Understand the rate of tax on intraday trading and the filing process to manage your finances effectively.
Intraday trading involves buying and selling stocks within the same trading day. This investment strategy allows you to capitalise on short-term price movements. It demands quick decisions and a good understanding of market trends to seize profitable opportunities.
Understanding the rules of tax on intraday trading helps you avoid unexpected liabilities. This enables you to maximise your profits.
Over the past decade, there has been a significant rise in the number of individuals participating in intraday trading. Here are some of the reasons why:
The widespread use of smartphones has made accessing trading platforms more convenient. This increased accessibility has led to more retail investors actively managing their portfolios.
The online courses and communities have empowered individuals to learn and develop trading skills.
The potential for high returns in a short period entices many new participants. Moreover, the adrenaline rush associated with intraday trading adds to its appeal.
The Income Tax Department classifies income from intraday trading as speculative business income. This classification exists because you trade without intending to take delivery of the contracts.
Here are the major differences difference between speculative and non-speculative incomes:
This arises from intraday transactions where stocks are traded without taking delivery. Profits from these trades are categorised as speculative business income.
This includes profits you earn from futures and options (F&O), commodities, delivery-based equity trades, as well as currency trades. Non-speculative income is also classified as business income.
For taxation, both incomes are added to the overall income. It includes other sources like salary, bank interest, and rental income. Taxes are then determined based on the applicable income tax slab rather than at a fixed rate, as with capital gains from investing.
The Income Tax Act specifies different slab rates for various income levels. It may be adjusted with the applicable surcharge rate and an additional 4% cess.
Tax Slabs (Old Regime) |
Tax Rates (Old Regime) |
Tax Slabs (New Regime) |
Tax Rates (New Regime) |
Up to ₹2,50,000 |
Nil |
Up to ₹3,00,000 |
Nil |
From ₹2,50,001 to ₹5,00,000 |
5% |
From ₹3,00,001 to ₹6,00,000 |
5% |
From ₹5,00,001 to ₹10,00,000 |
20% |
From ₹6,00,001 to ₹9,00,000 |
10% |
₹10,00,001 and above |
30% |
From ₹90,00,001 to ₹12,00,000 |
15% |
From ₹12,00,001 to ₹15,00,000 |
20% |
||
₹15,00,001 and above |
30% |
Here is how you can set off your intraday trading losses against profits:
Loss Type |
Current Year Loss |
Carried-Forward Loss |
Carry Forward Duration |
Non-Speculative business loss (F&O) |
Any income except salary |
Any business gain (both spec and non-spec) |
8 years |
Speculative Business Loss (Intraday) |
Speculative business gain |
Speculative business gain |
4 years |
To determine your trading turnover, you will have to get the sum of the absolute values of all your trades. It includes profits and losses, as the turnover reflects the total money involved in the trades. Consider the following examples:
Example 1:
If you made a profit of ₹5,000 in one trade and a loss of ₹3,000 in another trade, the turnover would be:
Profit = ₹5,000
Loss = ₹3,000
Total Turnover = ₹5,000 + ₹3,000 = ₹8,000
Example 2:
If you made four trades, resulting in:
Trade 1: Profit of ₹2,000
Trade 2: Loss of ₹4,000
Trade 3: Profit of ₹3,000
Trade 4: Loss of ₹1,000
Total Turnover = ₹2,000 + ₹4,000 + ₹3,000 + ₹1,000 = ₹10,000
By following this method, you can accurately calculate your trading turnover. This value is crucial for tax reporting and assessing your trading strategy's effectiveness.
Understanding the tax implications of trading can significantly enhance your financial returns. Here are some key points to consider for optimising your tax liabilities:
Business Expenses: If considered a business, you can claim deductions for expenses like brokerage fees and Securities Transaction Tax (STT).
Capital Gains: If treated as investment income, exemptions for long-term capital gains apply, such as up to ₹1 Lakh under Section 80C of the Income Tax Act.
Carry Forward Losses: You can carry forward trading losses for up to eight years to offset future profits.
Tax-Saving Investments: Investing in instruments like PPF, NPS, and ELSS allows you to claim deductions under Section 80C of the Income Tax Act.
Filing your tax return as a trader can be straightforward if you follow the right steps. Here’s a step-by-step guide to help you through the process:
Visit the e-filing portal and select the assessment year and ITR form (ITR-3 for trading income)
Choose the reason for filing, such as taxable income exceeding the basic exemption limit
Select applicable schedules, adding necessary ones like schedule 112A for LTCG
Fill in personal details and filing status under Part A–General Information
Report income from F&O by completing the Balance Sheet, Trading Account, and P&L schedules
Report intraday income as speculative business income in the P&L schedule
Add short-term and long-term capital gains in the CG schedule, specifying the type
Check for loss adjustments and carry-forwards under schedules CYLA and CFL
Review all details, pay any tax dues, and proceed to verification before e-filing
Intraday trading and regular (delivery-based) trading are distinct strategies with unique characteristics. The table below outlines their key differences to help you choose the right approach for your trading goals:
Aspect |
Intraday Trading |
Regular Trading (Delivery-Based) |
Definition |
Buying and selling within the same day |
Buying and holding for the long term |
Objective |
Capitalising on short-term price movements |
Long-term growth or dividends |
Tools |
Technical analysis, charts, indicators |
Fundamental analysis, company research, financial statements |
Position Duration |
Needs to be squared off before the market closes |
Can hold shares beyond the same day |
Ownership Change |
No change in ownership |
Ownership changes from seller to buyer |
Settlement |
Same-day settlement |
Settlement within T+1 day after transaction |
Risk and Reward |
Higher risk due to market volatility |
Less volatile, requires patience |
Here are some other differences you need to consider:
Tax Rates: Intraday profits are taxed as speculative income, while delivery-based profits are capital gains, subject to different tax rates
Losses: Intraday losses offset other business income, whereas regular trading losses only offset capital gains
The basic exemption limit for tax-free income in India is up to ₹2.5 Lakhs as per the old regime and ₹3 Lakhs as per the new regime. Any profits from intraday trading above this limit are subject to income tax at applicable slab rates.
Depending on your income, you may have to pay a tax rate of 0%-30%.
Intraday trading is tax-free up to an income of ₹2.5 Lakhs as per the old regime and ₹3 Lakhs as per the new regime.
As per the intraday trading taxation rules, a tax rate of up to 30% is charged on day trading, depending on your income.