Taxation in Intraday Trading

Countries are run on taxes. It’s how the infrastructure such as public roads, parks, hospitals, et cetera are maintained. In India, based on a person’s income, they fall under a tax bracket or slab. Profits made from Intraday trading also fall under income depending on the kind of trade which is being conducted, and is therefore liable to taxation.

Which Assets Are Taxed in Intraday Trading?

Profits or gains from trading can be long term and short term. Profits earned from Intraday trading fall under short term gains. Profits generated through investment for more than a year fall under long terms gains.

Short term gains are classified as business income and long term gains are classified as capital assets.

In Intraday trading, business income is taxed based on the taxation slab you fall under as per the amount of money earned by you.

Classification of Business Income in Intraday Trading

Business income through Intraday trading can be further divided into two separate categories, which are as follows:

1. Speculative Business Income – Intraday trading is speculative in nature, i.e., it is done with the aim of making money but with an equal risk of losing it. Therefore, it is known as Speculative Business Income, and Income Tax on Intraday trading falls under this category.
2. Non-speculative Business Income – Any and all income generated through trading which is non-speculative, i.e., is guaranteed to make you money falls under this category. This includes equity futures and options, commodity trades, currency trades and delivery based equity trades.

Rules of Taxation on Intraday Trading

As mentioned above, the profits or gains generated through Intraday trading are added to a trader’s overall income. This also includes their salary, income from rentals, interest on deposits, and any other sort of business income.

This overall income is then taxed according to the tax slab.

In order to file the tax on your income from Intraday trading, a person needs to file ITR-3. In case of taxation on capital gains, then ITR-2 must be filed.

Tax Liability on Intraday Trading

Tax liability is defined as payment or tax owed by a trader or an organisation to the Central Board of Direct Taxes, Government of India. A tax liability occurs when a person earns money or generates profit by selling a security or asset.

In Intraday trading, if the tax liability on speculative business income is expected to be more than Rs. 10,000, then a trader needs to pay advance tax on it.

In India, advance tax can be paid in quarterly instalments. It can be filed on 15^th June, 15^th September, 15^th December and 15^th March. If this seems like a hassle to any traders reading this article, worry not, for there is a way to expedite the process as well.

All you need to do is apply for presumptive taxation and pay the entirety of the advance tax on your speculative business income on or before 15^th March.

Taxation in Case of a Loss in Intraday Trading

Intraday trading is risky, and there’s always a possibility of loss if trading is not done with complete preparedness. But would tax be deducted if there’s a loss in trading?

Any loss incurred in speculative business income is known as speculative loss. Speculative losses can be carried forward up to four consecutive years. Under the old tax regime, this speculative loss can be set off against speculative business income only. However, if opting for the new tax regime, traders cannot set off speculative business loss against speculative business income.

Non-speculative business loss can be carried forward for 8 years, and can be set off against any income except salary in the current year.

Through this article, I hope we have informed you of the relevant rules of taxation which Intraday trading falls under. This will aid traders in making informed choices in both trading and enable them to avoid any legal troubles pertaining to income tax.

If you wish to learn more about the stock market, trading strategies, risk management, etc., in greater detail, you will find the relevant articles on the Booming Bulls Academy blog.

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