August 01, 2023
6 mins read
Intraday trading is the act of buying and selling stocks within a single trading day to generate short-term profits. According to popular belief, intraday profits are treated as business income in India, taxed based on your income tax slab.
This fascinates many traders on why it is essential to understand how intraday trading profits are taxed, in order to plan their finances properly and remain compliant. So let’s see how intraday trading profits are taxed and what intraday traders should know.
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.
From July 23, 2024, long-term capital gains (LTCG) on listed equity shares and equity-oriented mutual funds (held for more than 12 months) enjoy an annual exemption of ₹1.25 lakh, with gains above this threshold taxed at 12.5% (plus surcharge and cess, without indexation).
Short-term capital gains (STCG) on equities sold within 12 months are taxed at a flat 20% (plus surcharge and cess); for transactions before this date, the STCG rate was 15%.
Under the Income Tax Act in India, how capital assets and trading assets are treated is different. Therefore, it is important to get the classification of these correct as this is how you calculate your tax liability. The distinction determines whether you will be taxed under ‘Capital Gains’ or ‘Business Income’.
Intuitively, long-term assets that are traditionally thought of as investments (land, property, shares) and held for the purpose of accumulating wealth flies in the face of rationale of being capital assets compared to assets that you bought for resale or day trading that are considered trading assets.
Classification matters as it determines which tax rate you are using, the benefit of a holding period, and the reporting method you use for your Income Tax Return (ITR). Below we elaborate on both terms.
Capital assets refer to long-term or short-term assets acquired for investment purposes and not intended for immediate resale. These include real estate, stocks, bonds, mutual funds, jewellery, and intellectual property.
Gains from the sale of capital assets are taxed under the head ‘Capital Gains’, classified as short-term or long-term depending on the holding period. For equity shares and equity-oriented mutual funds held for more than 12 months, long-term capital gains (LTCG) above ₹1.25 lakh in a financial year are taxed at 12.5% (without indexation), while those sold within 12 months attract short-term capital gains (STCG) tax at a flat 20%.
For other assets such as real estate, gold, or debt mutual funds, LTCG is generally taxed at 20% with indexation benefits, which helps adjust the purchase price for inflation and reduces taxable gains.
Trading assets or stocks-in-trade refer to assets purchased with the intent of frequent buying and selling, usually for short-term profit. These are classified as business inventory rather than investments. Examples include shares bought for intraday or positional trading and commodities held for resale. Profits from trading assets are considered business income and are taxed according to applicable income tax slab rates.
Unlike capital assets, no indexation benefit or preferential tax treatment applies. Moreover, traders must maintain detailed books of accounts, and they may be liable for audit under section 44AB if turnover exceeds prescribed limits.
Let’s take a look at income tax slab rates under old and new tax slabs:
Tax Bracket | Tax Charges |
Rs. 5 lakhs and Rs. 7.5 Lakhs | 10% |
Rs. 7.5 lakhs and Rs. 10 lakhs | 15% |
Rs. 10 lakhs to Rs. 12.5 lakhs | 20% |
Rs. 12.5 lakhs to Rs. 15 lakhs | 25% |
Above Rs. 15 lakhs | 30% |
Note: This is applicable to Senior Citizens too.
Tax Bracket | Tax Charges |
Up to Rs. 2.5 lakhs | Nil |
Rs. 2.5 lakhs to Rs. 5 lakhs | 5% |
Rs. 5 lakhs to Rs. 10 lakhs | 20% |
Above Rs. 10 lakhs | 30% |
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.
Intraday trading is the buying and selling of stocks on the same day without taking delivery of the security. Since the intention is to earn quick profits, intraday trades are not capital investments but are classified as speculative business income.
Therefore, income from intraday trades is taxed at per your income slab rate under the head 'Income from Business or Profession'. Additionally, traders must keep a record of any turnover and expenses and file ITR-3. Depending on their turnover and income, they may also have obligations for paying advance tax and for undergoing audits.
Let’s say you earned Rs.1,50,000 as intraday trading profit and your total income for the financial year is Rs.6,50,000. Since intraday income is business income, it will be added to your total income and taxed as per slab rate.
Particulars | Amount (Rs.) |
Salary Income | 5,00,000 |
Intraday Trading Profit | 1,50,000 |
Total Taxable Income | 6,50,000 |
Tax (as per FY25 slabs) | ~22,500 |
Health and Education Cess @4% | 900 |
Total Tax Payable | 23,400 |
Here, intraday profit is taxed at your normal rate and not under capital gains.
Assume you have a salary of Rs.4,00,000 and incurred a loss of Rs.60,000 from intraday trading. Intraday trading loss is a speculative loss and can only be set off against speculative income. It cannot be set off against salary or non-speculative income.
Particulars | Amount (Rs.) |
Salary Income | 4,00,000 |
Intraday Loss | -60,000 |
Total Taxable Income | 4,00,000 |
Set-off Allowed? | No |
Tax Payable | As per slab |
You can carry forward speculative loss for four years to adjust only against speculative profits.
Suppose you made 1,000 intraday trades and your total turnover, as per intraday rules, amounts to Rs.2.5 crore. Even if your profit is Rs.2 lakh, audit becomes mandatory under section 44AB because turnover exceeds Rs.10 crore and you're not opting for presumptive taxation.
Particulars | Amount (Rs.) |
Intraday Turnover | 2,50,00,000 |
Intraday Profit | 2,00,000 |
Profit Margin | 0.80% |
Audit Requirement | Yes |
ITR Form | ITR-3 |
High turnover with low profit ratio triggers audit obligations despite modest profits.
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.
Intraday trading income tax is distinct from other investment income taxes. Here’s a detailed explanation:
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.
Since intraday transactions are speculative, the income from these trades is termed speculative business income. Income tax on intraday trading profit in India is categorised 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.
Returns from intraday trading are combined with your other business income and taxed at your income tax slab. If you are in the 30% slab, then you are taxed at 30% on your returns from intraday trading.
If you are filing tax return, you will need to report your income from intraday trading activity with your normal 'Income from Business and Profession' income.
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.
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Intraday trading income is classified as speculative business income and taxed according to your income tax slab rate in India.
Intraday trading involves buying and selling stocks on the same day without taking delivery, categorized as speculative transactions for tax purposes.
Add intraday trading profits to your total business income, and tax it according to your income tax slab. Speculative losses can offset speculative gains.
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%.
Report intraday trading income under 'Income from Business and Profession' and other incomes under respective heads in your ITR, calculating total taxable income accordingly.
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.
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.
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.
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.
Yes, intraday trading is subject to taxation in India. The profits earned from intraday trading are classified as speculative business income and are taxed as per the individual's income tax slab rate. Additionally, Securities Transaction Tax (STT) is applicable on intraday trades. Traders must report their intraday earnings while filing income tax returns and can also claim deductions on expenses related to trading activities.
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