Intraday Trading Taxation and How Your Gains Are Taxed in India
Intraday Trading Taxation and How Your Gains Are Taxed in India
Blog Article
Intraday trading is a widely used method in the Indian share market, where shares are purchased and sold on the day of trading. Although intraday trading can be used to take advantage of short-term market movements, it also possesses certain tax implications. It is crucial for any person who has an active trading account to make use of intraday trading to know about the tax involved in intraday trading and how intraday gains are taxed in India.
What Is Intraday Trading?
Intraday trading means buying and selling stocks on the same day in a trading account, without overnight holding of the securities. The trader makes a profit from small price fluctuations within one trading session. As there is no delivery of shares, the trades are settled on a same-day basis, and positions are squared off before market closing.
Income Classification for Intraday Trades
One of the critical aspects of intraday trading taxation is the classification of income. In India, income earned from intraday trading is not considered capital gains. Rather, it is considered speculative business income under the Income Tax Act.
The revenue from speculative business, such as intraday stock market trading, is reported under the heading "Profits and Gains from Business or Profession." This classification has tax rate consequences as well as consequences for being eligible to claim deductions.
How are your gains taxed in India?
Because intraday trading income is categorized as speculative business income, it is taxed based on the individual's income tax slab rate. There is no set rate of tax on intraday trading, unlike short-term or long-term capital gains. Instead, your entire speculative income is added to your other sources of income, including salary or business profit, and taxed accordingly.
For instance, if your overall taxable income after adding intraday trading profits is ₹800,000, and you belong to the 20% slab, then your intraday profits will be taxed at 20%.
Important Points regarding Intraday
Taxation:
Profits are considered speculative business income.
Tax is charged as per your relevant income tax slab.
Losses can be adjusted only against other speculative gains.
Losses can be brought forward up to four years of assessment, but only in case the income tax return is submitted on time.
Computation of Income from Intraday Trading
Taxable income is computed as net profit on intraday transactions. This is computed as the sale price minus the purchase price of shares, less the expenses incurred on business. Regular expenses are
Brokerage fees
Securities Transaction Tax (STT)
Internet charges incurred for trading
Software or analysis tools employed
Depreciation on trading assets (e.g., computers)
You are encouraged to keep proper records of all intraday trade transactions and associated expenses to validate your tax return.
Audit Requirements
If your intraday trade turnover is above a certain limit, you are liable to have your books audited under section 44AB of the Income Tax Act. Intraday trading turnover is determined by adding the absolute value of profits and losses. If your overall turnover exceeds ₹10 crore (for those who are not availing presumptive taxation), or if your profit is less than a certain amount and you are not reporting it under the presumptive scheme, then an audit is compulsory.
Filing Income Tax Returns for Intraday Traders
Intraday traders must submit their returns on the ITR-3, which is for those individuals and Hindu Undivided Families (HUFs) who receive income from a profession or business. As a part-time activity or frequently as a full-time activity, if you are involved in intraday trading, your income becomes business income, and the form ITR-3 is suitable.
If the income is limited and within the presumptive taxation limits, section 44AD can be opted for by traders, and ITR-4 can be utilized. Speculative income from intraday trades is, however, not covered under the presumptive scheme. Therefore, ITR-3 continues to be the relevant return form in the majority of cases.
GST Implications
Nowadays, intraday share trading does not attract Goods and Services Tax (GST), as it takes place through established stock exchanges. But if you charge for advisory services or classes on trading, that revenue might fall within the purview of GST, subject to turnover limits.
Compliance and Record-Keeping
To be in line with tax legislation, intraday traders ought to keep the following records:
Daily trade-wise statements
Profit and loss statements
Brokerage and expense bills
Bank statements of trading account settlements
Contract notes from the brokers
Careful documentation should be maintained in case of audit or scrutiny by the tax department.
Conclusion
Any intraday trader should comprehend intraday trading taxation carefully. Because it is considered speculative business income, the tax on intraday trading is as per the slab rate of the taxpayer.