No Requirement of Scrip - Wise Reporting in ITR

There was a report in a specific segment of media that stock traders/day traders are expected to furnish scrip wise details in the ITR for AY 2020-21. The gain from share trading in the case of stock traders or day traders is usually classified as business income or short-term capital gains. This is because their holding period of the shares/units in most of the cases is less than one year (a prerequisite for the profits to be categorised as long-term capital gains). As there is no obligation in the ITR for scrip-wise reporting in case of short-term/business income resulting from share transactions, these reports are distorted and misleading.

The Finance Act, 2018 granted exemption to the gains made on listed shares/specified units up to 31st Jan 2018 by introducing grandfathering mechanism for the computation of long-term capital gains for these shares. The scrip-wise details in the ITR for the AY 2020-21 is required to be filled up only for reporting of long-term capital gains for these shares/units which is eligible for the benefit of the grandfathering.

As the grandfathering is to be allowed on comparison of different values (such as cost, sale price and market price as on 31.01.2018) for each shares/units, there is a requirement to capture the scrip-wise details for calculating capital gains of these shares/units. The scrip-wise information is not required in ITR forms for the AY 2020-21 for computation of capital gains/business income from shares/units which are not eligible for grandfathering.

Without this reporting requirement, there may be conditions where a taxpayer may not claim or wrongly claim the benefit of grandfathering due to lack of understanding of the provisions. Also, if the above calculation is not made scrip wise, and the taxpayer is entitled to enter the total figures only. Further, there will be no way for the income tax authorities to examine the correctness of the claim. Therefore, many returns will require to be audited, which may lead to unnecessary grievances/rectifications at a later stage. If the scrip-wise long-term gain is accessible, it can be cross verified by the Department electronically with the stock exchange, brokerage companies, etc. There will be no requirement to subject these ITRs to audits or scrutiny.

Thus, the primary intent behind requiring scrip-wise detail is to facilitate the taxpayer incorrectly computing the long-term capital gains on these shares/units. The requirement to provide scrip-wise information in the income tax return is not unique to India. Internationally also, the taxpayer is required to give scrip-wise information for reporting capital gains. For example, a taxpayer having capital gains from the transfer of shares is necessary to fill scrip wise details in Schedule-D of Form 1040 income tax return form in the USA.

In conclusion, the recent reports suggesting that stock traders/day traders are required to furnish scrip-wise details in their income tax returns for AY 2020-21 are distorted and misleading. The requirement for scrip-wise reporting is applicable only for the computation of long-term capital gains on listed shares/units eligible for the benefit of grandfathering. This reporting is crucial to ensure accurate calculation and verification of capital gains, preventing incorrect claims or omissions. Internationally, such reporting requirements exist to report capital gains accurately. By capturing scrip-wise information, the income tax authorities can cross-verify the data electronically, reducing the need for audits or scrutiny.

Ensure accurate reporting of your long-term capital gains on shares and units. Consult with us at info@manishanilgupta.com to understand the scrip-wise detail requirements for your income tax return.

Disclaimer:The information provided in this blog is for general purposes only and should not be considered as professional advice