How are gains and Losses from intraday trading taxed?

What is Intraday Trading?

When people purchase & sell stock on the same day, then it is known as intraday trading. The investors aim to make a profit on the volatility of stock price on the same day. Therefore, it is imperative to disclose any intraday gain & loss while filing an income tax return (ITR filing).

Intraday gain & loss is different from capital gain. In case of capital gains, the stock is kept in hand for at least one day before it is sold. In the case of intraday trading, the stock is bought & sold by the investor on the same day.

Which head is intraday gain & loss taxable under?

The objective behind intraday trading is to make short-term gains based on a share price. Hence, instead of charging intraday gain & loss under capital gains, it is taxed under business & profession. It is considered speculative because you are trading without intending to take the delivery (ownership) of the contract.

Long-term capital gains are taxed at concessional rates & some capital gains from equity/ mutual funds are exempt u/s 10(38). But intraday gain & loss is taxed at normal slab rates (as applicable to an individual).

Intraday gain & loss ITR form

Knowing the correct ITR form before filing an income tax return is very important. In case of intraday gain & loss, it will be considered under a business income, then ITR 3 is applicable. However, it is important to note that the applicability of ITR forms in the case of intraday trading varies as per circumstances. Such situations can be the number of transactions entered, amount of turnover, frequency of trading, etc.

As per income tax provisions, any loss on intraday trading can be set off only with intraday (speculative) gains. Excess loss can be carried forward for 4 AY only & carry forward is only possible if ITR is filed on time, i.e.,

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

Also, while calculating intraday gain & loss, you can claim a deduction of Securities Transaction Tax (STT) paid. Expenses that are directly related to intraday trading can also be claimed.

Do you do intra-day trading? You must know the tax implications of Intraday trading gains and losses. Our Tax Experts can help you manage your intra-day trading taxes maximizing your deduction so you can keep more of what you earn.

Is tax audit required for intraday trading?

Tax audit is not typically applicable solely based on engaging in intraday trading. However, whether a tax audit is required depends on the overall turnover and profit or loss from all your financial activities, including intraday trading. Here is how tax audit applicable for Intraday Trading:

Presumptive Taxation Scheme (Section 44AD)

If your turnover is up to ₹2 crore (or ₹3 crore if over 95% of transactions are digital), a tax audit is not mandatory, provided your profit is at least 6% of your trading turnover. However, if you incur a loss or your profit is less than 6% of the turnover, a tax audit becomes applicable only if your total income from all sources exceeds ₹2.5 lakh, which is the basic exemption limit.

Regular Tax Regime (Section 44AB)

For a turnover between ₹2 crore (or ₹3 crore if digital) and ₹10 crore, a tax audit is not mandatory if you don't opt for the presumptive scheme and your profit is at least 6% of the turnover for non-cash transactions or 8% of the turnover for cash transactions. However, if you do not meet these minimum profit percentages, a tax audit becomes applicable regardless of whether you make a profit or incur a loss.

Turnover Exceeds ₹10 Crore

If your intraday trading turnover exceeds ₹10 crore, a tax audit is mandatory irrespective of your profit or loss. However, this usually applies only if over 95% of your transactions are conducted digitally (which is likely the case for most intraday traders).

How is turnover for intraday trading determined?

Turnover for Intra day trading refers to the total value of all your buy and sell transactions throughout a specific period, typically a financial year (April 1st to March 31st). It essentially captures the total volume of your trading activity, but not necessarily the profit or loss you made.

Here's an example to understand turnover better:

If you're an intraday trader and you make the following trades in a single day:

• You buy 100 shares of Company X at ₹100 per share, for a total cost of ₹10,000.
• Later in the day, you sell those 100 shares at ₹110 per share, for a total sale value of ₹11,000.

In this single trade, your:

• Profit = Selling Price - Buying Price = ₹110 - ₹100 = ₹10 per share
• Profit on 100 shares = ₹10/share * 100 shares = ₹1,000

However, for turnover calculation, we consider the absolute values of buying and selling:

• Turnover for this trade = Buying Value + Selling Value = ₹10,000 + ₹11,000 = ₹21,000

Now, if you repeat similar trades throughout the year, buying and selling various stocks. Your turnover would be the sum of all these absolute buying and selling values across all your intraday trades for the entire financial year.

Tax Calculation For Intraday Trading

Income tax on intraday trading income is calculated at slab rates. The slab rates for different income levels are shown below and are increased by the applicable surcharge rate plus a 4% cess.

Old tax regime:

New tax regime:

Gains from intraday trading can make taxes particularly complicated, especially when combined with income from multiple other sources. However, our tax experts can simplify the process and help you maximize your tax refunds. Don't wait for the last minute to file ITR. Book an eCA now!