I work full time with a freelancing software firm. My yearly income is around ₹35 lakh. I also trade in the stock market and my profit for the year is ₹5 lakh. Which income tax return (ITR) form should I choose? Is there a way to get benefit of 50% presumptive income for the freelancing income? How do I pay tax on my market profits? Do I need to maintain a book of accounts? Lastly, what is my probable taxable income?
—Chris Paul
It is assumed that you are a tax resident of India, under the Income-tax Act, 1961. As per Section 44ADA of the Act, any resident taxpayer who is engaged in a prescribed profession (such as engineering, accounting and technical consultancy, among others) and whose total gross receipts do not exceed ₹50 lakh in the relevant financial year (FY) can offer the income from such profession to tax on a presumptive basis. The taxable income shall be presumed to be 50% of the total gross receipts during the FY from such profession or as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the taxpayer.
Accordingly, in case your freelancing assignment qualifies as a prescribed or notified profession, the gross receipts of ₹35 lakh can be offered to tax under Section 44ADA, under the head “income from business or profession”. As per Section 44AA, every person carrying on a prescribed profession is required to maintain books of accounts.
With respect to the profit from stock market, it is assumed that it is on account of shares, derivatives and others. In such case, taxability of the profits will depend upon the period of holding of the securities and classification of the income. Classification of income (such as whether business income, capital gains and others) will depend on factors such as volume of trade, frequency of transactions, average holding period, mode of funding and others.
As per Section 44AA, where income is classified as business income, in case of an existing business, where the income exceeds ₹2.5 lakh or the turnover or gross receipts exceeds ₹25 lakh in any of the three years immediately preceding the relevant FY, the taxpayer is required to maintain books of accounts. Further, for newly set up business during the FY, where the income is likely to exceed ₹2.5 lakh or turnover or gross receipts is likely to exceed ₹25 lakh in the relevant year, the taxpayer is required to maintain books of accounts.
Considering your sources of income, ITR-3 will be applicable to you for FY20.
Your probable taxable income will include all income from various sources (including the 50% of total gross receipts from profession and profit from stocks). Further, you can claim deductions for any eligible payments or contributions under relevant Sections of the Act.
