If you earn income by purchasing and selling shares on the same day, it is important to understand the tax treatment of intraday trading in India. Many taxpayers incorrectly report intraday trading profits as capital gains, which may result in notices from the Income Tax Department.
This guide explains the taxation of intraday trading income, the applicable ITR form, turnover calculation, tax audit requirements, and the rules for setting off and carrying forward losses.
What is Intraday Trading?
Intraday trading refers to buying and selling shares within the same trading day without taking delivery of the shares.
Example
Suppose you:
- Purchase 100 shares of Company A at ₹100 per share.
- Sell the same 100 shares on the same day at ₹110 per share.
Profit:
₹10 × 100 = ₹1,000
Since both the purchase and sale take place on the same day, the transaction is treated as intraday trading.
Intraday profits and losses are different from capital gains. In capital gains transactions, the shares are held for at least one day before being sold. In contrast, intraday trading involves buying and selling the shares on the very same day.
Intraday Trading vs. Delivery-Based Trading
| Particulars | Intraday Trading | Delivery-Based Trading |
|---|---|---|
| Holding Period | Same day | More than one day |
| Ownership of Shares | No | Yes |
| Head of Income | Business Income | Capital Gains |
| Nature | Speculative Business | Investment |
| Tax Rate | Taxed at applicable slab rates | STCG/LTCG rates |
| Loss Set-Off | Can be adjusted only against speculative income | As per capital gains provisions |
| Common ITR Form | ITR-3 | ITR-2 / ITR-3 |
Under Which Head Is Intraday Trading Taxable?
The primary objective of intraday trading is to earn profits from short-term price fluctuations in shares. Therefore, profits and losses arising from intraday trading are taxed under the head Profits and Gains from Business or Profession instead of Capital Gains.
Intraday trading is treated as a speculative business because the transactions are carried out without taking actual delivery or ownership of the shares.
Unlike long-term capital gains, which are taxed at concessional rates, and certain equity or mutual fund gains that were eligible for exemption under Section 10(38), intraday trading income is taxable at the normal income tax slab rates applicable to the taxpayer.
Example
Suppose:
- Salary Income: ₹8,00,000
- Intraday Trading Profit: ₹2,00,000
- Total Taxable Income: ₹10,00,000
The ₹2,00,000 earned from intraday trading is added to your total taxable income and taxed according to the applicable income tax slab rates.
Which ITR Form Should Intraday Traders File?
Selecting the correct ITR form is essential while filing your income tax return.
Since profits and losses from intraday trading are treated as business income, taxpayers are generally required to file ITR-3. However, the applicable ITR form may vary depending on factors such as the volume of transactions, trading frequency, turnover, and the overall nature of trading activities.
Can ITR-4 Be Used?
In certain situations, ITR-4 may be used if the taxpayer opts for the presumptive taxation scheme and satisfies all the prescribed eligibility conditions.
However, traders carrying out substantial intraday transactions generally file ITR-3.
How to Calculate Turnover for Intraday Trading?
The turnover for intraday trading is computed using the absolute profit and absolute loss method.
Example
Trade 1
- Purchase: ₹10,000
- Sale: ₹11,000
- Profit = ₹1,000
Trade 2
- Purchase: ₹5,000
- Sale: ₹4,000
- Loss = ₹1,000
Intraday Turnover
- Absolute Profit = ₹1,000
- Absolute Loss = ₹1,000
- Total Turnover = ₹2,000
Although the overall net result is zero, turnover is calculated by adding the absolute value of profits and losses:
₹1,000 + ₹1,000 = ₹2,000
The same calculation method is followed for all intraday trades executed during the financial year.
Is a Tax Audit Required for Intraday Trading?
Merely engaging in intraday trading does not automatically make a tax audit mandatory. The requirement for a tax audit depends on your overall turnover and the profit or loss from all business activities, including intraday trading.
Tax Audit May Be Required in the Following Cases
Under Presumptive Taxation (Section 44AD)
- Turnover is up to ₹2 crore (or the higher prescribed limit for digital transactions).
- Declared profit is lower than the prescribed percentage.
- Total income exceeds the basic exemption limit.
Under Regular Taxation
A tax audit may become applicable if:
- Turnover exceeds the prescribed limits.
- The minimum profit requirements under the applicable provisions are not satisfied.
Mandatory Tax Audit
A tax audit becomes compulsory if the turnover exceeds the statutory threshold prescribed under the Income Tax Act.
As the audit provisions and turnover limits may change from time to time, traders should always verify the latest limits applicable for the relevant financial year before filing their return.
Can Intraday Trading Losses Be Set Off?
Yes, intraday trading losses can be adjusted, but since they are treated as speculative losses, specific set-off rules apply.
Allowed Set-Off
- Speculative Loss against Speculative Profit
Not Allowed
Speculative losses cannot be adjusted against:
- Salary Income
- Income from House Property
- Capital Gains
- Interest Income
Carry Forward of Intraday Trading Losses
If speculative losses cannot be completely adjusted during the same financial year:
- The unadjusted loss can be carried forward for up to four assessment years.
- Such losses can be set off only against speculative business profits earned in future years.
- To carry forward the loss, the income tax return must be filed within the prescribed due date.
Due Dates
| Category | Due Date |
|---|---|
| Non-Audit Cases | 31 July |
| Audit Cases | 31 October |
(Subject to any extension notified by the Income Tax Department.)
How to Report Intraday Trading in ITR-3
Follow the steps below while reporting intraday trading income in ITR-3.
Step 1: Download Broker Statements
Collect the following documents:
- Profit & Loss Statement
- Trade Book
- Tax P&L Report
- Ledger Statement
Step 2: Calculate Turnover
Determine the turnover using the absolute profit and loss method.
Step 3: Calculate Net Profit or Loss
Compute the final profit or loss after deducting all eligible business expenses.
Step 4: Report Business Income
Disclose the following details under the Business Income head:
- Turnover
- Gross Receipts
- Net Profit or Loss
Step 5: Report Carried Forward Losses
If you are carrying forward speculative losses, report the eligible amount in the appropriate section of the return.
Step 6: Verify and File the Return
Complete the e-verification process using any of the following methods:
- Aadhaar OTP
- Net Banking
- Bank Account Verification
- Demat Account Verification
Common Mistakes While Filing Taxes on Intraday Trading
Many taxpayers receive notices from the Income Tax Department due to errors such as:
- Reporting intraday trading income under Capital Gains instead of Business Income.
- Ignoring small profits or losses while filing the return.
- Calculating turnover incorrectly.
- Overlooking tax audit applicability.
- Filing the income tax return after the due date.
- Claiming deductions that are not eligible.
- Failing to preserve broker statements and trading records.
Avoiding these common mistakes can help ensure accurate tax compliance and reduce the chances of scrutiny.
Frequently Asked Questions (FAQs)
Q1. Is intraday trading considered business income?
Yes. Income earned from intraday trading is treated as speculative business income under the Income Tax Act because the shares are bought and sold on the same day without taking delivery.
Q2. Is intraday trading taxed as capital gains?
No. Since there is no actual delivery of shares in intraday trading, the profits or losses are classified as speculative business income, not capital gains.
Q3. Which ITR form should intraday traders file?
Most individuals earning income from intraday trading are required to file ITR-3. However, the applicable ITR form may vary depending on the nature of income and other tax provisions applicable to the taxpayer.
Q4. Can intraday trading losses be adjusted against salary income?
No. Speculative losses from intraday trading cannot be set off against salary income or other non-business income. They can only be adjusted against speculative business profits.
Q5. How should intraday trading income be reported in the Income Tax Return (ITR)?
Intraday trading profits and losses should be reported under the Business and Profession section of the applicable ITR form, as they are treated as speculative business income.
Q6. How is taxable income from intraday trading calculated?
Taxable income is calculated by deducting eligible business expenses, such as brokerage charges, transaction fees, exchange charges, and other allowable expenses, from the total trading profits. The resulting net income is taxable as business income.
Q7. What records should intraday traders maintain for income tax purposes?
Intraday traders should keep records such as:
- Broker contract notes
- Trade summaries
- Ledger statements
- Profit and loss statements
- Bank statements
- Brokerage and transaction charge details
These documents help support the income reported in the ITR.
Q8. Can intraday trading losses be carried forward?
Yes. Speculative business losses can be carried forward for up to four assessment years, provided the income tax return is filed within the prescribed due date. These losses can be set off only against speculative business income in future years.
Q9. Is a tax audit required for intraday trading?
A tax audit may be required depending on factors such as turnover, profit or loss, and compliance with the presumptive taxation provisions under the Income Tax Act. Taxpayers should evaluate their audit applicability based on the relevant tax rules.
Q10. Can I have both intraday trading income and capital gains in the same financial year?
Yes. If you engage in intraday trading as well as delivery-based share trading, you may have both speculative business income and capital gains in the same financial year. Both must be reported separately in your Income Tax Return.
Q11. Is GST applicable to intraday trading profits?
No. GST is not levied on intraday trading profits. However, GST is applicable to brokerage charges and certain services provided by stockbrokers.
Q12. Can I e-verify my ITR after reporting intraday trading income?
Yes. After filing your Income Tax Return, you can e-verify it using the methods provided by the Income Tax Department, such as Aadhaar OTP, net banking, bank account verification, or Demat account verification.
Q13. Are brokerage and trading charges deductible from intraday income?
Yes. Eligible expenses directly related to intraday trading, including brokerage, exchange transaction charges, SEBI charges, and stamp duty (where applicable), can generally be claimed as business expenses while computing taxable income.
Q14. What is the due date for filing an ITR for intraday trading income?
The due date depends on whether your case is subject to a tax audit. Taxpayers not liable for audit generally follow the standard ITR filing due date, while audit cases have a separate due date as notified by the Income Tax Department each financial year.
Q15. What happens if I do not report intraday trading income in my ITR?
Failure to report intraday trading income may lead to notices from the Income Tax Department, additional tax liability, interest, penalties, or scrutiny if discrepancies are identified between your reported income and broker or financial records.