Taxability of gains or losses arising from Intraday Trading

Since the covid-19 pandemic, many people started direct trading in stocks. Even brokerages have seen a surge in the number of new demat accounts after February this year. In this article let’s understand what is a meaning of intraday trading, it’s taxability, where to report them in the income tax return and which ITR form to file.

Meaning:

Intraday trading is buying or selling of stocks on the same day. Intraday trading is different from Investing. Investing is where the investor takes the delivery of shares and holds it for at least a day. Here intention of trader plays a key role. In intraday trading intention is to make foreseeable gains based on volatility of shares on that particular day. Whereas in investment intention is to hold the stock for the long term based on the growth prospects of the underlying stock.

Taxability and reporting:

Income from intraday trading being different from investing is either speculation gain or loss, which comes under the head of business income and not considered as capital gains or capital losses. It is added to the incomes in other heads such as salary, any other business, house property or any other income and taxed as per the normal slab rate of the person. While arriving at the income or loss from intraday trading of stocks, the expenses related to trading in stocks such as internet charges, telephone charges, broker’s commission and demat account charges are allowed as a deduction as business expenses. Also, losses arising from intraday trading being speculation losses are allowed to be set off only against profit from any other speculative business and not against incomes such as salary, any other business, house property or any other income. Speculation business losses are allowed to be carry forward up to the next four years for set off against future speculative income. However, it is must to disclose losses if we want to carry forward the same.

ITR Form:

ITR-3 to be used for reporting gains or losses from intraday trading in stocks.