RSUs in India: Complete Taxation, Computation, and ITR Reporting Guide for Residents and Non-Residents

By CA Surekha 

Restricted Stock Units (RSUs) are now a common component of global compensation packages, especially from US-based companies. For Indian tax residents, the treatment of RSUs involves two layers of taxation—first as salary at vesting, and later as capital gains upon sale. For non-residents, the framework differs. Below is the most comprehensive legal and procedural guide.

Legal Framework

• Section 17(2)(vi), Income-tax Act, 1961 → Perquisite taxation of RSUs at vesting.

• Rule 3(8), Income-tax Rules, 1962 → FMV determination for perquisites.

• Section 49(2AA) → Cost of acquisition for capital gains = FMV taxed as perquisite.

• Section 90 & Rule 128 → Foreign Tax Credit (FTC) under DTAA.

• Schedule FA (ITR) & Rule 21AB → Reporting of foreign assets.

Tax Events & Valuation at Each Stage

Stage 1: Vesting of RSUs

• Tax Head: Salary → Perquisite.

• Valuation Rule: FMV = Average of opening and closing price on vesting date (Rule 3(8)(ii)).

• Example:

  • 10 RSUs vested on 15 Nov 2024.

  • Opening price = USD 100, Closing = USD 110 → FMV = USD 105.

  • FMV (INR) = USD 105 × 10 × RBI TTBR on 15 Nov 2024.

  • Suppose ₹8,75,000 → fully taxable as salary.

• TDS: Deducted u/s 192 by employer, often by selling some RSUs (say 3 out of 10).

Stage 2: Sale of Shares by Employer for TDS

• Tax Head: Capital gains, but…

• Valuation Rule: Cost of acquisition = FMV on vesting = Sale price (same day).

• Result: Nil capital gain (or negligible).

• No separate disclosure in ITR; only perquisite already taxed.

Stage 3: Retention & Reporting of Remaining Shares

• Schedule FA (only for Resident & Ordinarily Resident):

  • Report 7 shares retained.

  • “Initial Value” = FMV at vesting (not broker’s zero).

  • “Peak value” = Highest market value during FY 2024–25.

• Non-residents: No FA reporting required.

Stage 4: Sale of Remaining RSUs by Employee

• Tax Head: Capital Gains.

• Valuation Rule:

  • Cost of acquisition = FMV at vesting (as taxed earlier).

  • Sale price = Actual sale consideration (converted at SBI TTBR on sale date).

• Holding period: From vesting date.

  • 24 months → LTCG @20% with indexation (Sec 112).

  • ≤24 months → STCG at slab rates.

• Example:

  • 7 shares sold on 20 Jan 2026 @ USD 130 each.

  • Sale value (₹) = USD 130 × 7 × RBI rate (say ₹85) = ₹77,350.

  • Cost (₹) = FMV at vesting (say ₹61,250).

  • Capital Gain = ₹16,100.

Stage 5: Dividends on Foreign RSUs

• Tax Head: “Income from Other Sources.”

• Rate: Taxable at slab rates in India.

• FTC: US dividend withholding (25%/15%) creditable in India via Form 67.

AIS/26AS Capture

• Salary Perquisite → Reflected in Form 16 + AIS Salary Tab.

• Employer’s sale for TDS → Not separately in AIS.

• Subsequent sale by employee → Reflected in AIS (Capital Gains tab) if routed via broker.

• Dividends → Reflected in AIS (Dividend tab, foreign remittances).

Treatment for Residents vs Non-Residents

Particulars	Resident & Ordinarily Resident	Resident but Not Ordinarily Resident (RNOR)	Non-Resident
Salary perquisite (vesting)	Taxable in India (global income)	Taxable in India if services rendered in India	Taxable in India only if linked to India employment
Schedule FA disclosure	Mandatory	Not applicable	Not applicable
Capital gains on sale	Taxable in India (global income)	Taxable if shares received for India service	Not taxable unless sourced in India
Dividend income	Taxable in India (global income)	Taxable if linked to India employment asset	Not taxable unless sourced in India
FTC	Available	Available (if taxable)	NA if not taxed in India

ITR Filing – Procedural Guidance

1. Salary Schedule

   • Auto-populated from Form 16 (perquisite value).

   • Cross-check with AIS.

2. Schedule FA (for Residents)

   • Enter country code (US), name of company (e.g., Morgan Stanley platform).

   • Number of shares held, initial value (FMV at vesting), peak value.

3. Schedule CG

   • Enter sale of shares (if any) → cost = FMV on vesting.

4. Schedule OS

   • Enter foreign dividends, claim FTC in Schedule TR with Form 67.

5. Schedule TR + Form 67

   • Claim FTC for US tax withheld (capital gains/dividends).

Financial Statement & Audit Considerations

• For individuals (non-business): No balance sheet required, but Schedule FA is mandatory.

• For professionals with tax audit (Sec 44AB): RSU holdings may be disclosed as “Investments” in personal financial statements if attached.

• Valuation: Always take FMV per Rule 3, not broker-reported zero.

Common Pitfalls

• Reporting zero value in Schedule FA (incorrect).

• Missing Form 67 before filing ITR → FTC denied.

• Confusing vesting date FMV vs sale date price for cost basis.

• Non-reporting of dividends in Schedule OS.

• Assuming no capital gains on TDS sale without checking timing/price.

Key Takeaways

• RSUs are taxed twice in India → once as salary perquisite (on vesting) and again as capital gains (on sale).

• Schedule FA reporting is mandatory for residents, at FMV (not broker’s zero).

• No gain arises when employer sells shares for TDS.

• Subsequent sale: taxed as STCG/LTCG with FMV as cost.

• Dividends: taxable in India, FTC claimable.

• Non-residents taxed only if RSUs relate to Indian employment.

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Numismatic Notes vs. Pooja Coins: How the Income Tax Act Treats Inherited Treasures

Why This Matters

In many Indian families, two categories of “old coins and notes” exist:

1. Numismatic collectibles — rare coins, demonetised notes, commemoratives, proof sets, or uniface notes preserved for their rarity and market value.

2. Pooja coins — ordinary coins kept in the family mandir or pooja box, used for daily rituals and ceremonies.

From a cultural lens, both are “old coins.” But for the Income-tax Act, 1961, they are treated very differently — and this difference decides whether sale proceeds are taxable as capital gains or remain completely exempt.

Legal Definition – The Capital Asset Question

• Section 2(14): “Capital asset” means property of any kind held by the assessee.

• Exclusion – personal effects: Movable property held for personal use is excluded, except jewellery, archaeological collections, drawings, paintings, sculptures, and works of art.

👉 Therefore:

• Collectibles (numismatic notes/coins): Analogy to “works of art / jewellery” → capital assets.

• Pooja coins (ritual use): If proved to be “personal effects” → outside capital asset definition → sale not taxable.

Judicial Interpretation – Where the Line is Drawn

Courts have repeatedly clarified this boundary:

• Personal use exemption upheld

  • CIT v. Sitadevi N. Poddar (Bom HC, 1984): Silver utensils used for household/pooja purposes treated as personal effects.

  • CIT v. H.H. Maharaja Rana Hemant Singhji (SC, 1976): Articles in personal/ceremonial use not taxable as capital assets.

• Collectibles not personal effects

  • Jewellery worn occasionally still treated as capital asset (CIT v. H.H. Maharani Usha Devi).

  • By analogy, rare numismatic items preserved for value are capital assets, even if not used daily.

Interpretation:

• Pooja coins can qualify as personal effects if used in rituals, supported by evidence.

• Numismatic notes/coins (collected for rarity/investment) → always capital assets → sale taxable.

Gift and Inheritance – First Stage

• Section 56(2)(x): Gift from a relative (grandparents, parents, etc.) is exempt.

• Section 49(1): For inherited/gifted assets, cost to previous owner becomes assessee’s cost.

• Section 2(42A): Holding period includes that of previous owner → ensures long-term classification.

   Receiving old coins/notes from grandparents is tax-neutral. The question of tax arises only on sale.

Sale – How Tax Applies

(A) For Numismatic Notes/Coins (Capital Assets)

• Cost of acquisition:

  • Original cost to grandparents, or

  • FMV as on 01.04.2001 if asset predates that date (Section 55(2)(b)(ii)).

• Holding period: Inherited → long-term.

• Tax rate:

  • Transfers before 23.07.2024: LTCG @ 20% with indexation (Sec. 112(1)(c)(ii)) or, at assessee’s option, 12.5% of gross sale (without indexation).

  • Transfers on/after 23.07.2024: As per Finance (No.2) Act, 2024 → flat 12.5% without indexation.

(B) For Pooja Coins (Personal Effects)

• Excluded from definition of capital asset.

• Sale proceeds are not chargeable to capital gains tax.

• Burden of proof is on assessee to establish personal/religious use.

Analytical Rule of Thumb

• Older asset + higher FMV as on 01.04.2001 → historically, 20% with indexation gave the lowest tax.

• Negligible 2001 FMV → 12.5% gross option could be better (for sales before 23.07.2024).

• For sales on/after 23.07.2024 → law mandates 12.5% without indexation, eliminating comparison.

Documentation – The Deciding Factor

To defend your position, maintain:

1. Proof of inheritance/gift: Gift deed, will, family affidavit.

2. Valuation evidence: FMV certificate as on 01.04.2001 (if applicable), auction catalogues, registered valuer’s report.

3. Sale invoice / auction memo with buyer details.

4. For pooja coins: Photos of coins in pooja room, family affidavit of ritual use, absence of auction/insurance evidence.

5. Working papers: Both tax computations (where options existed), with CII chart and tax challans.

Do’s and Don’ts

  Do’s

• Always compute under both methods (if pre-23.07.2024 transfer) and adopt the beneficial route.

• Document FMV as on 01.04.2001 for old inherited assets.

• Use ITR-2, Schedule CG & Schedule SI for reporting.

• Keep supporting documents for at least 6 years.

• Pay advance tax if liability exceeds ₹10,000.

    Don’ts

• Don’t misclassify collectibles as personal effects without evidence.

• Don’t skip disclosure of sales in ITR (risk of mismatch with auction house reporting).

• Don’t understate sale consideration — though Section 50C doesn’t apply, penalties under Sections 270A/277 may.

• Don’t ignore clubbing rules if sale happened while assessee was still a minor (Section 64(1A)).

Filing in ITR – Stepwise

1. Confirm date of transfer to decide tax regime (pre/post 23.07.2024).

2. In ITR-2 → Schedule CG, enter sale value and cost/FMV.

3. If pre-23.07.2024 transfer:

   • Compute both 20% with indexation and 12.5% gross → choose lower.

   • Reflect in Schedule SI.

4. If post-23.07.2024 transfer:

   • Directly compute @12.5% of LTCG (without indexation).

5. If claiming personal effect (pooja coins): not shown as capital gains. Optional disclosure in Exempt Income schedule for clarity.

Conclusion

• Numismatic collectibles = capital assets → taxable on sale.

• Pooja coins = personal effects → outside capital gains net, if personal/religious use is proved.

• Gift/inheritance stage = tax-free.

• Post-23.07.2024 law change: LTCG on collectibles taxable @12.5% without indexation.

• Documentation is critical — valuation, proof of inheritance, and evidence of personal use decide the tax outcome.

• Numismatic Notes vs. Pooja Coins – Taxation at a Glance

  Aspect	Numismatic Notes / Collectible Coins	Pooja Coins / Ritual Use Coins
  Nature	Rare, demonetised, commemorative, proof sets; kept for rarity or value	Coins kept in mandir / pooja box; used for rituals and family ceremonies
  Capital Asset?	Yes – treated as capital assets under Section 2(14) (collectibles not excluded as personal effects)	No – may qualify as personal effects under Section 2(14)(ii) if personal/religious use is proved
  Judicial Support	Jewellery analogy: CIT v. H.H. Maharani Usha Devi – occasional use still capital asset	CIT v. Sitadevi N. Poddar (Bom HC, 1984) – silver utensils for pooja held as personal effects; Maharaja Rana Hemant Singhji (SC, 1976) – ceremonial use items not taxable
  Gift / Inheritance (from grandparents)	Exempt u/s 56(2)(x); cost = previous owner’s cost u/s 49(1)	Exempt u/s 56(2)(x); not a capital asset on later sale
  Sale – Before 23.07.2024	LTCG taxable: 20% with indexation (Sec. 112) OR 12.5% gross (no indexation) – whichever lower	Not taxable (outside capital asset definition)
  Sale – On/After 23.07.2024	LTCG taxable @ 12.5% without indexation (Finance No.2 Act, 2024)	Not taxable (still personal effect)
  Documentation Needed	Gift deed/will, FMV certificate (01.04.2001), sale invoice, working papers	Family affidavit, photos showing pooja use, tradition proof
  Burden of Proof	AO presumes taxable unless shown otherwise	Assessee must prove ritual/personal use to claim exemption
  ITR Disclosure	Report in ITR-2 → Schedule CG & SI	No CG disclosure; may note in Exempt Income Schedule for clarity

Taxation of Mutual Funds in India - Applicable for FY 2024–25 / AY 2025–26

 The Finance (No. 2) Act, 2024 introduced a mid-year change in capital gains taxation effective 23 July 2024. Mutual fund investors must now carefully bifurcate transactions before and after this date, as tax rates, exemption thresholds, and holding period definitions differ across regimes.

Equity-Oriented Funds (EOFs)

(Equity schemes with ≥65% in domestic equities, excluding equity-oriented FoFs)

Type of Gain	Before 23-Jul-2024	From 23-Jul-2024 onwards	Other Key Points
Short-Term (≤12m)	15% (Sec. 111A)	20% (Sec. 111A)	STT (Securities Transaction Tax) applicable
Long-Term (>12m)	10% (Sec. 112A)	12.5% (Sec. 112A)	Exemption: ₹1,00,000 → ₹1,25,000
Exemption Threshold	₹1,00,000 p.a.	₹1,25,000 p.a.	No indexation benefit

Debt Funds & “Specified Mutual Funds” (SMFs)

(Debt, gold ETFs, international funds, fund of funds, etc.)

Investment Date	Sale Before 23-Jul-2024	Sale On/After 23-Jul-2024	Notes
Purchased ≤ 31-Mar-2023	LTCG: 20% with indexation (holding >36m) STCG: slab rates (≤36m)	LTCG: 12.5% (holding >24m, no indexation) STCG: slab rates (≤24m)	Transition from 36m to 24m for LTCG definition
Purchased ≥ 01-Apr-2023	Always STCG at slab rates (Sec. 50AA)	Same (no change)	Indexation benefit not available

Snapshot: Before vs. After 23 July 2024

Fund Type	Holding Period Test	Before 23-Jul-2024	After 23-Jul-2024
Equity Funds	12 months	STCG @15%, LTCG @10% (₹1L exemption)	STCG @20%, LTCG @12.5% (₹1.25L exemption)
Debt / Gold / FoFs	36 months (pre-change) → 24 months (post-change)	LTCG @20% with indexation	LTCG @12.5% (no indexation)
Debt (purchased ≥ Apr-2023)	Any	Always STCG @slab rate	Same

TDS & Other Provisions

• Dividends: TDS @10% if payout >₹5,000 p.a. (Sec. 194K).

• NRIs: TDS @20% on capital gains (subject to DTAA relief, TRC required).

• Surcharge & Cess:

  • Max surcharge capped at 15% for equity capital gains (Secs. 111A, 112, 112A).

  • 4% Health & Education Cess applicable across all categories.

• Indexation: Only available for legacy debt fund investments made before 31-Mar-2023 and sold before 23-Jul-2024.

• Bonus Stripping & Switches: Remain taxable under Sec. 94(8) and capital gains rules.

Filing & Compliance (AY 2025–26)

• Split reporting: Gains must be segregated into two periods—up to 22-Jul-2024 and from 23-Jul-2024 onwards—as ITR requires disclosure at applicable rates.

• Forms:

  • ITR-2: Most resident investors, including capital gains from MFs.

  • ITR-3: If combined with business/professional income.

• NRIs: Must furnish PAN + TRC + Form 10F to claim treaty relief.

Key Takeaways

• Equity funds: Higher STCG (20% vs 15%) but a slightly improved LTCG exemption (₹1.25L).

• Debt funds: Major impact—indexation benefit phased out, flat 12.5% LTCG rate for older holdings sold after 23-Jul-2024.

• Post–Apr 2023 debt investments: Always short-term, slab taxed—no benefit of LTCG.

• Practical compliance: Track purchase & sale dates carefully; even a one-day difference (before vs. after 23-Jul-2024) changes the tax outcome.

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Cryptocurrency / Digital Assets — Taxation & ITR Filing Guide (AY 2025–26)

Legal Basis

1. Section 2(47A) / Section 2(14) of IT Act, 1961: Defines “digital assets” and virtual currencies as capital assets for tax purposes.

2. Section 194S (TDS): Introduced in Finance Act, 2023, mandates 1% TDS on payments for transfer of digital assets by residents.

3. Section 195 (TDS for NRIs): Applies when payments are made to NRIs.

4. Section 45 & 28: Governs capital gains vs business income treatment.

5. Section 10(38) and Section 48: Applicable for long-term capital gains and cost computation (if held as capital asset).

6. Rules under Finance Act 2022–23: Define TDS/TCS reporting and treatment of digital assets.

Income Classification & Tax Rates

Activity / Scenario	Income Head	Tax Rate / Treatment	Remarks
Occasional sale of crypto (individual/HUF)	Capital Gains	STCG: slab rate (≤36 months); LTCG: 20% w/ indexation (>36 months)	Considered a capital asset if not traded frequently.
Frequent/professional trading / mining	Business Income	Individual/HUF: slab rate; Company: 30%	Deductible expenses include mining cost, platform fees, exchange charges.
Mining / staking rewards	Business Income / Other Sources	Slab rate / corporate rates	Habitual → business income; casual → Other Sources.
Airdrops / Gifts	Capital Gains / Other Sources	Taxable at FMV on receipt	Recognize income on the date of receipt.
Interest / Yield on crypto deposits	Income from Other Sources	Slab rate	Platforms offering staking/lending interest.

NRI Specifics:

Activity	Income Head	Rate	Notes
Crypto sale by NRI	Capital Gains	STCG: 30%, LTCG: 20% w/ indexation	Only Indian-sourced gains taxable.
Mining / trading in India	Business Income	Slab rate / corporate	Applies if trading/mining is carried out in India.
Crypto received as gift from Indian resident	Other Sources	As per FMV	Indian-sourced gifts taxable.

TDS / TCS Treatment

Type	Section	Rate	Applicability / Threshold
Payment for digital assets (resident)	194S	1% on gross	Applies only to residents; threshold ₹50,000/FY (individual/HUF).
Payment to NRI	195	20% + surcharge & cess	Indian-sourced crypto payments to NRIs; TDS credit adjustable in ITR.

Key Point: TDS under 194S or 195 is not the final tax; full computation of gains/losses is required in ITR.

 AIS / Form 26AS Considerations

• AIS shows only TDS/TCS amounts credited to the taxpayer.

• AIS does not provide details required for ITR filing, such as:

  1. Date of acquisition & sale

  2. Quantity of crypto transferred

  3. Cost of acquisition & sale consideration

  4. Classification of income (capital gains vs business income)

  5. Deductible expenses (exchange fees, mining costs, etc.)

Implication: Taxpayer must compute taxable income independently and report it correctly in ITR.

 ITR Filing Procedure (AY 2025–26)

1. Resident Individuals / HUF

   • Schedule CG: Report capital gains from crypto held as investment.

   • Schedule BP / Other Sources: For trading, mining rewards, staking income.

   • Claim TDS credit: From Form 26AS/AIS.

   • Declare gains/losses accurately — not just TDS figures.

2. NRI / Foreign Residents

   • Report Indian-sourced crypto income only.

   • TDS under 195 can be claimed as credit in ITR.

   • Income classification (capital gains vs business income) applies as per Indian law.

3. Mandatory Disclosures

   • Transaction details (acquisition date, sale date, quantity, cost).

   • Digital asset exchanges/platforms used (if required).

   • TDS/TCS details from Form 26AS / AIS.

   • Expenses incurred for mining, trading, staking (if business income).

 Key Compliance Points

1. Full computation of gains/losses is mandatory, AIS/TCS alone is insufficient.

2. TDS is not final tax liability; ITR must reflect correct income.

3. Residents: Deduct TDS under 194S; NRIs: Deduct under 195.

4. Income classification is critical for allowable deductions and tax computation.

5. Filing ITR is mandatory if total income exceeds basic exemption limit.

6. Maintain transaction records for audit/tracking — exchanges do not report full details.

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Tax Audit Applicability for F&O, Intraday, Commodities & Capital Gains – AY 2025–26

The Legal Framework

• Section 44AB – Tax audit is mandatory if turnover/profit conditions are breached.

• Section 44AD – Presumptive scheme for small businesses (≤₹2 crore turnover), but NOT available for:

  • Derivatives (F&O, commodities, currency)

  • Intraday equity

  • Agency / commission / brokerage

• Capital Gains – Always taxed under “Capital Gains” head; never trigger 44AB audit.

• Section 44AA – Even if audit not applicable, books of account are compulsory for F&O, intraday, and commodities.

Turnover Rules (CBDT / ICAI Guidance)

• F&O / Commodities / Currency – Turnover = absolute value of profit/loss (positive + negative) + option premiums.

• Intraday Equity – Turnover = absolute value of profit/loss on squared-up trades.

• Capital Gains – No turnover concept; taxable separately.

Example:

• F&O Profit ₹8L + F&O Loss ₹12L → Turnover = ₹20L.

• Intraday Profit ₹3L + Loss ₹5L → Turnover = ₹8L.

The Audit Thresholds

Turnover	Digital Transactions	Audit Applicability
≤ ₹2 crore	Any %	Audit if: (a) Profit <6% (8% for cash) and TI > exemption, OR (b) Loss and TI > exemption.
₹2–10 crore	≥95% digital	❌ No audit (profit %, loss, or TI irrelevant).
₹2–10 crore	<95% digital	✅ Audit compulsory.
> ₹10 crore	Irrespective	✅ Audit compulsory.

Decision Path (Law + Practical Guide)

Step 1: Identify head of income

• Only Capital Gains → ❌ Audit not applicable.

• Business income (F&O, Intraday, Commodities) → Go to Step 2.

Step 2: Compute turnover as per ICAI guidance.

Step 3: Apply turnover slab test:

• ₹10 crore → ✅ Audit compulsory.

• ₹2–10 crore → Check digital % (≥95% → ❌ No audit; <95% → ✅ Audit).

• ≤ ₹2 crore → Apply presumptive test:

  • Profit ≥6% → ❌ No audit.

  • Loss or Profit <6% AND TI > exemption → ✅ Audit.

  • Loss with TI ≤ exemption → ❌ No audit.

Scenario Illustrations

Case 1 – Small F&O Trader (Loss + Salary)

• Turnover: ₹1.5 crore

• Loss: ₹5 lakh

• Salary income: ₹20 lakh

• TI > exemption + loss → ✅ Audit required.

Case 2 – Intraday Profits Above 6%

• Turnover: ₹90 lakh

• Profit: ₹8 lakh (≈8.9%)

• TI = Profit only

• Profit ≥6% → ❌ No audit.

Case 3 – Commodity Trader – Digital Route

• Turnover: ₹4.2 crore

• Profit: 2%

• Digital transactions: 97%

• Between ₹2–10 crore, ≥95% digital → ❌ No audit.

Case 4 – Commodity Trader – Cash Heavy

• Turnover: ₹4.2 crore

• Profit: 2%

• Digital transactions: 80%

• Between ₹2–10 crore, <95% digital → ✅ Audit required.

Case 5 – Only Capital Gains

• LTCG: ₹25 lakh

• STCG: ₹10 lakh

• No business income

• Capital Gains → ❌ No audit.

Compliance Matrix

Case	Turnover	Profit %	Other Income	Digital %	Audit?	Reason
F&O loss only	1.5 cr	Loss	Nil	100%	❌	TI ≤ exemption
F&O loss + Salary ₹20L	1.5 cr	Loss	20L	100%	✅	TI > exemption
Intraday profit	90L	7%	Nil	100%	❌	Profit ≥6%
Intraday profit	90L	5%	12L	100%	✅	Profit <6%, TI > exemption
Commodities	4.2 cr	3%	Nil	97%	❌	Digital ≥95%
Commodities	4.2 cr	3%	Nil	80%	✅	Digital <95%
Capital Gains only	–	–	25L	–	❌	CG outside audit scope

Judicial & Regulatory Insights

• CBDT Circular No. 10/2017 – Prescribes turnover rules for derivatives.

• ICAI Guidance Note on Tax Audit (2023 Edition) – Absolute profit/loss method confirmed.

• CIT v. Surinder Kaur (2018, P&H HC) – Capital gains cannot be equated with business turnover; audit not applicable.

Compliance Takeaways

• Audit triggers:

  • Turnover > ₹10 crore.

  • Turnover ≤ ₹2 crore with profit <6% (or loss) + TI > exemption.

  • Turnover 2–10 crore with <95% digital.

• No audit cases:

  • Capital gains, irrespective of amount.

  • F&O/Intraday/Commodities with turnover ≤2 crore, profit ≥6%, TI ≤ exemption.

  • 2–10 crore turnover with ≥95% digital.

• Books of Account: Even if audit not required, F&O/Intraday/Commodity traders must maintain books under Section 44AA.

 

Complete Guidance Note on Taxation of Futures & Options, Intraday & Other Trading – AY 2025–26

Statutory Foundation

(a) Law Framework

• Section 28(i): Profits from trading in securities, derivatives, and intraday shares = Business Income.

• Section 43(5): Defines speculative transaction = contracts settled otherwise than by actual delivery.

  • Intraday equity trading → Speculative Business Income.

  • Futures & Options (F&O) → Excluded under Sec. 43(5)(d), treated as Non-Speculative Business Income.

  • Commodity & currency derivatives on recognized exchanges → Non-Speculative.

  • Delivery-based equity/units of equity mutual funds/ETFs → Capital Gains (unless trading business is established).

(b) Judicial & CBDT Clarifications

• CBDT Circular No. 23/2005 → F&O = non-speculative.

• CBDT Circular No. 6/2016 → Classification of shares as investment or stock-in-trade depends on intention, frequency, holding period.

• Shree Capital Services Ltd. (Delhi HC) → F&O not speculative.

• DLF Commercial Developers (Delhi HC) → MTM losses allowable.

Nature of Income by Transaction

Transaction Type	Head of Income	Speculative?	Remarks
Intraday Equity	Business Income	✅ Yes	Speculative business, loss restricted.
F&O (Equity/Commodity/Currency)	Business Income	❌ No	Non-speculative, full set-off allowed.
Delivery Equity / Equity MFs / ETFs	Capital Gains (STCG/LTCG)	❌ No	Unless treated as trading stock.
Debt Mutual Funds	Capital Gains (always STCG post Apr 2023)	❌ No	Indexation withdrawn.
Crypto / Unregulated Derivatives	VDA Regime / Possible Speculative	⚠️ Disputed	Not covered under Sec. 43(5)(d).

Finance Act 2024 Amendments (Effective 23 July 2024)

Major overhaul in capital gains taxation:

1. STCG on Equity (Sec. 111A):

   • Till 23 July 2024: 15%.

   • On/after 23 July 2024: 20% flat (no slab benefit).

2. LTCG on Equity (Sec. 112A):

   • Till 23 July 2024: 10% exceeding ₹1 lakh (threshold).

   • On/after 23 July 2024: 12.5% flat (threshold removed).

3. Grandfathering Rule:

   • Gains up to 23 July 2024 → taxed under old regime.

   • Gains thereafter → taxed under new rates.

   • FMV as on 23 July 2024 to bifurcate holding.

4. Debt-oriented MFs:

   • Taxed as STCG regardless of holding period.

   • No indexation benefit.

Tax Rates – AY 2025–26

(a) Business Income (F&O & Intraday)

• Taxed as per chosen regime (old or new).

• New Regime (default):

Slab (₹)	Tax Rate
0 – 3,00,000	Nil
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

• Surcharge (10%–25%, capped for business income)

• 4% Health & Education Cess.

(b) Capital Gains (Delivery-based Equity / MFs)

Holding Type	Till 23 July 2024	From 23 July 2024
STCG – Sec. 111A	15%	20%
LTCG – Sec. 112A	10% over ₹1L	12.5% (full)
Other assets (property, gold, debt funds, etc.)	20% with indexation (if applicable)	20% with indexation (unchanged)

Turnover Calculation (for Audit & Reporting)

As per ICAI Guidance Note:

1. Intraday Equity (Speculative):

   • Turnover = Absolute sum of profit & loss differences.

2. F&O (Non-Speculative):

   • Turnover =

     • Absolute profit/loss differences, plus

     • Premium on options received, plus

     • Any settlement differences (including MTM).

3. Illustration:

   • Profit ₹2,00,000, Loss ₹1,20,000 → Turnover = ₹3,20,000 (absolute).

   • Option premium received ₹80,000 → Add to turnover.

   • Total turnover = ₹4,00,000.

Tax Audit – Sec. 44AB

• Turnover < ₹1 crore: No audit (unless opted for presumptive but declared below 6%/8%).

• Turnover ₹1–10 crore: Audit only if cash receipts/payments > 5%.

• Turnover > ₹10 crore: Audit mandatory.

• Note: Intraday + F&O turnover must be aggregated for audit limit.

• Presumptive u/s 44AD: Not available for F&O / intraday (excluded).

Set-off & Carry Forward

Income Type	Set-off Allowed Against	Carry Forward	Period
Intraday (Speculative)	Only speculative gains	Yes	4 years
F&O (Non-Speculative)	Any business/professional (not salary)	Yes	8 years
STCG (Equity)	Any income (not salary)	Yes	8 years
LTCG (Equity)	Only LTCG	Yes	8 years

Loss carry forward allowed only if return filed within Sec. 139(1) due date.

ITR Filing & Disclosure

• Intraday + F&O (business income): ITR-3.

• Delivery-based shares (capital gains only): ITR-2.

• Firms/LLPs: ITR-5.

• Companies: ITR-6.

ITR-3 disclosures:

• Schedule BP – Business income.

• Schedule P&L – Gross turnover, expenses.

• Schedule BS – Balance sheet.

• Schedule CG – Capital gains (if any).

• Part A-OI – Other Information (books maintained, etc.).

Advance Tax & Interest

• Applicable if liability ≥ ₹10,000.

• Due dates:

  • 15 June – 15%

  • 15 Sept – 45%

  • 15 Dec – 75%

  • 15 Mar – 100%

• Failure → Interest u/s 234B & 234C.

GST, TDS & TCS

• GST: Not applicable on securities trading.

  • Brokerage, SEBI fee, exchange fee → GST @18% (business expense, not ITC).

• TDS: No TDS on trading gains.

• TCS: May apply if securities purchase/sale crosses threshold u/s 206C(1H).

Compliance Calendar – AY 2025–26

• Advance Tax: As above.

• Audit Report (Form 3CA/3CB–3CD): 30 Sept 2025.

• ITR (with audit): 31 Oct 2025.

• ITR (no audit): 15 Sep, 2025.

Common Pitfalls & Ifs & Buts

• ❌ Reporting intraday as capital gains.

• ❌ Using ITR-2 instead of ITR-3.

• ❌ Ignoring AIS/TIS mismatch with broker reports.

• ❌ Not aggregating intraday + F&O turnover for audit test.

• ❌ Belated filing → loss carry-forward lapses.

• ✅ Maintain detailed books (Sec. 44AA).

• ✅ Record MTM entries as per ICDS.

• ✅ Segregate business vs investment portfolio clearly.

 Key Points

• Intraday = Speculative Business (loss carry forward: 4 yrs).

• F&O = Non-Speculative Business (loss carry forward: 8 yrs).

• Delivery equity = Capital Gains (STCG 20% / LTCG 12.5% post 23.07.2024).

• Audit applicability based on turnover & digital transaction conditions.

• Correct ITR Form (ITR-3 for trading, ITR-2 for investors).

• Timely compliance critical to preserve loss benefits.