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Taxation For Intraday Trading

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Publish Date: November 18th, 2019

By: Sandhya Kannan, Head – Content

Intraday traders have to disclose the incurred gains/losses from their trades in the Income Tax Return (ITR) differently. They are not treated as capital gains unless your money remains in the equity market for at least a day.

Basically, Intraday trading is not done with the objective of making profits in the long-term and, therefore, it is considered as Speculative. That is why, income made from Intraday trading is treated under the business income category as speculation gain or loss.

Speculative Business Income

Any trade that you buy/sell on the same trading day will count as Intraday trading. The gains you make under this trade will be classed as a speculative activity. As per Section 43 (5) of the Income Tax Act, such profits will be added to your other income. It will be taxed in line with your income tax slab.

Read more: What is a Trading Platform? Basics of Intraday Trading Platform

Non- Speculative Business Income

This classification is for the future/option stock. Any income from trading on recognised exchanges will be considered non-speculative business income.

The profits you earn from this trading will be added to your total income. The tax will be applicable in accordance with your tax slab. But note that this income is considered business income. A trader can offset it against business expenses that may have incurred. Business expenses can be internet bills, advisors fees, etc.

Required ITR Form

If you are a salaried person and made gains/losses from Intraday trading you must file your return in ITR Form 3. While calculating net gains or losses, you can deduct Security Transaction Tax (STT) paid on your transactions. If there are other expenses incurred solely for trading that can also be claimed as a deduction.

Tax Audit

Tax audit is applicable if:

1) Turnover >1 crore in case of individuals

2) Turnover

3) Losses faced from Intraday trading.

This is how taxes are applicable in Intraday trading. Ideally, when you understand Intraday trading rules and taxation, it helps you to understand the concept of effective returns.

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