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. Open a free Demat account with m.Stock today and enjoy one of the low brokerages on all intraday trades.
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FAQ
Are capital gains taxable in India?
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.
What happens if I make trading losses?
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).
Is there a tax on long term gains?
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.
How much tax is imposed on short term gains?
15% STCG tax is charged on short-term gains in equities.