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How are gains and Losses from intraday trading taxed?

Updated on: 25 Apr, 2024 12:50 PM

Understanding the income tax implications of intraday trading is crucial for anyone engaging in this type of trading. Intraday trading involves buying and selling financial instruments within the same trading day, often with the goal of profiting from short-term price movements. Here's a guide to help you understand the tax aspects of intraday trading in India.

Many people face confusion between intraday gain & loss v/s capital gain. They tend to understand both as one & this leads to trouble in the form of penalty notices from the income tax department.

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.

How to do Intraday Trading?

You can do intraday trading using a Demat account. While buying stock, one needs to declare his/her intention of intraday trading. Also, intraday gain & loss is also called speculation gain & loss.

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. Opting for the new tax regime prohibits carrying forward or adjusting these losses against other business incomes. 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 Advisory Service 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's some information to clarify:

  • Turnover Threshold: Tax audit under Section 44AB of the Income Tax Act, 1961, is generally applicable when the total turnover or gross receipts from a business exceed a specified threshold. For intraday traders, this threshold is set at Rs. 2 crore in a financial year. If your intraday trading turnover (combined with any other business activities) exceeds this threshold, you may be subject to a tax audit.
  • Profitability: Even if your turnover exceeds the threshold, a tax audit is usually not applicable if your net profit from intraday trading is below the prescribed percentage of your total turnover (usually 6% of the turnover for non-cash transactions and 8% for cash transactions). In such cases, you may be exempt from tax audit requirements.
  • Maintaining Records: Regardless of whether a tax audit is required, it's crucial to maintain accurate records of your intraday trading transactions, including trade details, expenses, and financial statements.
  • Filing ITR: You are still required to file your Income Tax Return (ITR) accurately, even if a tax audit is not mandatory. Reporting your intraday trading income, expenses, and overall financial position correctly is essential for tax compliance.
    File ITR with Tax2win

Tax Calculation For Intraday Trading

Income Tax on intraday trading income is calculated at the slab rates.

Old tax regime:

Old tax regime slab rates
Up to Rs 2,50,000 Nil
Rs 2,50,001 - Rs 5,00,000 5%
Rs 5,00,001 - Rs 10,00,000 20%
Above Rs 10,00,000 30%

New tax regime:

Existing new tax regime slab rates for FY 2023-24
Up to Rs 3,00,000 Nil
Rs 3,00,000 - Rs 6,00,000 5% (Tax Rebate U/S 87A)
Rs 6,00,001 - Rs 9,00,000 10% (Tax Rebate U/S 87A Up to ₹7 Lakh)
Rs 9,00,001 - Rs 12,00,000 15%
Rs 12,00,001 - Rs 15,00,000 20%
Above ₹ 15,00,000 30%

Frequently Asked Questions

Q- How should I report intraday gains and losses in my Income Tax Return (ITR)?

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.

Q- What documents do I need to maintain for reporting intraday gains and losses?

You should maintain comprehensive records, including trade summaries, transaction statements, brokerage statements, and financial statements detailing your intraday trading activities. These records will serve as supporting documentation when filing your ITR.

Q- How do I calculate taxable income for intraday trading?

Calculate your taxable income from intraday trading by deducting all trading-related expenses, such as brokerage fees, transaction charges, and other applicable costs, from your gross intraday trading profits. The resulting net income is then added to your other sources of income for tax calculation.

Q- Can I offset intraday trading losses against other income for tax purposes?

Intraday trading losses can typically be set off against intraday trading gains, but they cannot be offset against other sources of income like salary or rent income. However, certain types of losses, such as business losses, may be carried forward for future offset against business income.

Q- How should I file my ITR if I have both intraday trading income and other sources of income?

If you have income from intraday trading as well as other sources, report each type of income separately in the relevant sections of the ITR form. Ensure accurate reporting and maintain supporting documentation for both types of income.

Q- What if I have incurred a loss in intraday trading?

If you incur a loss in intraday trading, you can carry forward the loss to future years and set it off against intraday trading gains in those years. Ensure proper documentation and compliance with tax rules.

Q- Can I e-verify my ITR if I have reported intraday trading income?

Yes, you can e-verify your ITR if you have reported intraday trading income. Use the appropriate electronic verification methods provided by the Income Tax Department for a convenient and secure verification process.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.