Tax on Intraday Trading in India: A Complete Guide for Traders

Filing taxes can be daunting, particularly for intraday traders managing numerous daily transactions. Unlike long-term investors, who benefit from different tax rules, intraday traders must navigate unique tax requirements due to the nature of short-term trades.

Income from intraday trading is classified as speculative business income, meaning intraday profit tax and losses are treated differently than standard investments and are taxed according to individual income slabs rather than a fixed tax on intraday trading in India.

This guide breaks down each part of the tax process, providing strategies to effectively manage your tax on intraday trading in India. With the right insights, filing taxes as an intraday trader can become a manageable—and even beneficial—part of your trading strategy.

Types of Income in Intraday Trading

Intraday trading income tax is classified as business income, not capital gains. This classification is important because it impacts how taxes are calculated and what you can deduct. There are two main types of business income relevant to intraday traders:

• Speculative Business Income: This includes intraday profit tax equity trading, where stocks are bought and sold within the same day. Because the shares are held for such a short time, this income is considered speculative, as traders speculate on price changes rather than long-term value.
• Non-Speculative Business Income: Intraday income tax in Futures and Options (F&O). F&O income is non-speculative because the contracts can involve actual delivery of the underlying asset or are seen as less speculative if trading is your main business.

Knowing the difference helps you understand how profits and losses are taxed and what deductions are available.

Treatment of Intraday Trading Income Tax

According to Indian tax law, intraday income tax is classified as speculative business income under Section 43(5) of the Income Tax Act. Here’s how taxes work for speculative and non-speculative business income:

• Presumptive Business Income (Section 44AD): Under this scheme, tax on intraday trading is calculated at 6% of the turnover for amounts up to ₹ 2 crore. However, losses cannot be carried forward under this scheme, and filing is done using Form ITR-3.
• Normal Business Income: Here, your total taxable income is turnover minus deductible expenses (like rent, brokerage fees, internet costs, etc.). This income is then taxed as per your tax slab.

Key Considerations for Intraday Trading Taxes

When calculating tax rate on intraday trading, keep these points in mind to avoid overpaying:

Setting Off Losxses

• Speculative Losses: Losses from intraday equity trading can be carried forward for four years but can only offset future speculative gains.
• Non-Speculative Losses: Losses from F&O trades can offset any income (except salary) in the same financial year. For example, F&O losses can be used to offset rental income or interest income.

Reduce Your Tax Liability

Offsetting losses against income can lower your total tax bill. If you had long-term stock investments, remember those gains are taxed separately and aren’t affected by intraday trading losses. When calculating intraday income tax, consider how much tax on intraday trading you might save by properly setting off losses.

Managing Intraday Losses

If you’ve faced losses in intraday trading, the tax rules offer relief by allowing you to carry these losses forward for up to four years. This “carry-forward” provision means that your speculative losses from intraday trading can offset any speculative gains in future years. Reducing your taxable income in profitable years effectively lowers the tax you owe when you start seeing gains.

To use this carry-forward benefit, you must file your tax return on time each financial year. Missing the deadline disqualifies you from carrying forward losses, so punctual filing is crucial for taking full advantage of this tax-saving strategy.

Intraday Trading Tax Audits

For intraday traders, a tax audit under Section 44AB of the Income Tax Act is required if turnover exceeds specific limits:

• Presumptive Business Income: An audit is mandatory if turnover exceeds ₹. 2 crore.
• Normal Business Income: An audit is needed if turnover crosses ₹ 1 crore.

In intraday trading, “turnover” is calculated as the total of all absolute profits and losses from each trade. This unique turnover calculation is essential for staying within compliance.

Hiring a qualified chartered accountant (CA) is highly recommended for traders who need a tax audit. A CA can accurately prepare financial documents, verify your books, and ensure correct filing. By overseeing the process, a CA helps avoid errors or penalties and makes tax season smoother. Professional guidance is invaluable for many traders in navigating these complex requirements and maximising tax efficiency.

Conclusion

Taxation on intraday trading in India may seem complex, but a solid understanding can make all the difference. By knowing how speculative income is taxed, leveraging loss carry-forwards, and understanding audit requirements, traders can stay compliant and reduce their tax burden. Choosing between presumptive and regular tax schemes, tracking expenses, and filing on time are just a few strategies that streamline the process and help save on taxes.

With these tips in hand, intraday traders can confidently approach tax season, turning what was once a confusing process into a manageable part of their trading practice. Remember, staying informed and organised is key—ultimately allowing you to focus more on trading and less on tax headaches.

Frequently Asked Questions – FAQs

1. What documents do I need to file taxes for my intraday trading income?

You will need contract notes for each intraday trade, profit/loss statements from your broker, records of all your trading-related expenses, bank account statements showing the money transfers, demat account statements, and any other documents supporting your income, deductions, and taxes paid.

2. Can I set off my intraday losses against salary income?

No, intraday speculative losses can only be set off against intraday speculative gains over the next 4 assessment years. They cannot be set off against salary, rental income, interest income, or capital gains from investments.

3. What expenses can I claim as deductions against intraday trading income?

You can claim deductions on expenses like internet charges, computer depreciation, account opening charges, annual demat account charges, advisory/subscription charges, bank charges, books & periodicals, brokerage fees, business travel expenses, office rent, office supplies etc. Proper bills and invoices must be maintained.

4. How is turnover calculated for presumptive taxation of intraday trading?

For presumptive taxation under Section 44AD, turnover is calculated as the total absolute value of positive and negative differences of intraday transactions. So if you made a ₹10 profit on one trade and ₹5 loss on another, your turnover is ₹15 (10+5).

5. I made losses in F&O intraday trading this year. How can I set this off against future income?

The loss from your non-speculative F&O intraday trading can be set off against any other income except salary in the current assessment year. The remaining loss can be carried forward for 8 consecutive assessment years.

Author: All Content is verified by SMC Global Securities.