not mandated by the law for you. I am most likely not going for an audit this year.

One warning though - if you do take advantage of presumptive income (section 44AD/ADA) then you are required to stick to that for 5 years. If you switch back to showing regular profits and losses before 5 years, you would be subject to a compulsory audit.

This is as far as I understand, and you could/should consult a CA for more clarity.

17

I guess you are correct in understanding the new amendment. If there is T/O less than 1 cr and profit less than 8%/6% then no need for audit now. I have interpreted the same with my understanding of new amendment. I will talk to CA or for that matter I may contact my AO for more clarity.

I saw lot of people getting IT notices when they have used presumptive scheme, and were asked to present their cases. This is to the fact that they actually made losses and showed 6% of profit using presumptive scheme.

ITR3 seems better option, and seems its better for future as well. Still gathering information.

If ITR3 turn out to be better solution please do help me out in filling the form. I have been filing ITR1 till now but things have changed now for me!

18

ITR3 is best way where you declare the true income or losses.

19

As you have brought forward losses under speculative business, last year you filed ITR3? Did you get your accounts audited? I am asking since you had profit less than 8% of the T/O.

20

I had filed ITR-3 last year. However my income was below the taxable limit. So I did not even think about the audit.

21

I came across this circular. It also mandates if profit less than 8% then as per 44AA you need to maintain books of account but no applicability of 44AB (audit case).

https://www.incometaxindia.gov.in/communications/circular/circular03_2017.pdf

Do comment your thoughts. I may be missing point or reading it incorrectly.