Income Tax on Intraday Trading

Is There Any Tax on Intraday Trading?

Intraday trading refers to buying and selling stocks on the same trading day. Apt for short-term traders than long-term investors, intraday trading is a lucrative trading option. But a lot of investors and traders forget that intraday trading is not tax-free. Yes, your intraday gains are subject to taxation as intraday profits fall under the purview of ‘speculative business income’. Hence it is essential for you to understand what legally obligated intraday taxes are attached to intraday trading in order to enjoy a hassle-free trading experience.

Intraday trading falls under the category of ‘business income’. However, there are two broad definition-heads under which trading income can be divided as:

  • Speculative Business Income :

    Intraday transactions that are speculative in nature fall under this category.
  • Non-Speculative Business Income :

    Non-speculative business income includes income from equity trades, F&O, Currency or Commodity etc.

How is Intraday Tax Calculated?

In a very basic way, all the income from speculative and non-speculative business are calculated together with your other income and income tax is levied accordingly. Let us understand this with a simple example.

Ravish Kumar, a 29-year-old software engineer, has the following income:

  • Salary - ₹10 lakh per annum
  • Short-term capital gain - ₹ 1lakh
  • Speculative business income- ₹2 lakh
  • Non-speculative business income- ₹2 lakh
  • Bank deposit interest- ₹ 1lakh

Ravish's short-term capital gains (STCG) of ₹1 lakh will be taxed at 15%. Hence, the liable income tax on Ravish's STCG (Short-Term Capital Gain) will be ₹15,000.

Ravish’s total taxable income will be: Salary (₹10 lakh) + Speculative Business Income (₹2 Lakh) + Non-Speculative Business Income (₹2 Lakh) + Bank Deposit Interest (₹1 Lakh)
= (10 lakh + 2 lakh + 2 lakh + 1 lakh)
= ₹15 lakh

Now, based on the tax slab, Ravish will have to pay 30% tax on total taxable income. So, 30% of ₹15 lakh will be ₹ 2,62,000. Hence, Ravish has to pay ₹2,62,000 as tax on his long-term capital gains while his short-term capital gains from intraday trade is taxed separately at 15% and amounts to ₹15,000.

Inescapable Intraday Trading Rules

In order to win the game of intraday trading, there are a few things you mustn't miss out on-

  • Know your threshold and the loss you can afford
  • Wait, if the market is volatile
  • Do not trade until you have sufficient knowledge
  • Record your trading results, be it losses or gains. It gives you an insight, especially on the backdrops of your trading method
  • Read trading news and stay updated
  • Know all about your trading companies before investing
  • Do not overtrade to cover your past losses

Profits on intraday trading are legally taxable in India and there is no way to avoid it. But there is a way for you to reduce your overall trading costs and increase your take-home intraday profit - simply open a zero brokerage m.Stock account and enjoy zero brokerage across all products for life. So, while paying tax on intraday trades is statutory, paying high brokerage is a choice, which you must avoid at all costs with m.Stock. Open a Zero Brokerage account with m.Stock today and enjoy zero brokerage on all intraday trades for life.

Frequently Asked Questions

Yes, capital gains are taxable in India. For equities, the holding period is one year while the holding period for debt instruments is 3 years.

For speculative losses, you can file the ITR and mention your loss. Such losses can only be carried out for 4 consecutive years. It can be set off if only you make any speculative gain in that period. Non-speculative losses can be carried for 8 consecutive years and can be set off against any other income from business (except salary).

In case of equities, profits earned on units sold within 1 year (STCG) are taxed at 15%. Long-term capital gains (holding period of more than 1 year) are taxed at 10% if LTCG exceeds ₹1 Lakh in a financial year.

15% STCG tax is charged on short-term gains in equities.

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