With over 5.9 crore income tax returns filed by July 31, taxpayers are navigating a shift toward more complex filing forms. The surge in retail equity and F&O trading is forcing many individuals to switch from simple forms like ITR-1 to ITR-3, which has a later deadline. Missing the original deadline can result in late fees and the permanent loss of certain tax benefits.
The Income Tax Department has reached a significant milestone with over 5.9 crore returns filed by the July 31 deadline for the current assessment year. Official data indicates that more than 5.47 crore of these returns have already been verified, with approximately 2.38 crore—or over 40%—already processed. While the volume of filings remains high, a structural shift is occurring in the type of forms taxpayers are choosing.
Shifting Tax Filing Patterns
Tax experts have noted a decline in the use of ITR-1, the simplest form reserved for individuals with basic salary or pension income. This transition is largely driven by the changing financial habits of Indian households. With the number of active Demat accounts expanding from 4 crore to over 17 crore in recent years, more salaried individuals are reporting capital gains from stocks and mutual funds. Because ITR-1 does not accommodate capital gains, many taxpayers must now use ITR-2.
Impact of Retail F&O Participation
The most significant change is affecting retail traders participating in the Futures and Options (F&O) segment. Income from derivatives is treated as non-speculative business income under the Income-tax Act. Even a single trade in the F&O segment makes an individual ineligible for both ITR-1 and ITR-2. These taxpayers are required to file using ITR-3, which is more detailed and intended for those with business or professional income. Notably, the tax department has set a deadline of August 31 for those who need to file ITR-3 but do not require a formal tax audit, offering a small window for those transitioning to this form.
Risks of Missing Deadlines
For those who missed the primary July 31 deadline, the consequences go beyond the immediate late fee of up to ₹5,000. A critical, often misunderstood risk is the inability to opt for the old tax regime. Once the original due date passes, taxpayers lose the right to choose the old tax system, which often allowed for more deductions compared to the default new regime.
Furthermore, filing a belated return limits the ability to manage financial losses. Taxpayers who miss the deadline are generally unable to carry forward business losses, capital losses, or losses incurred from F&O trading to future years to offset potential gains. While losses under the house property category may still be carried forward, the inability to offset other investment losses can lead to a higher tax burden in future years. Investors and taxpayers should now focus on finalizing their ITR-3 filings if they qualify, ensuring they meet the upcoming August 31 date to avoid these financial disadvantages.