The availability of online trading platforms and ease of trading with the help of technology has made Share Trading a popular activity amongst the taxpayers. However, most taxpayers are not aware of the income tax implications on their trading activities. One such form of trading is Intraday Trading. We would discuss about the following topics:
Intraday Trading means buying and selling of stocks on the same day. All intraday transactions are squared off by the end of the trading day. The trader does not take actual delivery of shares. The intention is not to invest but to earn profits from fluctuations in prices of the stock.
Turnover = Absolute Profit
As per the Income Tax Act. the applicability of tax audit can be determined on the basis of Trading Turnover. The definition of turnover is different for each type of trading transaction. In case of Intraday Trading, the Turnover equals Absolute Profit. Absolute Profit is the sum of all positive and negative differences from all the transactions.
Here are details of transactions of 2 trading days
10/07/2019: Mr. A buys 100 shares of ABC Ltd at a price of Rs.1000 per share. He sells them at a price of Rs.1050 per share at the day end and squares off his position. Profit = Rs.50 * 100 shares = Rs.5,000/-
11/07/2019: Mr.A buys 500 shares of XYZ Ltd at a price of Rs.100 per share. He sells them at a price of Rs.80 per share at the day end and squares off his position. Loss = Rs.20 * 500 shares = Rs.10,000/-
Absolute Profit = 5000 + 10000 = Rs. 15,000/-
Tax Audit u/s 44AD is applicable in the following cases:
1. If the Turnover exceeds Rs.2 Cr
2. If the taxpayer has incurred loss
For Tax Audit, the taxpayer should appoint a professional Chartered Accountant for:
Imp: If the taxpayer decides not to claim and carry forward the trading loss, he can avoid the hassle of tax audit
Income Tax is calculated at the prescribed slab rates as per the chart below:
Note: Surcharge is liable on the total income as per the prescribed slab rates. Cess is liable at 4% of (basic tax + surcharge)
Loss under Intraday Trading can be claimed if Tax Audit u/s 44AD is performed by a professional Chartered Accountant. The loss can be carried forward and set off against future profits to reduce the income tax liability.
Understand what is Intraday trading and how to buy and sell stocks within the same day, Read this intraday trading guide on TradingPedia.