Know How Gains from Intraday Trading are Taxed Online | Espresso

How are Gains from Intraday Trading Taxed?

Intraday trading, also known as day trading, refers to the buying and selling of stocks on the same day. As the market closes, all stock positions of the day are also closed, and there is no stock delivery.

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The objective of intraday trading is to earn profits by speculating stock price movement on a particular day, typically through the fluctuation of stock market indices. The intraday trading profits are also subject to income tax. 

Hence, if you want to do intraday trading online or are already engaged in intraday trading, it is vital to know the tax on intraday trades and their implications.

Here is everything you should know about how gains from intraday trading are taxed:

Taxability of Income from Intraday Trading

If you realise a profit through intraday trading online, you will pay the tax on trading to the Government of India. According to Section 43(5) of the Income Tax Act, 1961, income/profits from intraday trading is considered speculative business income and is added to your annual taxable income. That said, if you are completing intraday trading online in commodities and currencies, your income or loss is considered as non-speculative income but is added to your annual taxable income. Both speculative and non-speculative business income is taxed per your marginal income tax slab rate.

When buying a particular stock, you specify if you wish to engage in intraday trading or delivery. If you plan to hold the stocks (take a delivery), the sale transaction will result in a capital gain or capital loss. These capital gains or losses are further categorised as long-term or short-term gains and losses and taxed accordingly. If you hold the stock for more than a year, the transaction will result in long-term capital gains or losses. For long-term gains above ₹1 lakh, you pay 10% as long-term capital gain tax (LTCG). However, if you hold stocks for less than one year, the transaction results in short-term capital gains or losses. Short-term capital gains (STCG) tax is 15%.
Also Read: 6 signals to take profits off the table

How is Speculative Business Income Taxed?

As a taxpayer, you have an option to classify your speculative business income into two different tax heads. Each tax head has its advantages and tax implications.

  • Presumptive business income: Under Section 44 AD of the Income Tax Act, 1961, taxpayers who choose to regard their speculative business income as presumptive business income will be liable to pay taxes at 6% of the turnover (maximum up to ₹2 crores). You have to fill ITR -3 Form for this. However, if you treat your gains from intraday trading as presumptive business income, you would not be able to carry forward your losses, if any. 
  • Business income:  As a taxpayer, you can include income from intraday trading in your ordinary income (inclusive of salary, interest received, etc.) for the year and deduct the expenses to arrive at the taxable income. Eligible expenses for deduction include office rent, depreciation of business assets, internet expenses, accounting and bookkeeping expenses, consultation fees, brokerage fees, and more. 

What is the Tax on Intraday Trades?

As mentioned, tax on intraday trades is applicable as per the general income tax slab rate. For FY 2021-22, you have the choice to pay taxes according to the new tax rates or old tax rates.

Old income tax slab

For taxpayers up to 60 years

Annual Income (in ₹) Tax rates
Up to 2.5 lakhs NIL
Between 2.5-5 lakhs 5%
Between 5-10 lakhs 20%
Above 10 lakhs 30%

The income tax slab for senior citizens (Between 60 and 80 years) starts from ₹3 lakh and for super senior citizens (Above 80 years) from ₹5 lakhs.

New income tax slab
Annual Income (in ₹) Tax rates
Up to 2.5 lakhs NIL
Between 2.5-5 lakhs 5%
Between 5-7.5 lakhs 10%
Between 7.5-10 lakhs 15%
Between 10-12.5 lakhs 20%
Between 12.5-15 lakhs 25%
Above 15 lakhs 30%

This slab is the same for senior citizens. 

Understanding Tax on Trading with an Example

To understand tax on intraday trades, consider this example. 

  • Income from salary and other sources = ₹12 lakhs
  • Income from intraday trading online = ₹3 lakhs
  • Income from short-term equity delivery = ₹1.5 lakh

Total annual income is ₹15 lakhs (inclusive intraday trading profits) without short-term capital gains of ₹1 lakh. If you file taxes under the old tax regime, you will pay ₹2.62 lakhs as annual tax and 15% on ₹1 lakh as STCG tax, which amounts to ₹22,500. 

Overall, gains from intraday trading are treated as speculative income and taxed as ordinary taxable income. Your trading account can help you track gains or losses from intraday trading daily and estimate the annual tax on intraday trades. You can also check with your broker or professional tax expert to confirm the tax on trading.

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Frequently Asked Questions

Tax on intraday trades is different under the new tax regime because of the new tax slab rates.

You can carry forward your loss from intraday trading online for four consecutive financial years or set it off against other speculative business income during the same period.