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How Profits from Intraday Trading are Taxed in India?

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Imagine standing at the edge of a cliff overlooking the vast ocean of the stock market. The wind is blowing in your hair, the sun is shining bright, and you’re ready to take the leap. You’re about to embark on a journey of intraday trading, where every second counts, and every move can bring you closer to your financial goals or leave you far behind.

Long-term Investments and Capital Gains Tax

Investment and capital gains walk hand-in-hand. However, the period of holding the stock defines whether it’s a long-term or a short-term capital gain. If you hold the stock for more than a year, it’s a long-term capital gain, whereas holding the stock for less than a year is a short-term capital gain. You attract a 10% tax on your long-term capital gain if the sale of equity shares is over Rs. 1 lakh. Short-term capital gains attract a 15% tax if securities transaction tax is also applicable.

Intraday Trading Tax

Let’s take a look at income tax slab rates under old and new tax slabs:

1.     New Tax Slab

Tax BracketTax Charges
Rs. 5 lakhs and Rs. 7.5 Lakhs10%
Rs. 7.5 lakhs and Rs. 10 lakhs15%
Rs. 10 lakhs to Rs. 12.5 lakhs20%
Rs. 12.5 lakhs to Rs. 15 lakhs25%
Above Rs. 15 lakhs30%

Note: This is applicable to Senior Citizens too.

2.     Old Tax Slab

Tax BracketTax Charges
Up to Rs. 2.5 lakhsNil
Rs. 2.5 lakhs to Rs. 5 lakhs5%
Rs. 5 lakhs to Rs. 10 lakhs20%
Above Rs. 10 lakhs30%

Note: Under the old tax slab, for senior citizens, taxation was nil for a tax bracket of up to Rs 3 lakh. Everything else remained the same.

Illustration of Intraday Trading Tax Liability

We have looked at the tables and numbers, but how does it apply to you? Don’t worry! We’ll explain. Let’s assume Person A has a salary of Rs 10 lakh annually, with a short-term capital gain from equity shares amounting to Rs 1 lakh. Moreover, he gains Rs. 2 lakhs from intraday trading with additional gains of Rs 2 lakh from his derivatives trading. Finally, he also gains an interest rate from bank deposits of Rs 1 lakh.

This brings Person A’s total income to Rs 15 lakh without adding capital gains to his total income since it has a fixed rate of taxation. Therefore, his tax liability is Rs 2.625 lakh + STCG of Rs 15,000, equaling Rs 2.775 lakh.

What are the Charges for Intraday Trading?

This depends on the broker or the online trading website you are using. Usually, the brokerage charges on equity delivery are Rs. 0 and charges Per Order For Intraday, F&O, Currencies, and Commodities range between Rs. 20 to Rs. 30 online.

How Does Intraday Trading Income Tax Work? 

Intraday trading income tax is distinct from other investment income taxes. Here’s a detailed explanation:

1. Income Classification

Gains from intraday trading are treated as business income, added to your salary, and taxed according to your income tax slab. Therefore, intraday trading income tax falls under the head of business income.

2. Speculative Business Income

Since intraday transactions are speculative, the income from these trades is termed speculative business income. Income tax on intraday trading profit in India is categorized under this and taxed according to your income tax slab without a separate speculative tax rate.

Transactions that are not speculative fall under non-speculative business income. This includes delivery-based equity trades, equity futures and options, commodity trades, and currency trades. The income from these is termed non-speculative business income.

3. Tax Calculation

Profits from intraday trading are added to your total business income and taxed according to your income tax slab. If you’re in the 30% tax bracket, your income from intraday trading will be taxed at 30%. Losses from intraday trading can be set off only against speculative business income and carried forward for up to four years to offset future speculative gains.

5. Filing Requirements

When filing your tax return, report your intraday trading income under 'Income from Business and Profession.' Keep detailed records of all intraday trades, including dates, number of shares, purchase and sale prices, and brokerage fees. These records are essential for accurate tax calculation and audits.

Understanding how intraday trading income tax works helps you comply with tax laws and make informed trading decisions. Consult a tax professional to stay updated on regulations and optimize your tax strategy.

As you jump into the market, you start to make quick gains, buying and selling shares at lightning speed. But as you become more successful, you realize that there’s one thing you still need to consider: taxes. How will the government treat your gains? Will you be able to keep all of your hard-earned money, or will you have to give a large portion of it away? You start to feel a knot forming in your stomach as you realize that you don’t have all the answers.

Don’t worry, you’re not alone. Many traders have faced the same questions, but with the right knowledge, you can navigate the tax laws and minimize your tax liability, maximizing your profits and achieving your goals.

When you earn money by participating in intraday trading, your income will be treated as business income. Therefore, just like business income attracts tax, income from intraday trading will also attract tax. Your annual tax will include your profits from intraday trading, salary, deposits, etc. Profits from intraday trading are added to taxable business income and are taxed in accordance with the total income slab, as stated in section 43(5) of the Income Tax Act.

Keep reading this blog to learn more about intraday trading tax!

What is the Average Price?

The average cost develops when you trade in the same security many times. The cost is what you use to calculate the total average price of the Purchase and Selling of a particular share multiple times. For example, you purchase a share of Rs. 200 from ‘XYZ’ Company. You sold the share for Rs. 220. You quickly make a profit of Rs. 20. Then you buy the same share for Rs. 240 and sell it for Rs. 260. You now make a profit of Rs. 20.

Let’s calculate the Average Buy Price and Sell Price:

Average Buy Price   Rs. 200 + Rs. 240 = Rs. 440 Rs. 440/2= Rs. 220   Average Sell Price   Rs. 220 + Rs. 260 = Rs. 480 Rs. 480/2 = Rs. 240   Profit   240-220= Rs. 20 20*2= Rs. 40   Rs. 40 will be notified under Realized P/L on your dashboard.

What Happens to Speculative Business Loss?

We have talked about gaining profits from Intraday trading, but what if one has encountered speculative business losses? Well, if you have lost money when trading intraday, you can carry those losses over for the following four fiscal years. This will help you in lowering your taxable income in the future. However, remember that if you want to avail of the benefit to carry forward losses, you have to file your income tax return by the deadline.

Conclusion

Intraday trading is a great way to earn money. However, remember that you need to be cautious before investing your hard-earned money in the market. Read all the information and related documents carefully before investing. Bajaj Broking offers great subscription plans at low brokerage fees for intraday trading! Join today!

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Frequently Asked Questions

How is intraday trading income taxed in India?

Answer Field

Intraday trading income is classified as speculative business income and taxed according to your income tax slab rate in India.

What is considered intraday trading for tax purposes?

Answer Field

Intraday trading involves buying and selling stocks on the same day without taking delivery, categorized as speculative transactions for tax purposes.

How do I calculate taxable income for intraday trading?

Answer Field

Add intraday trading profits to your total business income, and tax it according to your income tax slab. Speculative losses can offset speculative gains.

What is LTCG and STCG?

Answer Field

LTCG (Long-Term Capital Gains) arises from holding assets over a year, taxed at 10%. STCG (Short-Term Capital Gains) arises from holding assets under a year, taxed at 15%.

How should I file my ITR if I have both intraday trading income and other sources of income?

Answer Field

Report intraday trading income under 'Income from Business and Profession' and other incomes under respective heads in your ITR, calculating total taxable income accordingly.

What are the consequences of not reporting income tax on share trading profit in India?

Answer Field

Failing to report income tax on share trading profit in India can result in serious consequences, including penalties, interest on unpaid taxes, and scrutiny under the Income Tax Act. Non-compliance also damages your financial credibility, affecting future dealings with tax authorities.

Are there any exemptions or deductions available for intraday trading tax?

Answer Field

Income categorised under intraday trading tax is considered speculative business income, disqualifying it from exemptions such as those available for capital gains. This makes it essential to plan taxes efficiently since speculative losses can only offset speculative gains.

What resources can help me use an intraday income tax calculator to estimate my tax liability?

Answer Field

An intraday income tax calculator is a helpful tool that factors speculative income into tax slabs, giving accurate estimates of tax obligations. Online calculators simplify tax planning by considering applicable deductions, brokerage fees, and profits, ensuring compliance with income tax laws.

How do changes in trading tax in India affect my liability for intraday trading tax?

Answer Field

Adjustments in trading tax in India and intraday trading tax rules directly affect liability by altering income classifications and slab rates. Changes in tax slabs, deductions, or speculative income rules can increase or reduce your total tax burden, requiring regular strategy updates.

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