What Happens If You Don’t Report Share Market Profits/Losses In Your Income Tax Return?

Are you actively trading in the share market but confused about how to file your Income Tax Return (ITR)? You’re not alone! Many salaried individuals enter the stock market for extra income but overlook the tax implications. This guide will answer key questions such as:

• Do you need to file ITR if you’re trading in the share market?
• Can you show only profits and ignore losses?
• What ITR form should you use?
• How are short-term and intraday earnings taxed?
• What if you don’t report trading activities in your ITR?

This blog post explains all these aspects and more in detail, with examples and legal references.

Quick Summary of Key Questions

Question	Answer
Is it mandatory to file ITR for share trading?	Yes, if your income exceeds the basic exemption limit or if you want to carry forward losses.
Can I show only short-term profits and hide intraday losses?	No. You must report all types of trading income/losses for accurate taxation.
Can I show share market loss in ITR?	Yes. You must file the correct ITR and do it before the due date to carry forward the loss.
What if I filed ITR-1 instead of ITR-3?	You’ll need to file a revised return using ITR-3 to declare your trading activity.
How much share profit is tax-free?	Long-term capital gains (LTCG) up to ₹1.25 lakh annually are tax-exempt under Section 112A.
What happens if I don’t file ITR or hide trading details?	You may get an income tax notice, lose the chance to carry forward losses, and face penalties.

Types of Share Market Gains: Explained

There are mainly three types of gains (or losses) in the share market:

1. Long-Term Capital Gains (LTCG)

• Applies when listed shares are held for more than 12 months.
• Gains above ₹1.25 lakh are taxed at 12.5% without indexation under Section 112A.

2. Short-Term Capital Gains (STCG)

• Applies when shares are sold within 12 months.
• Taxed at a flat 20% under Section 111A.

3. Intraday Trading (Speculative Business Income)

• Treated as business income (not capital gains).
• Taxed as per your income slab rates.
• Must be reported under business income using ITR-3.

For detailed difference between STCG and LTCG, check our blog on Capital Gains Tax on Shares.

How is Income from Share Trading Taxed?

Type of Trading	Tax Treatment	Tax Rate
Long-Term Investing (LTCG)	Capital Gains	12.5% above ₹1.25 lakh
Short-Term Investing (STCG)	Capital Gains	20% flat
Intraday (Buy & Sell on Same Day)	Speculative Business Income	As per income tax slab
F&O Trading	Non-speculative Business Income	As per income tax slab

Tip: Intraday and F&O are business income and require audited books of accounts if turnover exceeds thresholds.

ITR Forms: Which One Should You File?

If you’re doing intraday or F&O trading, ITR-3 is mandatory even if you are salaried and have no profits.

ITR-1/ITR-4 and LTCG: For AY 2025-26, small taxpayers with LTCG up to ₹1.25 lakh can use ITR-1 or ITR-4, but only if there is no tax liability on LTCG

Can You Set Off Share Market Losses?

Absolutely, yes! But conditions apply.

1. Short-Term Capital Loss (STCL)

• Can be set off against both short-term and long-term capital gains.
• Can be carried forward for up to 8 assessment years.

2. Long-Term Capital Loss (LTCL)

• Can only be set off against long-term capital gains..
• Can be carried forward for up to 8 assessment years

3. Speculative Loss (Intraday)

• Can be set off only against speculative gains.
• Carried forward for 4 years only.
• Must file ITR before due date to claim setoff.

Loss Carry Forward Rule: File your ITR before July 31 (or due date) to carry forward any losses.

What If You Don’t File or File the Wrong ITR?

There are consequences you can’t ignore:

1. Penalty and Interest

• Late filing may attract penalty under Section 234F (up to ₹5,000).
• Interest under Section 234A/B/C if tax is unpaid.

2. Income Tax Notice

• The IT Department receives stock trading data via Annual Information Statement (AIS).
• If you hide trading, you may get a compliance notice.

3. Loss Not Allowed

• If you don’t file the correct ITR or miss the due date, you lose the right to carry forward losses.

4. Revised Return Option

If you’ve already filed ITR-1 but realized later you had trading income or loss:

• File a revised return using ITR-3 before the deadline (usually Dec 31 of the assessment year).

Real-Life Scenario

Let’s say Swapnil is a salaried professional earning ₹12 lakh per year. He also did intraday trading in FY 2024-25 and incurred a ₹30,000 loss. He filed ITR-1 initially.

What should Swapnil do?

• File a revised ITR-3, report speculative loss.
• Maintain basic records of trades.
• Carry forward loss for next 4 years.

Key Takeaways for Traders

✅ Report all trading activity – profit or loss
✅ File correct ITR form – ITR-2 or ITR-3 based on type of trading
✅ File on time – to avoid penalty and preserve loss carry-forward benefit
✅ Don’t ignore intraday trades – even if losses
✅ Use AIS/26AS – to reconcile stock data with broker
✅ Seek audit if turnover is high – especially for business income
✅ Revised return is your rescue option if wrong ITR is filed initially

Useful Resources

• Income Tax
• Trading Income and Tax Treatment – NSE

Final Words

If you’re dabbling in the stock market—even as a hobby—you must understand the tax rules. Whether you’re making profits or facing losses, being compliant with the Income Tax Act ensures peace of mind and helps in future financial planning.

💬 Have questions or want help filing the correct ITR? Reach out to us at contact@moneymarketswithsk.com.