In the recent years, we have seen a huge increase in people dealing in the stock market. While some this do for the purpose of earning profit, others do it for the purposes of investment. Despite the dealing in this stock market, many traders and investors are unaware of the taxability of the shares bought by them. Most people think that the income from shares is treated under the head Income from Capital Gains, but it is not the case.
The income from intraday trades of stocks is treated under the head Income from Profits and Gains and not under the head Income from Capital Gains.
Meaning of Intraday trading of stocks ?
The term Intraday Trading means that the buying and selling of the stocks are done on the same day. While buying stock, the person has to specifically mention ‘intraday’ on the portal through which he is buying stocks. Through this trading, the traders earn money by buying or selling stocks and derivatives on the same day from price fluctuations at given point of time. The profits earned on this intraday trades of stocks are speculative gains and loss as speculative loss.
Note:
There is no physical delivery of stocks under the Intraday Trading.
Also Read: How To Adjust Profit/Losses From Transfer Of Shares
For example,
Suppose a stock opens trade at Rs. 1000 in the morning and soon reached up to Rs. 1100 within an hour. If you had purchased 1000 stocks in the morning and sold it at Rs. Rs. 1100, you would have made a profit of Rs. 1,00,000 – all within an hour. This is known as Intraday Trading.
Purpose Of Intraday Trades of stocks
The purpose of buying and selling any stocks is to either earn profits or make investments. Since through intraday trades of the stocks are bought and sold on the same day, the purpose is to only earn profits.
Head of Income
The income earned through profit on selling of stock through intraday trading is known as speculative gain. Similarly, the loss of income on selling of stock through intrades of stocks is known as speculative loss. This income from intraday trading is shown under the head “Income from Profits and Gains” and not under “Income from Capital Gains”.
Tax Treatment for Intraday Trading
The traders buying and selling stocks through Intraday Trades of stocks are given an option to declare the income for the relevant financial year, as per
i) Presumptive Business Income under Section 44AD of the Income Tax Act or
ii) As Normal Business provision
| Particulars | Presumptive Business Income | Normal Business |
|---|---|---|
| What is to be shown? | Maximum of 6% of turnover as profit | Total Taxable Income = Annual Turnover – Expenses |
| Turnover | up to Rs. 2 crores | No limit |
| ITR Form | ITR-4 | ITR-3 |
| Books of Accounts | Not required to be maintained | Required to be maintained |
| Deductions | Further deductions for expenses cannot be claimed | Further deductions for expenses can be claimed |
| Income Tax Calculation | As per the Income Tax Slab rate on total taxable income | As per the Income Tax Slab rate on total taxable income |
| Losses | Cannot be carried forward | Can be carried forward |
Note:
Losses from Intraday Trading are Speculative Losses. These losses can be carried forward for 4 years, if the trader treats it under normal business provision. Further, these losses can be set off only against the speculative gains. If the trader decides not to claim and carry forward the trading loss, then he is required to get audit done.
How is turnover calculated under Intraday Trading?
For the purposes of intraday trading, the turnover is Absolute Turnover.
Absolute Turnover = Profits + Losses made on daily transactions
Illustration
Example,
You purchased 1000 shares of XYZ Limited at Rs. 1000 on 1st January, 2023 and sold the same at the end of the day at Rs. 1100.
On 2nd January, 2023 you bought 500 shares of ABC Limited at Rs. 4000 and sold the same at the end of the day at Rs. 3900.
Profit on 1st January, 2023 = 1000 x Rs. 100 = Rs. 1,00,000
Loss on 2nd January, 2023 = 500 x Rs. 100 = Rs. 50,000
Absolute Turnover = Rs. 100000 + Rs. 50,000 = Rs. 1,50,000/-
Calculation of Income Tax on income from Intraday Trading
In order to calculate the income tax on income from Intraday Trading, the income has to be clubbed with all the income from other sources of the trader. The income tax is calculated on this total income.
Also Read: Income Tax Slab Rates For Individuals Under The Old And New Tax Regime
For instance, Ram has the following income:
Salary = Rs. 10,00,000/-
House Rent = Rs. 50,000/-
Intraday Trading = Rs. 50,000/-
Income tax is to be calculated on the total income of Rs. 11,00,000/-
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