- What Is Intraday Trading?
- Differentiating Capital Assets and Trading Assets
- Taxation of Capital Assets and Trading Assets
- Income Tax Regulations for Intraday Trading
- Key Dates for Tax Filing in Intraday Trading
- Strategies for Minimizing Tax Liabilities in Intraday Trading
- Deductions and Exemptions Available for Intraday Traders
- Calculating Taxes on Profits from Intraday Trading
As traders earn profits by buying and selling stocks on the same day, they need to be aware of tax on intraday trading. This tax on intraday training is a form of income tax on gains earned through the trading activity. Knowing about income tax on intraday trading can help you understand your income tax liabilities and make informed investment decisions.
Let us understand the nitty gritty of income tax on intraday trading exhaustively.
What Is Intraday Trading?
Any kind of stock trading activity involves the buying and selling of stocks. Buying a stock and selling it on the same day is called intraday trading. Intraday trading can also be done for other securities like currencies and commodities. The stock purchased for intraday trading can be held in the form of a capital asset or as a trading asset.
Differentiating Capital Assets and Trading Assets
Any security (such as stocks, bonds, or commodities) that is bought for investment purposes is termed a capital asset. Gains and losses from capital assets are capital gains and capital losses.
Any security held for trading (frequent buying and selling) is called a trading asset or stock-in-trade. Any turnover (gain or loss) from such security is calculated as business income.
Taxation of Capital Assets and Trading Assets
Similarly, taxes on business income can be incurred on speculative business income or non-speculative business income.
Gains from delivery or futures and options trades fall under non-speculative business income. However, intraday trading involves speculation; therefore, their gains are called speculative business income. Hypothetical business income in India is taxed as per the investor’s income tax slab.
Income Tax Regulations for Intraday Trading
To calculate the total applicable income tax, you need to add the profits earned in the form of business income with your salary and other income (rentals, interest earned and more).
Let us understand the income tax regulations on intraday trading with Rani’s example.
- Rani’s annual income from salary is ₹12 lacs.
- It is taxed at 20% as per the new tax regime.
- She had earned a profit of ₹10,000 from intraday trading during the financial year.
Therefore, Rani’s business income = ₹10,000
- Her business income would be taxed according to her applicable income tax slab, i.e. 20%
Therefore, Rani’s income tax on intraday trading profits would be ₹2000 for the financial year.
Key Dates for Tax Filing in Intraday Trading
You need to file taxes for the profit earned through intraday trading during a financial year in the following financial year. 31st July is the due date for filing the ITR-3 form. However, if your total income earned requires a tax audit, then you can file your Income Tax Return (ITR) on 31st October.
Strategies for Minimizing Tax Liabilities in Intraday Trading
While calculating income tax in intraday trading gains, you can consider exemptions and deductions. Setting off your gains against carry-forward losses can also help you reduce your tax liability.
Deductions and Exemptions Available for Intraday Traders
You can deduct brokerage fees and such other expenses incurred during intraday trading. You can also carry forward losses from your intraday trading up to the period of eight years and set off against your future gains.
Calculating Taxes on Profits from Intraday Trading
You will have to pay according to your income tax slab for gains earned from intraday trading, in addition to the tax rate applicable surcharge rate and 4% cess.
If the applicable tax on your profit from intraday trading is more than ₹10,000, then you will have to pay advance tax or presumptive tax (whichever is applicable) on specified dates.
Both gains and losses from intraday trading are important from the point of view of calculating income tax. While the profits are taxed as per one’s tax slab, the losses can be set off against future intraday trading gains. Therefore, a comprehensive tax calculation mechanism needs to be followed to record profits from intraday trading.
If your total income from various sources, including the speculative business income from intraday trading, falls under an applicable taxable income bracket, then you need to file ITR for intraday trading.