Income Tax On Intraday Trading - How Profits From Intraday Trading Are Taxed? (2024)

Have income from shares? Identifying yourself as a trader or investor is the first step in filing your income tax return. Investors benefit from lower tax rates on capital gains, while traders have the advantage of claiming business expenses that reduce their income.

It is essential to understand the tax implications of your investment strategy to optimise your returns and minimise your tax liability. Here's a rundown of how profits from shares are taxed.

Understanding Capital Assets and Trading Assets

A share can be called a ‘Capital Asset’ or ‘Trading Asset or Stock-in-Trade’ depending on whether you are identified as an investor or trader.

Investors are those who invest in stocks or other securities for thelong term with the intention of holding them for a considerable period. They aim toearn returns through capital appreciation(income on sale of shares) and dividends. The income generated from the sale of shares is taxed as ‘capital gains’. It is further classified as long-term and short-term capital gains based on how long the shares are held.

Traders are those who buy and sell stocks or other securitiesfrequently with the intention of making aprofit through short-term price movement. Their income from trading is treated as business income, and they are required to file their returns under the head "Profits and gains from business or profession." Their profits are taxed as per the applicable slab rates, which can go up to 30% depending on their income level.

In short, investors are taxed on their capital gains, while traders are taxed on their business income.
Based on this classification, your income will be divided into the following types:

Capital Assets

  • Long Term Capital Gain (LTCG) or Loss
  • Short Term Capital Gain (STCG) or Loss

Trading Assets

  • Speculative Business Income:Intraday transactions are speculative in nature, and hence, the income from these trades is called speculative business income. Income tax on intraday trading profit in India falls under this category.
  • Non-Speculative Business Income:All share transactions that are not speculative in nature fall under the category of non-speculative transactions. These include delivery-based equity trades, equity futures and options, commodity trades (both delivery and futures/options), and currency trades (both delivery and futures/options). Hence, the income from these transactions is called non-speculative business income.

A detailed explanation of this is availablehere.

What Is Intraday Trading?

Shares bought and sold (long trades) or sold and bought (short trades) within asingle trading day is known as intraday trading. The trader’s purpose in intraday trading is not to own the equity shares, but they want to take advantage of the short-term price movements and make profits the very same day. These profits are taxable. There is no separate speculative income tax rate in India as it is taxed according to your income tax slab

Income Tax Rules On Intraday Trading – Income Head, ITR Form And Due Date

Income Head:Profits and Gains from Business and Profession. Yourincome from intra-day trading will be considered asspeculative business income. It is considered speculative because you are trading without intending to take the delivery (ownership) of the contract.

ITR Form for intraday trading:Since intraday trading is a business income, you must fileITR-3 and prepare financial statements. Explorewhich ITR to file.

ITR due date for intraday trading income:

  • 31st July - if Tax Audit is not applicable
  • 31st October - if Tax Audit is applicable

Whether Tax Audit Is ApplicableFor Intraday Trading?

If your Intraday Trading Turnover is up to ₹2 Crore (if you opt for presumptive taxation)

  • If you have made profits of at least 6% of Trading Turnover: Tax Audit shall not be applicable.
  • If you have incurred a loss or your profit is lesser than 6% of Trading Turnover: Tax Audit is applicable if your total income is more than ₹2.5 lakhs (basic exemption limit).

If your Intraday Trading Turnover is more than ₹2 Cr and up to ₹10 Cr (if you opt to pay tax normally)

  • If you have made profits of at least 6% of Trading Turnover:
    • If you do not choose the Presumptive Taxation Scheme underSection 44AD, then tax audit is applicable.

If your Trading Turnover is more than ₹10 Cr

Irrespective of the profit or loss, a tax audit is applicable if you have a turnover of more than ₹10 crores (Only if over 95% of transactions are digital. Trading is 100% digital).

What Is Turnover For Intraday Trading?

Turnover for Intraday Trading = Absolute amounts of Profit/Losses

Absolute turnover means the sum total of positive and negative differences (the loss amount will not be deducted but added to the profit amount). Trading Turnover can be calculated either as a scrip-wise or a trade-wise method.

Example of trading turnover

Ektha buys 100 shares of ITC at ₹75. She sells them at the end of the day at ₹80. On the next day, she buys 200 shares of Paytm at ₹500, which she sells at ₹460 at the end of the day.

  • Profit from 1st Trade = (80-75) * 100 = ₹ 500
  • Loss from 2nd Trade = (460-500) * 200 = ₹ -8,000
  • Absolute Turnover = 500+8,000 = ₹ 8,500

Tax Calculation For Intraday Trading

Income Tax on intraday trading income is calculated at the slab rates. The slab rates for different income levels are shown below. These rates will be increased by the applicable surcharge rate + 4% cess.

Old tax regime:

Old tax regime slab rates
Up to ₹ 2,50,000Nil
₹ 2,50,001 - ₹ 5,00,0005%
₹ 5,00,001 - ₹ 10,00,00020%
Above ₹ 10,00,00030%

New tax regime:

Existing new tax regime slab rates
(After Budget 2023)
up to ₹3,00,000Nil
₹3,00,001- ₹6,00,0005%
₹6,00,001- ₹9,00,00010%
₹9,00,001- ₹12,00,00015%
₹12,00,001- ₹15,00,00020%
₹15,00,001 and above30%

Example 1

Here are the income details of a 30-year-old intraday trader:

  • Annual Salary = Rs.10 lakh
  • Income from intraday equity trading for the year = Rs.2 lakh [speculative business income]
  • Profits from trading in futures and options = Rs.2 lakh [non-speculative business income]
  • Capital Gains = Rs.1 lakh
  • Interest from bank deposits (annual) = Rs.1 lakh

Given these incomes, the tax liability will be calculated as follows:

Capital gains will be taxed based on the period for which the capital assets were held (long-term or short-term). Let’s say that the capital gains were short-term. Hence, the income will be taxed at 15%. Hence, thetax liability will be Rs.15000.

Total taxable income will be computed by adding all other income heads like salary, speculative business income, non-speculative business income, and interest from bank deposits. Therefore, the total income will be:

Total Income=10,00,000(salary)+200,000(intraday equity trading income)+200,000(F&O trading income)+100,000(interest on deposits)=Rs.15.00,000

Hence, the trader has to pay an income tax on Rs.15 lakh. The tax computation will be as follows, assuming the assessee opts for the old tax regime:

Income Slab

Tax rates

0 – Rs.2.5 lakh

Rs.2.5 lakh – Rs.5 lakh

5% = Rs.12,500

Rs.5 lakh – Rs.10 lakh

20% = Rs.1 lakh

Rs.10 lakh and above

30% = Rs.1.5 lakh

Total

2,62,500

Therefore, the total tax liability of the trader, including income tax on intraday trading profit:

Total tax liability = Income Tax + Capital Gains Tax = Rs.262500 + Rs.15000 = Rs.277500.

Cess is to be added to the above tax liability.

Advance Tax For Intraday Trading

If your estimated tax payable for the year is more than ₹10,000, you will have to pay advance tax on the specified dates.

Advance Tax for Intraday Traders who do not opt for Presumptive Taxation under Section 44AD

If Intraday Traders do not opt for Presumptive Taxation, they must pay Advance Tax in the following four instalments:

Advance TaxDue Date
15% of Total Tax LiabilityBy 15th June
45% of Total Tax LiabilityBy 15th September
75% of Total Tax LiabilityBy 15th December
100% of Total Tax LiabilityBy 15th March

Advance Tax for Intraday Traders who opt for Presumptive Taxation

If Intraday Traders opt for Presumptive Taxation, they must pay Advance Tax in only one single instalment, i.e. by 15th March.

Carry Forward Loss For Intraday Traders

Loss suffered from Intraday Trading is known as Speculative Business Loss. It can be carried forward to the next 4 years only if you file the return within 31st July (if audit is not applicable) or 31st October (if audit is applicable). Speculative Business Loss can be offset only against Speculative Business income.

However, if the Intraday Trader opts for the new tax regime, they cannot carry forward these losses or adjust them against business incomes.

Income Tax On Intraday Trading - How Profits From Intraday Trading Are Taxed? (2024)

FAQs

Income Tax On Intraday Trading - How Profits From Intraday Trading Are Taxed? ›

Intraday trading is taxed as speculative business income. Tax audit criteria discussed include turnover and profit percentage. Turnover for intraday trading is calculated as total profit/loss. Tax calculations apply slab rates + surcharge.

Is profit from intraday trading taxable? ›

Intraday trading falls under the purview of short-term capital gains tax. This means that any profits from intraday trading are treated as short-term capital gains and are subject to tax at the applicable rates. Note that short-term capital gains are added to the individual's taxable income and taxed accordingly.

How do you show intraday trading in income tax? ›

Intraday gains and losses should be reported as Business Income in your ITR. Use the appropriate ITR form, such as ITR-3 or ITR-4, which are typically used by individuals engaged in business or profession, to report your intraday trading activity.

How do you calculate turnover in intraday trading for income tax? ›

Intraday: Turnover is calculated based on the absolute sum of the profits and losses per stock. F&O (equity, currency, commodity): Turnover is calculated based on the absolute sum of the profits and losses per F&O contract.

How are day trading profits taxed? ›

Day trading taxes can vary depending on your trading patterns and your overall income, but they generally range between 10% and 37% of your profits. Income from trading is subject to capital gains taxes.

How much tax do you pay on trading profits? ›

As long as your gains exceed the threshold, you'll be liable for capital gains tax. How much capital gains tax you pay depends on how much you earn, but the two rates are: 10% (the basic rate) 20% (the higher rate)

How much profit can I make in intraday? ›

For example, if you buy 100 shares of an X company for INR 10,000 and close the deal when its value reaches 11,000, you profit from INR 1,000 daily. Intraday trading is a high-risk, high-reward strategy. However, if your prediction decisions don't work out, you can face significant losses compared to a regular trader.

How much money do day traders with $10,000 accounts make per day on average? ›

On average, day traders with $10,000 accounts can make $200-$600 per day, with skilled traders aiming for 2%-5% returns daily.

Can I earn 1 crore from intraday trading? ›

While making 1 crore through intraday trading is technically possible, it requires a combination of substantial investment, effective trading strategies, risk management, and a reliable broker.

Where is my intraday profit? ›

The settlement cycle for intraday trading is typically T+1, meaning the trade is settled within one trading day. This means that if you make a profit on a trade, the funds should be credited to your trading account on the next trading day after the trade is executed.

How to file an income tax return for trading? ›

The appropriate ITR form for filing F&O income depends on whether it is treated as business income or capital gains: Business Income: F&O traders treating their income as business income need to file ITR-3, which is applicable for individuals and HUFs having income from profits and gains of business or profession.

How is profit margin calculated in intraday trading? ›

Intraday margin trading can result not only in substantial profits but also huge losses in a short period of time. One's margin is calculated by considering the total exposure the client has in the current market. One's margin is the total of their VAR or 'value at risk' and their ELM or 'extreme loss margin. '

How do you calculate intraday gain? ›

Fraction theory: Just like the pivot point theory, it's also a popular intraday trading formula that relies on inputs collected from the previous trading day. The previous day's high (H), low (L), and closing (C) need to be added up and multiplied by 0.67 as: (H + L + C) x 0.67 = Y.

How is intraday trading tax calculated? ›

Intraday trading profits are taxed as business income, which means that they are taxed at the individual's marginal income tax rate. There is no separate tax rate for intraday trading profits. Traders must keep track of their trades and calculate their tax liabilities accurately to avoid any legal issues.

How to reduce taxes as a day trader? ›

Active day traders can avoid taxes in a few different ways. By taking advantage of the IRS system of deductions, you can lessen your tax burden. If you file an election to mark-to-market, you can record losses over $3,000, reset your gains and losses yearly and are exempt from the wash-sale rule.

How to calculate tax on trading income? ›

Given these incomes, the tax liability will be calculated as follows: Capital gains will be taxed based on the period for which the capital assets were held (long-term or short-term). Let's say that the capital gains were short-term. Hence, the income will be taxed at 15%.

Is a tax audit required for intraday trading? ›

Intraday Trading Tax Audit Under section 44AB of the Income Tax Act, 1961 intraday trading tax audit for traders is mandatory, if: – Presumptive business income turnover (profit/loss) is more than Rs. 2 crore in a financial year.

Do day traders have to report every transaction? ›

As a trader (including day traders), you report all of your transactions on Form 8949 Sales and Other Dispositions of Capital Assets.

What is the charge of intraday profit? ›

Intraday and F&O trades

Flat ₹ 20 or 0.03% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades.

References

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