“How are Gains from Intraday Trading Taxed?” If you are planning to start with intraday trading, then you will have to make sure that you understand the income tax on the trading profit in 2022 so as to make informed decisions.

Normal investments have simple tax terms, but when it comes to intraday trading, income tax has various aspects.

How are Gains from Intraday Trading Taxed?
Source: Trading Fuel || Research Lab

Also Read: Top Participants in The Foreign Exchange Market

Intraday Trading Income Tax Section:

  • If you are an investor and you are holding your equity investments for more than 1 year, then you will have to show them under the “long-term capital gain” (LTCG) section.
  • And if your equity investments are for more than 1 day but less than 1 year, then the same has to be shown under short-term capital gains (STCG).
  • Income from the entire stock market can be classified into two broad categories, such as:
  • Income from intraday trading is considered to be speculative income.
  • It is considered speculative because you trade without intending to take delivery of the contract.
  • But when it comes to income tax, both speculative and non-speculative business income is added to your overall income.

What does income tax say about intraday trading?

  • Intraday trading tax is as per the standard income slab rates because they fall under business income.
  • On the other hand, a capital gain has a lower tax rate.
  • The taxpayer has to declare the trading profit as per the presumptive business income under section 44AD of the income tax act.
  • It states that the intraday trading gains are considered to be regular business income.
  • As per Section 43(5) of the Income Tax Act of 1961, your trading asset has the potential to provide for both speculative and non-speculative business company revenue. A speculative transaction is finally resolved other than by the actual delivery or transfer of the commodity.
  • In other words, intraday trading revenue is either a speculative gain or loss and is taxed under the head of “income from business or profession.”
  • Intraday trading profit is calculated subject to the general tax slab rates after adding these gains to your annual income.
  • Further, speculative losses can only be adjusted against the profits from other than speculative businesses, whereas the gain from speculative income can offset non-speculative losses.
  • Speculative losses can be passed on for 4 years if the gains are insufficient to cover the losses.

Must Know: What are the Tax Implication of day trading?

Intraday income tax calculator:

  • The tax on intraday is based on the annual turnover.
  • For intraday trading, turnover is equal to the absolute profit.
  • The definition of turnover varies greatly depending on the type of transaction.
  • In the case of intraday trading, turnover is equal to the absolute profit.
  • And absolute profit means the sum of all the positive and negative differences from all the transactions during the year.
  • Let us understand this with an example.
  • Here are the details of the transactions for 2 consecutive trading days:
  • 10/07/2022: Mr. A buys 100 shares of XYZ Ltd. at a price of Rs. 1500 per share. He then sells them at RS. 2000 per share at the end of the day and squares off his position. Hence, the profit comes to Rs. 500* 100 shares = Rs. 50,000.
  • 11/07/2022: MR=r A buys 200 shares of ABC Ltd at a price of RS. 1000 per share. He then sells them at RS. 900 per share at the end of the day and squares off his position. Hence, the loss comes to RS. 100* 200 shares = RS. 20,000.
  • Hence, the absolute profit of Mr. A comes to Rs. 30,000.

Must Read: How Taxes are levied in Mutual Funds?

Income tax on F&O trading in India:

  • Futures and Options are the stock derivatives that are traded in the stock market.
  • A future contract is a contract between two parties for trading stocks or an index at a particular price or level at a future date.
  • The income that is generated from F&O trading should be treated as business income.
  • F&O income is also disclosed under the “income from business and profession” head.
  • F&Os are used for hedging and for taking/giving delivery of the underlying contracts.
  • Thus, F&O income is considered to be a non-speculative business.
  • To calculate the turnover of the F&O, you will have to abide by the following:
  • The contract note issued for each and every trade should specify the value of the derivatives that are bought or sold.
  • However, for accounting purposes, the difference between the two should be used.
  • If there is any premium during the F&O transaction, then the same should be added to the turnover amount.
  • Hence, all the positive, as well as negative values, are finally aggregated to calculate the turnover.
  • Here, you are also allowed to take deductions for the expenses that are incurred for carrying out the F&O transactions, such as the Demat charges, telephone expenses, electricity charges, etc.
  • If you are trading in multiple forms, such as intraday trading, F&O, etc., then each and every business income should be separately reported because the tax treatments are different for each form of income tax.

Income Tax Slab:

Slab rate for individuals below 60 years of age:

Income Tax SlabSlab Rate
Up to RS. 250,000Exempt
250,001 – 500,0005%
500,001 – 750,00010%
750,001 – 1,000,00015%
1,000,001 – 1,250,00020%
1,250,001 – 1,500,00025%
Above RS. 1,500,00030%
Source: Trading Fuel || Research Lab

Slab rates for individuals between 60-80 years:

Income Tax SlabSlab Rate
Up to RS. 300,000Exempt
300,001 – 500,0005%
500,001 – 1,000,00020%
Above RS. 1,000,00030%
Source: Trading Fuel || Research Lab

Slab rates for individuals above 80 years:

Income Tax SlabSlab Rate
Up to RS. 500,000Exempt
500,001 – 1,000,00020%
Above RS. 1,000,00030%
Source: Trading Fuel || Research Lab

Also Like: What is Commodities Transaction TAX?

Conclusion:

We hope that the above blog gives you clarity on how the gains from the intraday will be calculated.

Frequently Asked Questions (FAQs):

Q#1) What is speculative business income?

Answer: It is the income from the speculative activity, which in the context of stock markets is defined as business income earned from intraday trading.

Q#2) Where can I show an intraday profit in ITR?

Answer: It should be shown under ITR-3.

Q#3) Is it compulsory to file an ITR for intraday trading?

Answer: Yes, a taxpayer who has done intraday trading should file an ITR and pay tax on the same.

Q#4) Is tax audit compulsory for intraday trading?

Answer: Tax audit is compulsory if the presumptive business income is more than Rs. 2 crores in a financial year.

Q#5) Do day traders have to report each and every transaction?

Answer: Yes, a day trader has to report each and every transaction on Form 8949.

About Us:

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Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.