Taxation in intraday trading

• Countries are running on taxes.
• This is how the infrastructure, such as the public parks, roads, hospitals, etc., is maintained in India.
• In our country, based on the income of a person, they will fall under a tax bracket or slab.
• Profits that are made out of intraday trading will also fall under the purview of the income tax.
• This will depend on the kind of trade that is being conducted and will therefore be liable to taxation.

Which assets are taxed in intraday trading?

• Profits or gains from trading can be either long-term or short-term.
• Profits that are generated from the intraday trading will fall under the short-term gains.
• Profits that will be generated through investment for more than a year will fall under long-term gains.
• Short-term gains will be classified as business income, and long-term gains will be classified as capital assets.
• In intraday trading, business income will be taxed based on the taxation slab you will fall under as per the amount of money that is earned by you.

Classification of business income in intraday trading

Business income through intraday trading can be further divided into two categories.

These categories are as follows:

Speculative business income

• Intraday trading is highly speculative in nature.
• This means that it is done with the main aim of making money but with an equal risk of losing the same.
• Thus, it is known as a speculative business income.
• Income tax on the intraday trading will fall under this category. 

Non-speculative business income

• Any and all the income that is generated through trading that is non-speculative, i.e., is guaranteed to make your money fall under this category.
• This will include equity futures and options, commodity trades, delivery-based equity trades, and currency trades.

Rules of taxation on intraday trading

• As stated above, the profits or gains that are generated through intraday trading will be added to the overall income of the trader.
• This will also include their salary, income from the rentals, interest on the deposits, and any other sort of business income.
• This overall income will then be taxed according to the slab rate of the income tax rules.
• This overall income will then be taxed according to the slab rate of the income tax rules.
• In the case of the taxation on capital gains, ITR-2 should be filed.

Tax liability on intraday trading

• Tax liability is defined as a payment or the tax owned by a trader or an organization to the Central Board of Direct Taxes (CBDT).
• A tax liability will occur when a person will earn the money or generate the profit by selling any security or an asset.
• In intraday trading, if the tax liability on the speculative business income is expected to be more than Rs. 10,000, then the trader is supposed to pay advance tax on the same.
• In India, advance tax is paid in quarterly instalments.
• It can be filed on 15th June, 15th September, 15th December, and 15th March.
• If this seems to be a hassle for you, then there is another way to expedite this process.
• All you can do is opt for presumptive taxation and pay the entire advance tax on your speculative business income on or before March 15th.

Taxation in case of a loss in intraday trading

• Intraday trading is risky, and thus there is always a possibility of a loss if trading is not done with complete preparedness.
• Any loss that is incurred in speculative business income is known as a speculative loss.
• Speculative losses can be carried forward for up to four consecutive years.
• Under the old tax regime, this speculative loss can be set off only against speculative income.
• However, if you opt for a new tax regime, then traders cannot set off speculative business loss against speculative business income.
• Non-speculative business loss can be carried forward for up to 8 years and can also be set off against any income except the salary in the current year.

Conclusion

Any income will always be taxed as per the Income Tax Rules.

Frequently Asked Questions (FAQs)

Q1) How is tax charged on intraday trading?

Their profits will be taxed as per the applicable slab rates, which can go up to 30% depending on their income level.

Q2) Is it mandatory to show intraday loss in ITR?

It is imperative to disclose any intraday gain or loss while filing an ITR.

Q3) Is a tax audit required for intraday trading?

An audit for intraday is compulsory only when your trading turnover will exceed Rs. 2 crore in any financial year or if your declared income is less than 6% of your turnover under the presumptive income regime.

Q4) How much tax is taken from day trading?

Tax from day trading will range from 10% to 37% of your profits.

Q5) Is there any rule for intraday trading?

The only rule for intraday trading is to invest an amount that you are not afraid to lose.

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