Whether Income from Share Trading is Taxable?

After 2020 Share Market Crash, now Indian Share Market is trading at there all time highs. During this period of approx 4 years, many new Investors/ Traders have entered in Stock Market. Indian Depository CDSL has achieved there all time active participant accounts holdings. During this period, many persons have gained and many persons have lost there hard earned many in stock Market. Because Stock Market is a zero sum game where one has to loss, so that it becomes gain for others. In this blog, we will discuss about types of Share Market transactions and there taxability as per Income Tax Act, 1961.

In Share Market, you can invest in 2 ways. First is becoming trader where you have to purchase and sale shares on the same day known as Intraday Share trading. Or you can trade in Future and Options. Second option is making investment for Short term or long term, according to your investment horizon.

Following type of Gain/ Loss can be earned from Share Market

Intraday Share Trading

 In this, you have to buy and sell shares on the same day between 9.15 A.M to 3.15 P.M. As per Income Tax Act, this type of trading is known as Speculative transactions. In this case, either you will gain or loss but you have to close your position on the same day otherwise your broker will close your position by their self.

Future & Options Trading

Future & Options transactions are treated at par with normal business transactions. Income Tax Act considers Future and Options trading a normal business activity for which normal taxation rules are applicable.

Short Term Capital Gain/ Loss

If you invest in any particular stock and sold the same within 12 Months of their purchase date then realised Gain/ Loss will be known as Short Term Capital Gain/ Loss and you have to pay tax accordingly. In case you realised loss then the same can be carried forward to next year and can be set off with future Gains to reduce your tax liability.

Long term Capital Gain/ Loss

If a share is hold for more than 12 months before its sale then realised gain/ loss is known as Long term capital Gain/ Loss. If you realised long term loss then it can be carried forward and set off in future. But the condition is that, you must file your ITR and show the same in your Income Tax return. Further, no tax is required to pay on Long term capital gain upto Rs.1 Lakh.

Dividend Income

Many companies are paying dividend to their share holders on regular intervals, if they hold their share on record date. Please note that, earlier dividends received from listed companies are exempt in hand of shareholders but now, it is taxable in hand of Share holders.

Above are transactions that may take place, if you invest in Stock Market. Now, questions arise whether income from share trading is taxable? The answer is YES. All the above transactions come under the preview of taxability under Income tax Act, 1961.

In many instances, we have noticed that, tax payer has done transaction in stock market and earned income from these transactions also but due to ignorance of law, they have not declared these transactions in their Income Tax Return. This error is noticed more in case of salaried class because they are filing their returns by them self and due to ignorance of law, they have not shown these transactions in their Income Tax return. The twist is that, there filed ITR is processed but now department is start sending alert messages to these taxpayers to verify those transactions that are not in line with their filed ITR. As revised return period of all past 3 years has already lapsed then these persons have only 1 option left that is filing of ITR-U. In which they can update all missing details and pay additional taxes and interest.

Author’s Note: Please note that, ITR-U is final opportunity left with tax payers to disclose there left income by them self. So you must file your Income tax return with at most care. If you are not aware about filing process and no well versed about Income tax Law, then you must take the help of professional. Any mistake committed at this point may invite Scrutiny notice which will be more harsh for the tax payer.


Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA. Shiv Kumar Sharma” can be reached at mail –shivsharma786@gmail.com and Mobile/WhatsApp–9911303737.

Author Bio

Qualification: CA
Company: Shiv Kumar Sharma & Associates
Location: Delhi, Delhi, India
Member Since: 03 Dec 2018 | Total Posts: 117
My Self CA. Shiv Kumar Sharma. I am a member of "The Institute of Chartered Accountants of India" since 2012. Currently, I am in Practice and dealing in Direct and Indirect taxation along with ROC Compliances. I am writing Articles for Taxguru.in, casansaar.com and in the expert panel of ca View Full Profile

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March 2024