BAJAJ BROKING
August 01, 2023
6 mins read
Intraday trading means buying and selling stocks within the same day to earn short-term profits. In India, these profits are treated as business income and taxed based on your income tax slab. Understanding these tax rules is important for proper financial planning and compliance. Let’s break down how intraday trading profits are taxed and what traders should keep in mind.
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.
Let’s take a look at income tax slab rates under old and new tax slabs:
1. New Tax Slab
| 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.
2. Old Tax Slab
| 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.
Capital assets and trading assets are treated differently under the Income Tax Act in India. Classifying them correctly is essential for computing your tax liability. The distinction determines whether your gains are taxed under ‘Capital Gains’ or ‘Business Income’. Typically, long-term investments like land, property, or shares held for wealth creation are capital assets, while assets bought for resale or day trading are treated as trading assets. This classification affects the applicable tax rate, holding period benefits, and reporting method under the Income Tax Return (ITR). Below, we explain both categories in detail.
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'—either short-term or long-term, depending on the holding period. For instance, shares held for more than 12 months attract long-term capital gains (LTCG) tax at 10% beyond Rs.1 lakh, while shorter holdings attract short-term capital gains (STCG) at 15%. Indexation benefits may also apply for certain assets like real estate and debt mutual funds.
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.
Intraday trading involves buying and selling stocks on the same day without taking delivery. Since the intention is to earn quick profits, intraday trades are not considered capital investments. Instead, they are classified under speculative business income. As a result, income from such trades is taxed as per your income slab rate under the head ‘Income from Business or Profession’. Additionally, traders must maintain records of turnover and expenses, and file ITR-3. Advance tax rules and audit requirements may also apply based on turnover and income.
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 | 0.8% |
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 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.
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.
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!
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. |
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.
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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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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