Intraday trading is a popular trading strategy where traders buy and sell securities within the same trading day, hoping to profit from the fluctuations in the price of the securities. While it can be a lucrative way to earn money, it's essential to understand how the gains from intraday trading are taxed.
In India, intraday trading falls under speculative business income, which is taxed at the applicable income tax rate. The tax rate is based on the total income earned by the individual during the financial year.
3 various forms of trading and each has unique tax repercussions
Day trading:
Buying and selling the same security on the same day is called day trading. Day traders must frequently abide by specific margin requirements and pay taxes on their profits at the end of the year.
Swing trading:
Holding security for more than a day but less than a week is called swing trading. The same tax regulations that apply to long-term investors also apply to swing traders.
Position trading:
It is the practice of holding a security for longer than a week. The same tax regulations apply to long-term investors and position traders.
The tax on intraday trading profits is calculated as per the below calculation:
Step 1: Add up all your intraday trading profits for the financial year.
Step 2: Add up all your intraday trading losses for the financial year.
Step 3: Subtract your losses from your profits to get your net income from intraday trading.
Step 4: Add your net income from intraday trading to your other taxable income (such as salary or income from other businesses).
The tax on the total taxable income is calculated based on the applicable income tax rate.
It's important to note that intraday trading losses can only be set off against intraday trading profits. In other words, you cannot set off intraday trading losses against gains from other sources of income.
Also, if you have incurred a loss from intraday trading, you can carry forward the loss for up to 4 years to set off against future intraday trading profits.
Additionally, traders who engage in intraday trading are required to file their income tax returns by July 31st of the assessment year.
In conclusion
Intraday trading gains are taxed as speculative business income in India. Therefore, traders should keep accurate records of their intraday trading activity and ensure they file their income tax returns on time. In addition, it's always advisable to consult a tax professional to understand the nuances of taxation on intraday trading gains.
Also Read: