What Are The Tax Implications On Intraday Trading?: Every investor or trader in the stock market is looking for opportunities to save tax. They invest money in various avenues to get tax deductions. However, before putting money in different investment options, you must be aware of the tax implications on intraday trading. It is important to know at what rate you will be paying the taxes when you are an intraday trader. By knowing the tax implications you can invest or trade accordingly. In this article, we will clear all your doubts regarding income tax on intraday trading.

Let us begin by understanding the meaning of intraday trading

What is Intraday Trading?

Intraday trading is buying and selling stocks or securities on the same day. To put it in simple words, intraday trading involves squaring off the transaction before the closing of the stock market. Here the trader does not take the delivery or overnight position of shares. The aim of intraday trading is to make profits by taking advantage of the price fluctuation in the stock prices. Know More: What is Intraday Trading?

Let us now learn about tax treatment on intraday trading.

Tax Treatment of Income from Intraday Trading

If you hold stock for less than 365 days than it falls under the category of short term capital gains. The rate of tax here is 15%. Here, the delivery of shares must go directly into your demat account. The normal time period for settlement by exchanges is T+2 working days. But the intraday trading activity does not fall in this category of short term capital gains. This is because the purchase and sale of shares happens on the same trading day. Also, the shares do not go into the demat account as the squaring off of the trade is on the same day.

Intraday trading and F&O trading falls under the category of speculative business income. Any profit from intraday trading falls under the category of speculative activity. As per Section 43(5) of the Income Tax Act, 1961 profits will be added to business income. This suggests that it will be taxable in accordance with the total income slab. Therefore, it can be said that it is a progressive tax and your taxability of the profits from intraday trading will depend on your profits at the end of the financial year.

A trader has two options to treat his speculative business income from the intraday trading. He can treat it either as:

  • Presumptive Business Income [u/s 44AD], or
  • Normal Business Income

Tax Rate for Presumptive Business Income

When an individual treats intraday trading income from the stock market as presumptive business income, the taxable income shall be 6% of the turnover and individual slab rates would be applicable. Only 6% of the income shall taxable only when the aggregate profit and loss from stock trading are up to Rs. 2 crores. For income exceeding above the given limit, the normal tax will be applicable. The only disadvantage of carrying forward loss is that it is not possible to carry forward the loss under presumptive income. You must submit Form ITR-3 for filing the income tax return.

Tax Rate for Normal Business Income

When the income from stock market intraday trading is treated as normal, the taxable income is turnover less expenses. The tax rate applicable is the individual slab rate. The trader can get the deduction of expenses incurred during intraday trading when the income is treated as normal business income. The deduction of expenses can be claimed on brokerage charges, internet expense, office rent, salary paid assistant, phone bill, consultancy fees paid, newspaper, books, maid, depreciation on the use of computer, etc.

Treatment of Losses in Intraday Trade

When losses are incurred in intraday trading, you can carry forward the losses for the next 4 succeeding years. The carry forward of the speculative losses will help in the reduction of future speculative income and reduce the tax outflow in the coming years. The losses can be carried forward only when the return is filed on or before the due date for ITR filing [u/s 139(1)].

Intraday Trading Tax Audit: [u/s 44AB]

You have to carry out tax audit in the financial year when;

  • You opt for presumptive business income and turnover exceeds Rs. 2 crores.
  • You opt for normal business income and turnover exceeds Rs. 1 crore.

The above is the tax implication on intraday trading. If you are new to the market or want to learn more about the stock market, you can get in touch with TradingFuel. We are the leader in providing accurate and consistent stock market blogs. We aim at giving blogs that carry minimum risks and give maximum profits. You can read a free blog of our website and then subscribe to it. What makes our blog even more attractive is that it is free of cost. You can contact us via email or give us a call for more information.

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Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.