ITR for AY 22: How to report dividend income, gains from shares, F&O? Two tax experts explain (2024)

Millions of small investors opened demat accounts for the first time in the aftermath of the lockdown and began their investing journey. More than 10.7 million suchaccounts were opened during April 2020 and January 2021 in FY21, according to data from the Securities and Exchange Board of India (Sebi).

For perspective, the new accounts opened during these 10 months exceeded the number of total new securities holding accounts opened during the previous two financial years —FY19 and FY20. The FY21 figure is more than double ofFY20 during whichjust 4.7 million investors were added.

Many of the new entrantshave already filed or are in the process of filing their income tax returns (ITRs) for the Assessment Year 2021-22 (AY22) as the deadline of December 31 fast approaches. Those who sold stocks, mutual funds units, derivative products or earned dividends during the period are liable to accurately report these to the taxman.

According to the Income Tax department, any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as a short-term capital asset. However, in respect of assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if the transfer of such shares took place on or before July 10, 2014), units of equity-oriented mutual funds, listed securities like debentures and government securities, units of UTI and zero-coupon bonds, the period of holding to be considered is 12 months instead of 36 months.

How are gains stocks, mutual funds treated for tax

As per Income-tax Act, 1961, shares fall under the definition of capital assets, whether listed or unlisted. Accordingly, the gain or loss on the sale of such shares shall have tax implications.

The tax treatment of such gain or loss depends on the fact whether the shares are long term or short term, whether the shares are listed or unlisted. If listed shares are sold within 12 months of purchase, the resultant gain will be treated as short term capital gain under Section 111A of the I-T Act, otherwise long term capital gain.

If the period of holding is less than 24 months for unlisted shares, thenthey shall be treated as short-term assets,and ifis 24 months or more then as long term capital assets.

Sundara Rajan TK, Partner at DVS Advisors LLP says, “In case of listed shares, since the long-term capital gain is exempt up to Rs 1 lakh, it will be beneficial to hold shares for at least 12 months. Further, the rate of taxation of long-term capital gain is 10% whereas short term gains are taxed at the rate of 15%. In caseof unlisted shares, short term gains are taxed at the slab rate, whereas long-term gains are taxed at the rate of 20% after indexation”.

So, if the investor falls within the higher tax slab, it will be better if the shares are sold after 24 months so that the benefit of a lower rate as well as indexation is available, he added.

Tax treatment Gains from derivative, F&O trades: Short-term capital gain tax on shares for AY22

Further, income from speculation, derivatives, futures and options transactions, in relation to shares, falls within the head “profits & gains of business/profession” and not “capital gains” for the purpose of filing reporting while filing ITR, he added.

The income from such transactions has to be computed in a specified manner. The profit and loss for each such transaction has to be considered in absolute terms (loss would be considered as a positive figure) and added; the consolidated figure arrived at shall be considered as turnover. If this turnover amount exceeds the threshold limit applicable for audit, then audit shall be mandatory.

“Further, the assessee can opt for presumptive taxation and offer 6% on turnover amount as income as against offering the position of net loss which is again subject to mandatory audit. In case of person engaged in the business of trading in shares, it may be treated as business activity and the resultant income shall be charged under the head “profits & gains of business/profession” whereby, the expenses of running the business will be allowed as deduction, which shall not be a case for income being charged under the head “capital gains”. Further, all the provisions with respect to business income, including the maintenance and audit of books of accounts shall be applicable,” said Rajan TK.

Tax on dividend income from securities

Some changes were made by the I-T Department with respect to ITR filing for AY22, several changes have been made. One such change pertains to reporting of dividend income. Prior to FY21, dividend income up to Rs 10 lakh in a particular year was not taxable for the taxpayers as organisations needed to pay a Dividend Distribution Tax (DDT) before making dividend payments. Those who received dividends of more than Rs 10 lakh were required to pay only 10% tax on the dividend payout, Amit Gupta, MD, SAG Infotech.

However, with effect from FY21, the government has made dividends distributed by an organisation taxable. Domestic firms are responsible to deduct tax at source (TDS) at 10% if the cluster charge of dividend distributed to resident shareholders crosses the amount of Rs 5,000 in a financial year. Earlier, while filing ITR, dividend income was reported under the head ‘Exempted Income' but now it has to be reported under the head ‘Income from other sources’ as per section 56 (2) (i) as this income becomes taxable now. It is important to mention here that in the current ITR forms announced by the government, the schedule OS is altered to include the details of the dividend income earned by the taxpayers by this year.

Tax on dividend income for ay 2020-21

In order to calculate the interest for the default in payment of advance tax liability, taxpayers are now required to give a quarter-wise breakup of dividend income received in a financial year, say tax experts. The breakup can be provided for the span of:

·1st April 2020 to 15th June 2020,

·16th June 2020 to 15th September,

·16th September 2020 to 15th December 2020,

·16th December 2020 to 15th March 2021,

·16th March 2021 to 31st March 2021

Moreover, this quarterly reporting is compulsory to aid the relaxation of advance tax penalties on dividend income. It should be noted here that now taxpayers need to pay advance tax in the quarter in which the dividend is gained. Earlier, exclusion from interest penalty for non-payment of the advance tax on dividend income was there as it was not possible to cite dividend income in advance, he added.

It is highly likely that dividend income will be provided pre-filled to taxpayers from this year as the Income Tax department has made it compulsory for the organisations to announce the information of the dividend paid to the department. Noteworthy, if you get the pre-filled data in your ITR, you should check the information clearly, Gupta further explained.