ITR filing mistake: ₹3 lakh loss from options trading not declared. Will I get income tax notice?

Made a loss in options trading in previous assessment years but didn't disclose it in your Income Tax Return (ITR)? And now you are fearing an income tax notice? You may not be alone. Today's Q&A decodes a reader's query on the missed reporting of loss from options trading in the previous ITR.

In cases where trading in derivatives, including options, is carried out on a recognised stock exchange, such transactions are treated as business income.

In the present case, a turnover of ₹1.1 crore and a net loss of ₹3 lakh from options trading would fall within the ambit of non-speculative business (assuming the option trading was done in index). Non-disclosure of such transactions in the ITR for Assessment Year 2024–25 (FY 2023-24) may attract scrutiny, especially since trading data is generally reported to the Income Tax Department by stock exchanges, brokers, and depositories.

Any mismatch between the taxpayer’s declared income and third-party data could potentially trigger the issuance of a notice under Section 143(1), 148 of the IT Act.

In order to rectify the same, the taxpayer may consider filing an Updated Return u/s 139(8A), provided the updated return is filed within 48 months from the end of the relevant assessment year and the taxpayer is otherwise eligible (i.e., not claiming a loss or refund in the updated return).

However, as this return seeks to report a loss, the option to file an updated return may not be available in this case.

Instead, an application for condonation of delay for furnishing a revised return may be submitted to the jurisdictional Principal Commissioner or Commissioner of Income Tax under section 119(2)(b), explaining the genuine hardship and seeking permission to revise the return to correctly disclose the business loss.