What is Intraday Trading?
Intraday trading means buying and selling shares on the same day, where no physical delivery occurs only profit or loss occurs for the net trade position, Thus trader does not keep the shares after the market closes. The main purpose is to earn profit from Difference in price movements during the trading day.
For example, if a person buys 100 shares of a company at ₹500 per share in the morning and sells them at ₹510 in the afternoon, the profit is ₹10 per share. If the price falls instead, the trader incurs a loss.
Intraday trading is different from short or long -term investing. In investing with delivery, shares are purchased with the intention of holding them for days, months or years. In intraday trading, the transaction starts and ends on the same day.
How is Intraday Trading Taxed?
Many people believe that the profit earned from intraday trading is treated like gain from selling/ buying shares as a capital gain. However, this is not correct, since no delivery of shares is taken, the Income-tax Act treats intraday trading as a speculative business activity. Therefore, the profit or loss is considered Business Income instead of Capital Gain.
This means the trader has to calculate the total profit or loss from all intraday trades during the financial year and report it under the head Profits and Gains from Business or Profession (PGBP) while filing the Income Tax Return.
Tax on Intraday Trading Profit
The profit earned from intraday trading is added to the taxpayer’s total income.
There is no special tax rate for such income. It is taxed according to the income tax slab applicable to the taxpayer. Therefore, if the total income increases because of intraday trading profits, the tax liability may also increase.
What if There is a Loss?
Losses are common in trading. If a person incurs a loss from intraday trading, the Income-tax Act allows the loss to be adjusted only against speculative business income of the same year.
If the loss cannot be fully adjusted in the current year, it can generally be carried forward for up to 4 assessment years, provided the Income Tax Return is filed within the prescribed due date. However , if the income tax return is not filed within the due date and filed either belated return or updated return, then loss will be dead loss. The carried-forward loss can be adjusted against speculative business income in future years as per the provisions of the Act.
Expenses That Can Be Claimed
A trader can claim expenses that are directly related to the trading activity. Some common examples are:
– Brokerage charges
– Securities Transaction Tax (here allowable under the Income-tax Act)
– Proportionate Internet / mobile expenses used for trading
– Demat and trading account charges
– Research and advisory charges
– Computer or laptop expenses used for trading
– Professional’s consultation expenses
Only genuine business-related expenses should be claimed and proper records should be maintained to support them.
Importance of Maintaining Records
Every trader should maintain and keep proper records of all transactions. These records help in calculating the correct profit or loss and are useful if any clarification/ assessment is done by the Income Tax Department.
The following documents should be preserved:
– Contract notes issued by the broker
– Trading statements
– Bank statements
– Ledger provided by the broker
– Bills and invoices for business-related expenses
Maintaining proper records also makes income tax return filing easier and more accurate.
Turnover in Intraday Trading
For income tax purposes, turnover in intraday trading is not the total value of shares bought and sold.
Instead, turnover is generally calculated by adding together the absolute value of all profits and losses from the trades. This figure is important because it helps determine whether certain tax compliance requirements, such as a tax audit under Section 44AB, may apply.
Income Tax Return
A person earning income from intraday trading is generally required to report it as business income while filing the Income Tax Return.
Depending on the facts of the case and the applicable provisions of the Income-tax Act, the taxpayer may also need to maintain books of account or comply with tax audit requirements.
Practical Tips for Traders
Before starting intraday trading, every trader should remember a few important points:
– Maintain complete records of every trade.
– Keep copies of broker statements and bills (preferably in excel or csv format for most accurate calculations).
– Report all profits as well as losses in the Income Tax Return.
– File the Income Tax Return within the due date to preserve the benefit of carrying forward eligible losses.
– Seek professional advice whenever there is uncertainty regarding tax compliance.
Conclusion
Intraday trading offers opportunities to earn profits, but also brings tax responsibilities, since the Income-tax Act treats intraday trading as a business activity, traders must report the income correctly, maintain proper records and comply with the applicable tax provisions.
Understanding these basic tax rules helps traders avoid mistakes, reduces the risk of Income Tax notices or assessments and ensures smooth tax compliance. With proper planning and timely filing of returns, traders can focus on their trading activities while fulfilling their legal obligations.
Written by:- Jyoti
(B.Com, CA Finalist)
Reviewed by:- CA (CPA) (CS) Mandeep Singh
(B.Com, M.Com F&T, CA (India), CPA (Ireland, Europe), Company Secretary
