Introduction:
Nowadays, everyone is into Intraday trading, it has gained popularity among Indians rapidly since 2020. To tell you briefly about it, Intraday Trading involves buying and selling financial instruments, like stocks & derivatives which are sold off on the same trading day. Traders do Intraday trading to profit from short-term price movements.
There are a lot of things involved in the whole Intraday Trading Process. From reading the technical charts to understanding indicators. However, after the profits are booked, one thing that a trader should understand is the tax implications of it. Intraday Trading can have an impact on your tax filing and tax returns. This blog presents a full guide to help you clear out your tax worries post making good profits in the stock market.
Essentially, it will help you understand the tax system of intraday trading in India. It will also help them avoid penalty notices from the income tax department.
Understanding Capital Assets and Trading Assets:
Investors and traders differ in their investment strategies. Investors invest in stocks or other securities for the long term.
They aim to earn returns from price increases and dividends. Traders buy and sell stocks to profit from short-term price changes. It depends on whether you are an investor or a trader. You can call a share a ‘Capital Asset’ or ‘Trading Asset or Stock-in-Trade’.
Investors pay taxes on their capital gains. The government taxes traders on their business income. We will divide your income into the following categories:
Capital Assets:
– Long Term Capital Gain (LTCG) or Loss
– Short Term Capital Gain (STCG) or Loss
Trading Assets:
– Speculative Business Income: Income from intraday trades.
– Non-Speculative Business Income: Income from all other share transactions.
What is Intraday Trading?
Intraday trading is a technique, which is used frequently by traders. Stock is bought and sold on the same day. It brings profit from the volatility of stock prices.
Intraday gain & loss is generated from buying and selling the stock within the same day. This income is taxable and must be disclosed while filing an income tax return (ITR filing).
How to Do Intraday Trading?
Intraday trading is conducted through a Demat account. Traders must declare their intention of intraday trading while buying stock. Gains and losses from intraday trading are called speculation gains and losses.
Which Head is Intraday Gain & Loss Taxable Under? Or where to report intraday trading in ITR?
Intraday gain & loss is taxed under “Profits and Gains from Business and Profession”. It is seen as speculative income. This income is taxed at normal rates for individuals. Long-term capital gains are taxed at lower rates.
What is the ITR Form for Intraday Trading? Or which ITR is for intraday trading?
Income from Intraday trading is charged under profits and gains from business and profession. Traders must file ITR-3 and prepare financial statements.
ITR due date for intraday trading income:
31st July – if Tax Audit is not applicable
31st October – if Tax Audit is applicable
Is Tax Audit Required for Intraday Trading? Can you show intraday trading under 44 AD?
- If your Intraday Trading Turnover is up to Rs2 Crore (if you choose presumptive taxation), you don’t need a tax audit if you have made profits of at least 6% of Trading Turnover.
However, if you have incurred a loss or your profit is less than 6% of Trading Turnover, a Tax Audit is applicable if your total income is more than Rs2.5 lakhs.
2. If your Intraday Trading Turnover is more than Rs 2 Cr and up to Rs 10 Cr (if you opt to pay tax normally), you need a tax audit if you don’t choose the Presumptive Taxation Scheme under Section 44AD and your profits are less than 6% of Trading Turnover.
3. If your Trading Turnover is more than Rs 10 Cr, a tax audit is applicable regardless of profit or loss, but only if over 95% of transactions are digital. Trading is then considered 100% digital.
What is Turnover for Intraday Trading?
Turnover for Intraday Trading is the absolute amount of Profits/Losses.
Absolute turnover is the total of gains and losses. Loss amounts are not subtracted but added to the profit. You can calculate Trading Turnover using either a scrip-wise or a trade-wise method.
Example of trading turnover
Asha buys 100 shares of RIL at Rs 70. She sells them at the end of the day at Rs 90. On the next day, she buys 50 shares of LIC at Rs 450, which she sells at Rs 300 at the end of the day.
Profit from 1st Trade = (90-70) * 100 = Rs 2000
Loss from 2nd Trade = (300-450) *50 = Rs -7,500
Absolute Turnover = 2000+7500 = Rs 9,500
Tax Calculation for Intraday Trading
Tax authorities calculate Income Tax on intraday trading income. They use the slab rates. Below, we show the slab rates for different income levels. The applicable surcharge rate + 4% cess will increase these rates.
Old tax regime:
| Income levels | Old tax regime slab rates |
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 – Rs 5,00,000 | 5% |
| Rs 5,00,001 – Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
New tax regime:
| Income Levels | Existing new tax regime slab rates |
| Up to Rs 3,00,000 | Nil |
| Rs 3,00,000 – Rs 6,00,000 | 5% (Tax Rebate U/S 87A) |
| Rs 6,00,001 – Rs 9,00,000 | 10% (Tax Rebate U/S 87A Up to Rs 7 Lakh) |
| Rs 9,00,001 – Rs 12,00,000 | 15% |
| Rs 12,00,001 – Rs 15,00,000 | 20% |
| Above ₹ 15,00,000 | 30% |
Advance Tax for Intraday Trading
If you are an Intraday Trader and your estimated tax payable for the year exceeds Rs. 10,000, you will be required to pay advance tax on specified dates.
For Intraday Traders who do not opt for Presumptive Taxation under Section 44AD, there are four instalments of advance tax to be paid. The due dates for these instalments are:
– 15% of the Total Tax Liability by 15th June
– 45% of the Total Tax Liability by 15th September
– 75% of the Total Tax Liability by 15th December
– 100% of the Total Tax Liability by 15th March
However, if Intraday Traders opt for Presumptive Taxation, they only need to pay advance tax in a single instalment, i.e. by 15th March.
Carry Forward Loss for Intraday Traders
Intraday Trading loss is known as Speculative Business Loss. It can be carried forward up to the next 4 years only if the return is filed within 31st July (if audit is not applicable) or 31st October (if audit is applicable). Speculative Business Loss can only be offset against Speculative Business income.
It’s worth noting that if an Intraday Trader chooses the new tax regime, they cannot carry forward these losses or adjust them against business incomes.
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Disclaimer: Investing in the Equity market in India is subject to risks, i.e. the market keeps on fluctuating. This article is purely for educational purposes. The views expressed and data provided here are by Equitypandit’s team. Kindly do not completely depend on the information provided as the risk appetite differs from individual to individual and there are various other factors in the market to determine the factors to invest in the market.
