Income Tax on Intraday Trading: A Comprehensive Guide

• Income from intraday trading is considered speculative business income.
• Tax on intraday trading income is calculated as per your tax slab.
• You need to fill out ITR-3 for income tax on intraday trading.
• You should consider your intraday trading annual turnover carefully to determine important tax filing deadlines.

Post-COVID, people have developed a heightened interest in Indian stock markets. In stock markets, you can either invest in stocks and indices for the long or short term and earn through capital gains or through intraday trading.It is assumed that the returns from intraday trading can exceed capital gains. Thus, the tax on intraday trading earnings differs from the tax on long-term investments.In this blog, you will learn about the income tax on intraday trading, enabling you to build strategies to maximise your share market earnings.

As the name suggests, intraday trading refers to buying or selling a share during a business day and squaring off (selling or buying, respectively) on the same day. Therefore, you do not get shares credited to your Demat account in intraday trading.
You make money in intraday trading by analysing a stock’s short-term price action.
For example, you bought “ABC” share today at “x” price and sold it today at “x+y” price, making a profit of “y” in a single day. Keep in mind that gains from intraday trading are considered as ‘income from business’, and you need to pay a tax on trading income.

Intraday trading is considered speculative because you do not intend to take ownership of the contract. Therefore, the tax on intraday trading income is taxed at the slab rate applicable to your total income.On the other hand, long-term capital gains are taxed at concessional rates. Some capital gains from equity/ mutual funds are also exempt u/s 10(38) of the Income Tax of India, 1961. Tax on Intraday Trading: ITR Form and Due Date You must file an income tax return, ITR-3 , to account for income tax on trading. The last date to file intraday trading income tax is 31st July if a tax audit is not applicable; otherwise, it is 31st October. Also Read: What is Capital Gains Tax? - Types, Tax Rates & Calculation

Tax liabilities on intraday trading earnings are calculated based on turnover. Turnover refers to the absolute amounts of profits and losses generated from daily trading activities. It can be calculated using either the scrip-wise method or the trade-wise method.

Calculating Turnover for Intraday Trading

You need to calculate the annual absolute turnover to calculate income tax on intraday trading. It refers to the sum of profit and loss on all the intraday trades done in a financial year.For e.g. You bought 100 shares of “ABC” at ₹100 each and sold them the same day at ₹120. Your total profit will be ₹2000 on ABC.On the same day, you also bought 100 shares of “XYZ” at ₹120 each and sold them the same day at ₹80. Your total loss will be ₹4000 on XYZ.Your turnover for that day will be ₹2000 + ₹4000= ₹6000.

As mentioned earlier, income tax on intraday trading is computed at your slab rate and increased by the applicable surcharge rate + 4% cess. The slab rates under the old and new tax regimes are:

Old Tax Regime

New Tax Regime

Are you wondering how you can legally save tax if your salary is higher than ₹10,00,000? Click here to read our blog.Let us understandincome tax on tradingin both tax regimes through an example:Annual salary for the last financial year (FY), A= ₹10,00,000Income from intraday equity trading (speculative business income), B
 = ₹2,00,000Income from trading in futures and options (non-speculative business income), C
= ₹2,00,000Capital gains on listed shares (assuming short-term), D= ₹1,00,000Interest from bank deposits, E = ₹1,00,000Your total annual income for the last FY, excluding capital gains, will be= A+B+C+E
= ₹15,00,000Your income falls in the highest bracket, 30%. Please note that capital gains are taxed at a concessional rate. Your short-term capital gains will be taxed at 15% in this case.Therefore, your total income tax, includingtrading income tax, will be 30% of ₹15,00,000 + 15% of ₹1,00,000=₹2,62,500 + ₹15,000=₹2,77,500 + cess Also read: E-Filing 2.0: New Income Tax E-filing Portal Explained

Profits from intraday trading can complicate taxes, especially when combined with income from multiple other sources. You should be careful while calculating the tax on intraday trading and pay your liabilities to avoid any penalties.Stay abreast of the latest financial updates that may affect your financial future with Aditya Birla Capital. Visit us now !