Correct ITR Form for Stock Market Traders and Futures Income

Farheen Mukadam
Jul 23
10 min read

Investing in the stock market has become increasingly popular, with individuals looking to grow their wealth through various investment strategies. However, with stock market trading, the question of taxes often arises, especially regarding how different types of income from trading are treated under the tax laws. For the Financial Year (FY) 2024-25 (Assessment Year 2025-26), understanding the different types of stock market income, the appropriate ITR forms to use, and any updates in tax laws or procedures is essential for ensuring that you comply with the Income Tax Act while maximizing your returns.

Traders, investors, and professionals engaged in stock market activities must carefully understand the tax implications of their earnings to ensure correct filing and avoid penalties.

Types of Stock Market Income and Their Tax Treatment

Income generated from stock market activities comes in various forms, and each has its tax implications. Below are the primary types of stock market income and how they are taxed:

Capital Gains Income: Capital gains arise when you sell stocks or mutual funds at a profit. There are two types of capital gains:
Short-Term Capital Gains (STCG): When you sell stocks or securities within three years of purchase, any profit is considered short-term. The tax rate for STCG on stocks is 15% under Section 111A of the Income Tax Act.
Long-Term Capital Gains (LTCG): If you hold stocks or securities for more than three years, any profit is considered long-term. LTCG on stocks is tax-free up to ₹1 lakh per annum. Any gains exceeding this amount are taxed at 10% without the benefit of indexation.
Business Income from Stock Trading (Intraday Trading): If you are actively engaged in trading, such as buying and selling shares on the same day (intraday trading), your income is considered business income. The profits are subject to tax based on the applicable tax slab, and you may also be eligible to claim expenses such as brokerage fees, internet costs, etc., under Section 28.
Futures and Options (F&O) Income: Income from trading in Futures and Options is treated as business income, similar to intraday trading. While the profits are taxed based on the individual’s tax slab, traders must also account for any losses from F&O, which can be carried forward to future years to offset against future income.
Dividend Income: Any dividends earned from stocks or mutual funds are taxable. The tax on dividend income is 10% if the total dividend income exceeds ₹5,000 in a financial year. However, dividends are taxed at the investor's income tax slab rate, and they are also subject to TDS (Tax Deducted at Source).

Understanding the tax treatment of each type of stock market income is essential to ensure accurate tax filing. Taxpayers need to differentiate between capital gains and business income and file the appropriate tax returns accordingly.

Correct ITR Form for Stock Market Traders and F&O Income (AY 2025-26)

For stock market traders and individuals earning income from Futures and Options (F&O), selecting the correct ITR form is crucial for accurate filing and tax compliance. The correct ITR forms for these categories of taxpayers are:

ITR-3: Stock market traders who earn business income from intraday trading, F&O, or other forms of active trading are required to file ITR-3. This form is designed for individuals and Hindu Undivided Families (HUFs) who earn business or professional income, including trading in stocks, shares, or derivatives.
ITR-2: For individuals who have income from capital gains (long-term or short-term) from the sale of stocks, mutual funds, or other securities, but do not engage in trading as a business, the ITR-2 form is appropriate. This form is meant for individuals and HUFs who do not have income from a business or profession but earn income from investments, including capital gains, dividend income, and interest.

Choosing the correct ITR form helps prevent issues with the tax authorities and ensures that all income is reported accurately. If you earn both capital gains and business income from trading, you must ensure that both types of income are reported in the correct sections of the form.

Recent Changes & Updates for AY 2025-26

For the Assessment Year 2025-26, there are a few key updates and changes that stock market traders and investors should be aware of:

TDS on Dividend Income: For the upcoming assessment year, dividend income above ₹5,000 is subject to TDS (Tax Deducted at Source) at a rate of 10%. This change ensures that tax is deducted at source for those whose dividends exceed this threshold, making it easier to comply with tax obligations.
Revised Tax Slabs for Business Income: As per the new tax provisions, business income from trading activities, including F&O income, will continue to be taxed under the applicable income tax slab. However, taxpayers involved in F&O trading must also report their turnover and maintain records as per the prescribed guidelines for business income.
Carry Forward of Losses: Traders can carry forward any business losses, including those from F&O trading, to future years to offset against future profits. This can reduce taxable income in future years, allowing traders to reduce their tax liability over time.
Tax on Long-Term Capital Gains (LTCG): Any capital gains exceeding ₹1 lakh in a financial year will be subject to a 10% tax without indexation benefits. Traders need to track their LTCG accurately to ensure that the correct tax is paid.
Updated Forms for Reporting Capital Gains: In the new ITR forms for AY 2025-26, there have been updates to better track and report capital gains and business income. The forms now allow for easier reporting of transactions related to the stock market, with separate sections for reporting capital gains, business income, and other sources of income.

These updates and changes for AY 2025-26 affect stock market traders, investors, and professionals alike. It’s crucial to stay informed about these modifications to ensure correct filing and avoid unnecessary penalties.

Filing Process and Deadlines

The filing process for stock market traders, especially those engaged in F&O trading or intraday trading, requires careful attention to detail. Here’s a step-by-step guide to filing your ITR for AY 2025-26:

Gather Documentation: Collect all necessary documents, including trade logs, contract notes, TDS certificates, and bank statements. For F&O traders, ensure that all transaction details and turnover calculations are in order. If you’ve earned dividends, ensure you have your dividend income statements.
Choose the Correct ITR Form: As mentioned earlier, select either ITR-2 or ITR-3 based on the type of income you have. Traders with business income from trading should use ITR-3, while those earning capital gains should use ITR-2.
Complete the ITR Form: Fill out the ITR form, ensuring all income is accurately reported in the correct sections. For business income, report the total turnover from trading activities. For capital gains, ensure the sale and purchase details of stocks and securities are correctly filled.
File Online or Offline: You can file your return online through the Income Tax Department’s e-filing portal or use a third-party platform like TaxBuddy, which makes the filing process more user-friendly. For offline filing, ensure all documents are properly submitted.
Pay Taxes Due: If you have any outstanding tax liabilities after considering your deductions and TDS credits, make sure to pay the required amount before filing your return. This can be done using the online payment gateway provided by the Income Tax Department.
File Before the Deadline: Ensure you file your return by the due date to avoid penalties. For individual taxpayers, the due date is generally July 31, but this can extend depending on circumstances. The extended due date for FY 2024-25 is September 15, 2025.

Conclusion

Stock market trading and investments involve complex tax implications, and filing accurate returns is essential for avoiding penalties and ensuring compliance. For the Assessment Year 2025-26, stock market traders and investors must choose the correct ITR form based on their income type, whether from capital gains or business income from trading activities. Recent updates to the tax laws for this year highlight the importance of understanding capital gains tax, the treatment of dividend income, and the carry-forward of trading losses. Staying informed about these changes and following the filing process carefully ensures that you meet your tax obligations while optimizing your returns.

For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.

FAQs

Q1: What is the correct ITR form for capital gains income from stock trading?

For capital gains income derived from stock trading, you should file ITR-2. This form is applicable to individuals who have income from capital gains but do not have any business income. Capital gains from the sale of stocks are reported under the capital gains section of the ITR-2 form. If you have short-term capital gains (STCG) or long-term capital gains (LTCG), you need to report them in the respective sections within the form. This form is ideal for investors who do not qualify as traders and do not actively engage in stock market activities.

Q2: Can I offset losses from F&O trading against other income?

Yes, losses from Futures & Options (F&O) trading can be set off against other business income in the same financial year. If you do not fully utilize these losses, you can carry them forward to subsequent years. However, the losses can only be carried forward to offset future business income, not other types of income like salary or capital gains. The losses can be carried forward for up to eight assessment years, but you must file your ITR on time (or as a belated return) to be eligible for this carry-forward benefit.

Q3: How do I report business income from stock trading?

If you are an active trader, meaning you regularly buy and sell stocks with the intention of making a profit, your income from stock trading is considered business income. You should report it under ITR-3. This form is designed for individuals who have income from business or profession. You will need to provide details such as your total turnover, expenses, and the profit or loss from your trading activities. Make sure to keep detailed records of all your transactions, as this will be needed to complete the form accurately.

Q4: Is there a TDS on dividends received from stocks?

Yes, there is a Tax Deducted at Source (TDS) on dividends received from stocks. If the total dividend income from a particular company exceeds ₹5,000 in a financial year, the company is required to deduct TDS at 10% before paying you the dividend. However, you can claim credit for the TDS deducted when filing your tax return. If your total income is below the taxable threshold, you can also apply for a lower TDS rate by submitting a Form 15G or 15H to the company, as applicable.

Q5: How is income from Futures & Options (F&O) taxed?

Income from Futures & Options (F&O) trading is treated as business income and taxed according to your income tax slab. F&O income is considered a non-speculative business income and should be reported under ITR-3. The profits or losses from these transactions are added to your overall income and taxed accordingly. It’s essential to maintain detailed records of all F&O transactions, including turnover and expenses, for accurate reporting and to ensure you don’t miss any potential deductions.

Q6: What are the penalties for missing the ITR filing deadline?

If you miss the ITR filing deadline, you can still file a belated return by December 31, 2025, for the FY 2024-25 (Assessment Year 2025-26). However, filing late incurs penalties. The penalty for filing a belated return can be up to ₹5,000, depending on the timing of the filing. In addition, interest on any unpaid taxes will be charged under sections 234A, 234B, and 234C. It’s always advisable to file on time to avoid these penalties and ensure your return is processed efficiently.

Q7: Can I revise my ITR after filing?

Yes, you can revise your ITR if you discover errors or omissions after filing. The revised return must be filed before the end of the assessment year. If you need to correct mistakes such as wrong income reporting, missed deductions, or incorrect TDS credits, you can file a revised return to rectify these issues. This will help you avoid penalties and ensure your tax filing is accurate.

Q8: What is the new TDS rate for dividends in FY 2024-25?

For the FY 2024-25, the TDS rate on dividends is 10% if the dividend income exceeds ₹5,000 in a year. If your dividend income exceeds this threshold, the company distributing the dividend will deduct TDS at this rate before paying you. If you are eligible for a lower TDS rate due to your income level, you can submit Form 15G or 15H to the company to avoid or reduce the TDS deduction.

Q9: How can I ensure that my F&O income is reported correctly?

To ensure your F&O income is reported correctly, maintain a detailed record of all your F&O transactions throughout the year. Report your F&O income under ITR-3 as business income, and provide details of the total turnover, profits, and losses. You should also consider consulting a tax professional to help with accurate reporting, especially if your trading activities are complex. By keeping accurate records, you will ensure that your return is filed correctly and that any losses are accounted for properly.

Q10: What should I do if I have both capital gains and business income?

If you have both capital gains and business income, you need to file ITR-3. In this form, you can report both types of income in the appropriate sections. Capital gains income will be reported in the "Capital Gains" section, while business income will be reported under the "Business or Profession" section. By using ITR-3, you can ensure that both types of income are appropriately categorized and taxed under the applicable provisions of the Income Tax Act.

Q11: How do I file ITR if I have income from both trading and investments?

If you have income from both trading and investments, you must file ITR-3. In this form, you will report business income from your trading activities under the business section and income from investments, including capital gains, under the respective sections. For example, short-term or long-term capital gains from the sale of stocks should be reported under the "Capital Gains" section, while income from active trading will be categorized as business income. It’s important to accurately separate these types of income to ensure they are taxed correctly.

Q12: Is there any special tax treatment for long-term capital gains from stocks?

Yes, long-term capital gains (LTCG) from stocks are tax-free up to ₹1 lakh in a financial year. Any gains exceeding this threshold are taxed at a rate of 10% without the benefit of indexation. This means that only the gains above ₹1 lakh will be subject to tax at 10%, and the tax is applied on the gain after the sale of stocks that have been held for more than one year. It’s important to track your capital gains carefully to ensure you pay the correct amount of tax on amounts exceeding the ₹1 lakh exemption limit.