Income tax rules on intraday trading – Income head, ITR form and due date
Understanding intraday tax is crucial for traders to manage their tax obligations efficiently. Under Indian tax laws, profits from intraday trading are classified as Profits and Gains from Business and Profession. This treatment stems from the speculative nature of intraday trades, where securities are bought and sold within the same trading day without any intention of long-term holding.
For tax filing purposes, intraday traders must utilise the appropriate ITR form. Since intraday trading generates business income, individuals should file using ITR-3 and prepare the necessary financial statements. It is crucial to ascertain the correct ITR form to ensure compliance with tax regulations and avoid potential penalties.
Regarding the due date for filing taxes on intraday trading income, there are specific deadlines to adhere to:
- 31st July: Applicable if tax audit is not required.
- 31st October: Applicable if tax audit is required.
Whether tax audit is applicable for intraday trading?
When you opt for presumptive taxation, the applicability of a tax audit depends on your turnover and reported profit. A tax audit is not required if your intraday trading turnover is up to ₹3 crore and you report profits of at least 6% of the trading turnover. However, a tax audit becomes mandatory if you incur a loss or declare profits lower than 6%, provided your total income exceeds the basic exemption limit. If you do not opt for presumptive taxation, the presumptive scheme under Section 44AD cannot be availed when turnover exceeds ₹3 crore, and a tax audit is compulsory in such cases. If your turnover is below ₹1 crore, a tax audit is not required even without opting for presumptive taxation. Additionally, irrespective of profit or loss, a tax audit is mandatory if trading turnover exceeds ₹10 crore, assuming more than 95% of transactions are digital, which is typically the case for intraday trading.
For traders with a turnover of up to Rs. 2 crore, opting for presumptive taxation, a tax audit is not mandatory if profits amount to at least 6% of the trading turnover. However, if losses are incurred or profits fall below this threshold, a tax audit is necessary if the total income exceeds Rs. 2.5 lakh (basic exemption limit).
For traders with turnovers exceeding Rs. 2 crore up to Rs. 10 crore, who choose not to avail of the Presumptive Taxation Scheme under Section 44AD, a tax audit is mandatory if profits are at least 6% of the trading turnover.
In cases where the turnover exceeds Rs. 10 crore, irrespective of profit or loss, a tax audit becomes obligatory. This is particularly true if over 95% of transactions are conducted digitally, which is common in today's predominantly digital trading landscape.
What is turnover for intraday trading?
For intraday trading, turnover is calculated using the absolute profit and loss method. Absolute turnover represents the total of all profits and losses, where loss values are added to profits instead of being adjusted or set off. This means both positive and negative differences are considered at their absolute amounts. Trading turnover can be calculated either on a scrip-wise basis or a trade-wise basis.
For example, Rahul buys 150 shares of Tata Steel at ₹120 and sells them on the same day at ₹130, earning a profit of ₹1,500 (₹130−₹120)×150(₹130 − ₹120) × 150(₹130−₹120)×150. On another day, he buys 100 shares of Infosys at ₹1,600 and sells them at ₹1,550, resulting in a loss of ₹5,000 (₹1,550−₹1,600)×100(₹1,550 − ₹1,600) × 100(₹1,550−₹1,600)×100. To arrive at the absolute turnover, both the profit and loss are added together without adjusting the loss. Therefore, Rahul’s intraday trading turnover is ₹6,500 (₹1,500 + ₹5,000).
Example of trading turnover
Consider Ektha, who engages in intraday trading by purchasing 100 shares of ITC at Rs. 75 and selling them later in the day at Rs. 80. The following day, she buys 200 shares of Paytm at Rs. 500, selling them at Rs. 460 by day's end.
- Profit from 1st trade: (80 - 75) * 100 = 500
- Loss from 2nd trade: (460 - 500) * 200 = -8,000
- Absolute turnover: 500 + (-8,000) = - 7,500
In this example, Ektha's absolute turnover amounts to -7,500, representing the total value of profits and losses incurred from her intraday trading activities.
How are capital assets and trading assets taxed?
A share can be seen as a 'Capital Asset' or a 'Trading Asset or Stock-in-Trade,' depending on whether you are an investor or a trader.
Investors are those who hold onto stocks or other securities for a long time, hoping they will increase in value or provide dividends. When they sell shares, the money they make is called 'capital gains.' These gains are divided into 'long-term' and 'short-term'. Different assets have different holding periods for calculation of short term/long term period.
Traders, on the other hand, are people who buy and sell stocks or securities often to make quick profits from price changes. The money they make from trading is considered a type of business income. They must file taxes as profits and gains from business or profession. Their profits are taxed based on their income level, which could be as high as 30%.
In simple terms, investors pay taxes on their profits from selling shares, while traders pay taxes on the money they make from trading.
Intraday Income Tax Calculator: Calculate your tax easily
Determining the tax implications of intraday trading gains involves understanding how income tax is computed based on prevailing slab rates. The Income Tax Act outlines different slab rates for various income levels, subject to adjustments with the applicable surcharge rate plus a 4% cess.
Income tax slabs under the old tax regime
Income range
|
Tax rate
|
Up to ₹2,50,000
|
Nil
|
₹2,50,001 – ₹5,00,000
|
5%
|
₹5,00,001 – ₹10,00,000
|
20%
|
Above ₹10,00,000
|
30%
|
Income tax slabs under the new tax regime (post-Budget 2024)
Income range
|
Tax rate
|
Up to ₹3,00,000
|
Nil
|
₹3,00,001 – ₹7,00,000
|
5%
|
₹7,00,001 – ₹10,00,000
|
10%
|
₹10,00,001 – ₹12,00,000
|
15%
|
₹12,00,001 – ₹15,00,000
|
20%
|
₹15,00,001 and above
|
30%
|
Comparison of old vs new tax regime (post-Budget 2024)
Old regime income slabs
|
Old regime tax rate
|
New regime income slabs
|
New regime tax rate
|
Up to ₹2,50,000
|
Nil
|
Up to ₹3,00,000
|
Nil
|
₹2,50,001 – ₹5,00,000
|
5%
|
₹3,00,001 – ₹7,00,000
|
5%
|
₹5,00,001 – ₹10,00,000
|
20%
|
₹7,00,001 – ₹10,00,000
|
10%
|
Above ₹10,00,000
|
30%
|
₹10,00,001 – ₹12,00,000
|
15%
|
—
|
—
|
₹12,00,001 – ₹15,00,000
|
20%
|
—
|
—
|
₹15,00,001 and above
|
30%
|
Example
Let's consider the fictional case of Rahul, a 35-year-old intraday trader:
Annual salary = Rs. 8 lakh
Income from intraday equity trading for the year = Rs. 2.5 lakh
Profits from trading in futures and options = Rs. 1.5 lakh
Capital gains = Rs. 80,000
Interest from bank deposits (annual) = Rs. 90,000
Assuming the capital gains are short-term and taxed at 20% (up from the earlier 10% in the Union Budget 2025), the capital gains tax liability amounts to Rs. 16,000
Total taxable income is computed by aggregating income from all sources: salary, speculative and non-speculative business income, and interest from bank deposits, resulting in a total income of Rs. 13,20,000.
Opting for the old tax regime, the tax computation is as follows
Income slab
|
Tax rates
|
0 – Rs. 2.5 lakh
|
0
|
Rs. 2.5 lakh – Rs. 5 lakh
|
5% = Rs. 12,500
|
Rs. 5 lakh – Rs. 8 lakh
|
20% = Rs. 60,000
|
Total
|
Rs. 72,500
|
Thus, the total tax liability for Rahul, inclusive of income tax on intraday trading profit, amounts to:
Total tax liability = Income tax + Capital gains tax = Rs. 72,500 + Rs. 12,000 = Rs. 84,500.
Additionally, cess is to be added to the above tax liability.
Conclusion
Intraday trading can be a profitable activity, but it is important to be aware of the tax implications. Intraday trading profits are taxed as business income, which means that they are taxed at the individual's marginal income tax rate. There is no separate tax rate for intraday trading profits. Traders must keep track of their trades and calculate their tax liabilities accurately to avoid any legal issues.
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