How Intraday Trading Profits are Taxed?

Understanding Intraday Trading Tax

 

Depending on whether you consider yourself to be an investor or trader, a share may be referred to as a "Capital Asset," or "Trading Asset." Investors are those who make long-term investments in stocks or other assets with the goal of holding them for a significant amount of time. Traders are those who regularly purchase and sell stocks and other securities in an effort to benefit from short-term fluctuations in price.

Investors make money from dividends and capital appreciation. The proceeds received from the selling of stock are subject to "capital gains" taxes. Trading revenue is considered business income and, therefore, must be reported on tax returns under the title "Profits and gains from business or profession."

 

Capital Assets

As per Section 2 – Subsection 14 of the Income Tax Act, 1961, capital assets means property of any kind held by an assessee, whether or not connected with their business or profession, but does not consider any stock-in-trade or personal assets subject to certain exceptions.

 

Trading Assets or Stocks-in-Trade

These are stocks owned by a day trader with the express intention of reselling them. All the incomes like salary, other business income, interest on deposits, income from rentals, etc., which are either speculative or non-speculative, are clubbed with your total income and taxed as per the applicable rates.

 

Tax Rules for Intraday Profits

To comprehend the concept of intraday tax liability better, let us work through an example:

• Annual Salary = Rs. 10 lakh
• Income from intraday equity trading for the year = Rs. 2 lakh [being speculative business income]
• Income from futures and options = Rs. 2 lakh [non-speculative business income]
• Capital Gains = Rs. 1 lakh
• Interest from bank deposits (annual) = Rs. 1 lakh

 

Gains from the disposal of capital assets will be taxed depending on whether the capital assets were held on a short-term or long-term basis. Now, let’s suppose that the capital gains made were short-term capital gains. Therefore, the income will be subjected to a 15% tax rate. Therefore, the tax amount will be Rs. 15000.

 

Total taxable income will be arrived at by including all other income heads, such as salary income, speculative business income, non-speculative business income, and interest on bank deposits.

 

Tax Slab for FY 2023-24	Tax Rate	For FY 2024-25	Tax Rate
Up to ₹ 3 lakh	Nil	Up to ₹ 3 lakh	Nil
₹ 3 lakh - ₹ 6 lakh	5%	₹ 3 lakh - ₹ 7 lakh	5%
₹ 6 lakh - ₹ 9 lakh	10%	₹ 7 lakh - ₹ 10 lakh	10%
₹ 9 lakh - ₹ 12 lakh	15%	₹ 10 lakh - ₹ 12 lakh	15%
₹ 12 lakh - ₹ 15 lakh	20%	₹ 12 lakh - ₹ 15 lakh	20%
More than ₹15 lakh	30%	More than ₹15 lakh	30%

 

If You Book Loss in a Financial Year?

These are the rules for income tax on intraday trading profit, but what if you book a loss?

 

Losses that are incurred due to speculative activities are referred to as speculative losses. These losses can be forward for not more than four consecutive financial years. Further, they can be set off only against speculative business income derived in that period. 

 

As a result, there is no income tax on intraday trading losses. Many traders use it to offset their intra-day profits. However, any loss incurred from non speculative transactions (non-speculative losses) is eligible to be carried forward for up to 8 consecutive years. You can offset non speculative losses against any other business income other than salary income in the same year.

 

Conclusion

 

Income arising from intraday trades in equities is considered to be speculative business income and not capital gains income. The profit earned from a speculative business is included in the total income and is taxed according to the applicable income tax rate. Therefore, if you are using an intraday trading account, you should keep track of your profits or losses to ensure your intraday trading tax liability.