How Gain from Intraday Trading are Taxed?

Last Updated: 10 Dec 2024

There is hardly any income in India that is not taxed, so you are surely aware that there is an income tax on intraday trading profit in India. This taxon intraday is different from the normal equity tax in form and set-off. We will look at this subject purely from the perspective of income tax on intraday trading profit 2021. Broadly, you must understand that income tax or intraday trading tax in India is charged in the form of speculative transactions and that has a separate set of implications.

How Profits from Intraday are Taxed?

Intraday trading, being a speculative activity, has its own tax implications under Indian law. Profits earned are treated differently from long-term or short-term capital gains. Here’s a detailed breakdown of how intraday trading profits are taxed:

• Tax Classification: Under the Income Tax Act, profits earned from intraday trading are treated as “speculative business income.”
• Income Tax Slabs: These incomes are added to your total income and are taxed based on the slab rates of income tax applicable.
• Loss Carry Forward: Speculative losses from intraday trading can be carried forward for up to four years. They can only be offset against speculative gains in the subsequent years.
• Advance Tax Payment: If your total tax liability exceeds ₹10,000 in a financial year, advance tax payments must be made in instalments.
• Audit Requirements: A tax audit will be needed if intraday trading turnover exceeds prescribed limits, profits are less than 6% of turnover, and total income exceeds the basic exemption limit.
• Filing Category: Intraday trading income needs to be reported under the heading “Income from Business and Profession” when submitting the income tax returns.

What is Turnover for Intraday Trading?

For intraday trading, turnover denotes the total amount of earnings and losses incurred through every trade conducted during a given financial year. For intraday trades, the turnover would have both positive and negative discrepancies between the buying and selling prices of securities. Thus, it is important to ascertain audit provisions and tax obligations under the Income Tax Act.

Example of Trading Turnover

Consider that a trader executes the following intraday trades:

100 shares are bought at ₹ 100 and sold at ₹ 110. It shows a profit of ₹1,000.

50 shares were bought at ₹ 200 and sold at ₹ 190 showing a loss of ₹500.

Here, turnover is the absolute sum of profit and loss,

= Profit + Loss

= ₹1,000 (Profit) + ₹500 (Loss) = ₹1,500 (Total Turnover).

Tax Calculation for Intraday Trading

Calculating the tax implications of intraday trading profits requires knowing how income tax is computed based on prevalent slab rates. The Income Tax Act sets up different slab rates for various income levels but with an adjustment based on the applicable surcharge rate and a 4% cess.

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%

New Tax Regime (Pre-Budget 2024)

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%
Above ₹15,00,000	30%

New Tax Regime (Post-Budget 2024)

Income Range (₹)	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 – ₹7,00,000	5%
₹7,00,001 – ₹10,00,000	10%
₹10,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

Frequently Asked Questions

What is speculative business income?

Speculative business income is income from a speculative activity which in the context of stock markets is defined as business income earned from intraday trading. Equity delivery trading and even F&O trading are classified as non-speculative business income.

Difference between capital assets and trading assets

A capital asset or investment asset is an asset you are holding as a long-term investment for long-term price appreciation. The trading assets, also known as stock-in-trade, are stocks held for trading purposes, mostly for using stock as margin for trading.

What is LTCG and STCG?

LTCG and STCG are applied to assets when they are sold and profits are made. If a stock is purchased and sold before 1 year, it will be short-term capital gains and will be subject to STCG and taxed at the rate of 15%. However, if the stock is held for more than one year, it is long-term capital gains and will be taxed as LTCG at the rate of 10% flat above Rs.100,000 per year. There is no benefit of indexation available in these cases.

Is tax audit applicable for intraday trading?

Yes, if the turnover level crosses the limits under the Income Tax Act, a tax audit may be applicable. Intraday trading is considered to be speculative business, and for the purpose of computing turnover, the sum of absolute profits and losses on all trades made in the entire financial year is considered.

Is GST required for intraday trading?

GST is generally not applicable to intraday trading profits as trading income falls in the category of “capital gains” or “business income” rather than services. However, GST might apply to brokerage and transaction charges levied by stockbrokers. It’s best to consult a tax professional for clarity on your situation.