Clipped from: https://www.adityabirlacapital.com/abc-of-money/income-tax-on-intraday-trading
TABLE OF CONTENT
- Key Highlights
- Income Tax on Intraday Trading Made Easy
- What Is Intraday Trading?
- Tax on Intraday Trading Vs. Capital Gains
- What is Turnover for Intraday Trading?
- Calculating Tax On Intraday Trading
- Solutions for Calculating Tax on Intraday Trading
- FAQS – FREQUENTLY ASKED QUESTIONS
Key Highlights
- Income from intraday trading is considered speculative business income.
- Tax on intraday trading income is calculated as per your tax slab.
- You need to fill out ITR-3 for income tax on intraday trading.
- You should consider your intraday trading annual turnover carefully to determine important tax filing deadlines.
Income Tax on Intraday Trading Made Easy
Post-COVID, people have developed a heightened interest in Indian stock markets. In stock markets, you can either invest in stocks and indices for the long or short term and earn through capital gains or through intraday trading.It is assumed that the returns from intraday trading can exceed capital gains. Thus, the tax on intraday trading earnings differs from the tax on long-term investments.
In this blog, you will learn about the income tax on intraday trading, enabling you to build strategies to maximise your share market earnings.
What Is Intraday Trading?
As the name suggests, intraday trading refers to buying or selling a share during a business day and squaring off (selling or buying, respectively) on the same day. Therefore, you do not get shares credited to your Demat account in intraday trading. You make money in intraday trading by analysing a stock’s short-term price action. For example, you bought “ABC” share today at “x” price and sold it today at “x+y” price, making a profit of “y” in a single day. Keep in mind that gains from intraday trading are considered as ‘income from business’, and you need to pay a tax on trading income.
Tax on Intraday Trading Vs. Capital Gains
Intraday trading is considered speculative because you do not intend to take ownership of the contract. Therefore, the tax on intraday trading income is taxed at the slab rate applicable to your total income.
On the other hand, long-term capital gains are taxed at concessional rates. Some capital gains from equity/ mutual funds are also exempt u/s 10(38) of the Income Tax of India, 1961.
Tax on Intraday Trading: ITR Form and Due Date You must file an income tax return, ITR-3, to account for income tax on trading. The last date to file intraday trading income tax is 31st July if a tax audit is not applicable; otherwise, it is 31st October.
What is Turnover for Intraday Trading?
Tax liabilities on intraday trading earnings are calculated based on turnover. Turnover refers to the absolute amounts of profits and losses generated from daily trading activities. It can be calculated using either the scrip-wise method or the trade-wise method.
Calculating Turnover for Intraday Trading
You need to calculate the annual absolute turnover to calculate income tax on intraday trading. It refers to the sum of profit and loss on all the intraday trades done in a financial year.
For e.g. You bought 100 shares of “ABC” at ₹100 each and sold them the same day at ₹120. Your total profit will be ₹2000 on ABC.
On the same day, you also bought 100 shares of “XYZ” at ₹120 each and sold them the same day at ₹80. Your total loss will be ₹4000 on XYZ.
Your turnover for that day will be ₹2000 + ₹4000= ₹6000.
Calculating Tax On Intraday Trading
As mentioned earlier, income tax on intraday trading is computed at your slab rate and increased by the applicable surcharge rate + 4% cess. The slab rates under the old and new tax regimes are:
Old Tax Regime
| Income Range | Tax Rate |
| Up to ₹ 2,50,000 | Nil |
| ₹ 2,50,001 – ₹ 5,00,000 | 5% |
| ₹ 5,00,001 – ₹ 10,00,000 | 20% |
| Above ₹ 10,00,000 | 30% |
New Tax Regime
| Income Range | Tax Rate |
| up to ₹3,00,000 | Nil |
| ₹3,00,001- ₹6,00,000 | 5% |
| ₹6,00,001- ₹9,00,000 | 10% |
| ₹9,00,001- ₹12,00,000 | 15% |
| ₹12,00,001- ₹15,00,000 | 20% |
| ₹15,00,001 and above | 30% |
Let us understand income tax on trading in both tax regimes through an example:
Annual salary for the last financial year (FY), A= ₹10,00,000
Income from intraday equity trading (speculative business income), B = ₹2,00,000
Income from trading in futures and options (non-speculative business income), C = ₹2,00,000
Capital gains on listed shares (assuming short-term), D= ₹1,00,000
Interest from bank deposits, E = ₹1,00,000
Your total annual income for the last FY, excluding capital gains, will be= A+B+C+E = ₹15,00,000
Your income falls in the highest bracket, 30%. Please note that capital gains are taxed at a concessional rate. Your short-term capital gains will be taxed at 15% in this case.
Therefore, your total income tax, includingtrading income tax, will be 30% of ₹15,00,000 + 15% of ₹1,00,000
=₹2,62,500 + ₹15,000
=₹2,77,500 + cess
Solutions for Calculating Tax on Intraday Trading
Profits from intraday trading can complicate taxes, especially when combined with income from multiple other sources. You should be careful while calculating the tax on intraday trading and pay your liabilities to avoid any penalties.
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