Big announcement by Finance Ministry on scrip-wise reporting of shares in Income Tax returns - What it means for stock market, traders

In a major announcement, the Finance Ministry has said there is no requirement of scrip-wise reporting in the Income Tax returns form for day trading or short-term sale/purchase of listed shares. "There is no requirement in the return of income for scrip wise reporting in case of short-term/business income arising from share transactions," the Finance Ministry said.

The clarification comes amidst reports that stock traders/day traders are required to furnish scrip wise details in the return of income for AY 2020-21.

Share trading gains

- Gains from share trading in case of stock traders or day traders is generally categorised as short-term capital gains or business income.

- This is because their holding period of shares/units in most of the cases is less than one year which is a prerequisite for the gains to be categorised as long-term capital gains.

'Finance Act, 2018 allowed tax exemption'

-The ministry further said that Finance Act, 2018 allowed tax exemption to the gains made on the listed shares/specified units up to January 31, 2018, by introducing grandfathering mechanism for computation of long-term capital gains for these shares.

- "The scrip wise details in the return of income for AY 2020-21 is required to be filled up only for the reporting of the long-term capital gains for these shares/units which are eligible for the benefit of grandfathering," the ministry added.

As the grandfathering is to be allowed by comparing different values (such as cost, sale price and market price as on January 31, 2018) for each shares/units, there is a need to capture the scrip wise details for computing capital gains of these shares/units, the ministry added. The scrip wise details are not required in income tax return forms for AY 2020-21 for computation of capital gains/business income from shares/units which are not eligible for grandfathering, the ministry added. "Also, if the above calculation is not made scrip wise and taxpayer is allowed to enter the total figures only, there will be no way for the income tax authorities to check the correctness of the claim and therefore many returns will require to be audited, which may lead to unnecessary grievances/rectifications at a later stage," it said.

The ministry further said the requirement to provide scrip wise information in the income tax return is not unique to India. Internationally also, the taxpayer is required to provide scrip wise information for reporting capital gains. For example in the US, a taxpayer having capital gains from transfer of shares is required to fill scrip wise details in the income tax return form of that country.