Indians are shedding the traditional misconception that share trading is all about speculation and gambling. Many have now realized that intraday trading is similar to any other profession and should be treated as such.
With the rise in online trading avenues as well as investor awareness, a larger number of people are now channeling their investments into the financial markets.
With this, stock traders in India have been grown expeditiously.
“Profits & Gains from Business or Profession” (section 43(5) of the Income Tax Act)
Profit from Intraday Trading will be considered as Speculation Gain
Loss from Intraday Trading will be considered as Speculation Loss
Profits made from intraday trading of equity shares are classified as speculative income.
This is so because those investing in a stock for less than a day are presumably not investing in the company but only keen on speculating its price volatility to turn a profit.
Profits made from intraday or overnight trading of Futures and Options are considered to be non-speculative income.
This is so because certain F&O contracts still have a delivery clause whereby the underlying shares/commodities exchange hands between traders on the expiry of contracts.
Business income from intraday trading must be clubbed with your income from all other sources to arrive at a total income. This is the income from which you pay tax on intraday trading profits in India.
For instance, if you made Rs 1,00,000 from intraday equity trading,
Rs 50,000 from intraday F&O trades and
Rs 10,00,000 from your salary,
then your total income liability is Rs 11,50,000.
The income tax payable by you will be dependent upon your tax slab and applicable deductions
Intraday Trader has to file his Income Tax return using FORM ITR-3
Taxpayers (traders) have the option under Income tax to declare the trading profit as per
Presumptive Business Income u/s 44AD
as a Normal Business provision.
Now that we know that intraday trading is largely classified as business income.
Turnover in the case of Intraday Trading is Absolute Turnover,
Absolute Turnover is the Sum total of absolute profits minus losses made on daily transactions.
Let us see an example for calculating turnover for Intraday as per Income Tax Provision:
Mr.X buys 1000 shares of ABC Ltd at Rs.100. He sells the shares at the end of the day at Rs.110.
Profit = Rs.10 * 1000 shares = Rs. 10,000/-
On the next day, he buys 200 shares of PQR Ltd at Rs.300. At the end of the day, he sells the shares at Rs.280.
Loss = Rs. 20 * 200 shares = Rs. 4,000/-
Absolute Turnover = Rs. 10,000+ Rs. 4,000 =Rs.14,000/-
Tax audit on Intraday Trading under section 44AD will be applicable in the following scenario:
If profit from Intraday Trading is declared less than 6%
Total Income exceeds Basic Exemption Limit
When these 2 conditions are satisfied, Tax Audit will be applicable
In the case where turnover for the year exceeds 2 crores (for AY 2020-21) and the threshold limit is Rs.5 crores for AY 2021-22.
Taxpayer has incurred loss from Intraday, but ‘total income’ other than the loss is greater than Rs. 250,000. E.g.: If you are a salaried person and have intraday losses, tax audit will most likely be applicable.
In such a cases Tax Audit is required.
If the taxpayer decides not to claim and carry forward the trading loss, he can avoid the hassle of tax audit
The trader needs to hire the services of a professional chartered accountant to carry a range of services, including:
– Preparation of financial statements such as P/L and balance sheet
– Auditing of book of accounts
– Preparing and filing of tax audit report on Form 3CD
– Preparing, filing and submission of ITR