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TAX ON MADE PROFIT FROM INTRADAY SHARES TRADING

If you are trading intraday in the stock market and you have made some profit or loss in it, then you should take care while filing income tax.

Indian investors have become more familiar with different investment choices and are beginning to realize the benefits that come with them. In online trading, with the awareness of investors, a large number of people are now looking to invest in the SHARE MARKET on the financial markets. As a result, Indian investors are looking not only at mutual funds but also at specific avenues like equities, futures/options and commodities trading.

Most people in the share market don't keep their shares long period and prefer to sell quickly and make a profit based on their price movement estimates. But a long term investor (Long Term) can keep the bank’s shares in his portfolio for a few years and will prefer to grow the bank shares.

Ø  INTRADAY

However, many traders do intraday trading in equity shares and futures & Options timing between 9.15 AM to 3.30 PM. They buy and sell within the day so that they can take advantage of the price up to and down the day. This is called INTRADAY TRADING. As the name suggests, intraday trading is not an investment but a business-like activity in which traders aim to make a profit by buying and selling shares, Futures – Options, Commodity on the same day.

This income is not classified as capital gain under the Income Tax Act but is considered business income. Therefore, income tax on intraday trading profits in India follows different guidelines. Intraday traders are required to disclose the profit/loss of their transaction separately in their Income Tax Return (ITR).

Generally, intraday trading is not done to make a profit in the long run and hence it is considered speculation. Therefore, the proceeds from intraday trading are considered speculation profit or loss according to the category of business income.

Ø  SPECULATIVE BUSINESS INCOME EQUITY SHARES

Is the same day you buy or sell any equity shares that is done is considered intraday trading. Profits from this are classified as speculative activity. According to INCOME TAX ACT ((43) (5)), such profit is captured in OTHER INCOME and will be taxed by your INCOME TAX SLAB.

Ø  NON SPECULATIVE BUSINESS INCOME  FUTURES & OPTIONS

On the other hand Profit or loss from intraday or later trading of futures and options is defined as NON SPECULATIVE BUSINESS INCOME.

Ø  TAX ON INTRADAY TRADING PROFITS

Now that we know that intraday trading is mainly classified as business income of Equity & Futures- Options. We should keep in mind that there is no fixed rate of tax on business income. It is not like a capital gain income which is taxed at a fixed rate and applies when the stock is held for a long period.

Therefore, to calculate the total income, it is necessary to derive the income from intraday trading from the income received in all other incomes. This is the income from which you pay tax on intraday trading profits in India.

For example, if you make Rs.1,00,000 from intraday equity trading, Rs.50,000 from futures Options and Rs.10,00,000 from your salary, then your total income is Rs.11,50,000. Your tax will depend on your Tax slab.

Ø  REQUIRED ITR FORM

If you are a salaried employee and you have made a profit/loss from intraday trading, you will have to submit your return in ITR Form 3. You can deduct the STT (SECURITY TRANSACTION TAX) paid on your transactions when calculating net profit or loss. And this is your business profit, so you can show the cost from the profit if other expenses are completely necessary for the business.

We Alliance Tax Experts have been working for the last 8 years as a consultant for filing income tax on the profits or losses of such businesses. for more information, you can reach us at santoshpatil@alltaxfin.com or call on 9769201316

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