Sharekhan Blog

How Gains from Intraday Trading Are Taxed?

  • Mar 11, 2024

It is vital to understand the tax implications of the investment strategy to optimize the returns and minimize the tax liability.

If you are considering starting Intraday Trading, then you need to make sure that you acknowledge the income tax on Intraday trading profit to make informed decisions. While the majority of investments come with simple tax in norms, the tax on Intraday trades revolves around various aspects. If you are someone who is wondering about the tax on Intraday trades, you are in the right place. In this blog, we will discuss how Intraday trading gains are taxed.  

Capital Asset & Trading Asset

A share can be identified as a capital asset or a trading asset based on whether you are an investor or a trader. Investors are those individuals who invest in stocks or other commodities for the long term with the motive of holding them for a considerable period. Their goal is to earn returns via capital appreciation and dividends.

On the other hand, Traders are those individuals who purchase or sell stocks or other securities, often with the motive of earning profit through short-term price movement.

1.  Capital asset

These are the assets that are kept for investment purposes. From bonds to stocks, they can be anything. The profits from the sale of capital assets are known as capital gains. They are basically:

  1. LTCG (Long Term Capital Gain) or Loss
  2. STCG (Short Term Capital Gain) or Loss

2.  Trading asset

These are the kinds of assets that are held solely for trading purposes. These are basically commodities, stocks, and currencies that are purchased and sold frequently. The losses or profits from the sale of trading assets are taxed as business income. They are basically:

  1. Speculative Business Income
  2. Non-Speculative Business Income

Speculative bonus income and Non-speculative business income

Intraday trading online can be considered speculative in nature. Therefore, the income from these sorts of trades is called speculative business income. Income tax on intraday trades in India comes under this category. There is no sort of separate speculative tax rate in India, as it is taxed based on the tax slab of your income.

On the other hand, all the share transactions that do not fall on speculative transactions are known as non-speculative transactions. The income from this sort of tax on trading is known as Non-speculative income.

Rules of Income Tax on Intraday Trading

Following are the income tax rules of intraday trading:

  • The gains from intraday trading online are taxed as business income.
  • The income tax on profits that are gained by a person or HUF from Intraday trading is in accordance with the selected income tax regime. There are generally two sorts of income tax regimes: The old tax regime and the new tax regime.
  • ITR-3 is basically the income tax return from intraday trading.
  • For filing the income tax return of Intraday trading, the due date is 31st July of the following year. However, if the turnover exceeds the limit for a tax audit, then the date for filing the ITR changes to 31st October.

Intraday trading tax calculation

The tax on intraday trades is evaluated depending on the slab rates. The slab rates of various income levels are showcased below. These rates will be increased by the surcharge rates that are applicable cess of 4%:

For old tax regime slab rates:

 

Up to 2,50,000

Nil

2,50,001 - 5,00,000

5%

5,00,001 - 10,00,000

20%

Above 10,00,000

30%


For new tax regime slab rates (Before Budget 2023):

Up to 2,50,000

Nil

2,50,001 - 5,00,000

5%

5,00,001 - 7,50,000

10%

7,50,001 - 10,00,000

15%

10,00,001 - 12,50,000

20%

12,50,001 - 15,00,000

25%

Above 15,00,000

30%


Advanced tax for the folks who are not opted to presumptive taxation under section 44AD

If the estimated tax payable for you this year is more than 10000, you will need to pay the advanced tax on the dates mentioned. If in case the intraday traders have not opted for presumptive taxation, they need to pay advanced taxation in these four installments:

 

Advanced Tax

Due Date

15% of Total Tax Liability

By 15th June

45% of Total Tax Liability

By 15th September

75% of Total Tax Liability

By 15th December

100% of Total Tax Liability

By 15th March


Wrapping Up

There is no shred of doubt that Intraday Trading is an activity that is profitable. However, it is vital to be familiar with the tax implications. To sum it up, there is no separate tax rate for intraday trading profits. It is taxed on the person’s marginal income tax rate.

Team Sharekhan
by Team Sharekhan

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