How to calculate tax on Intraday Trading

A large number of people are trading in shares and F&O these days with an intention to make big fortunes. Some succeed in their goals whereas a lot of people fail. Out of these, a number of people are engaged in intra-day trading in shares. They are always confused about the taxation of intra-day transactions while filing income tax return online. This article discusses the issue “How to calculate tax on intra-day transactions?”. Further, the article also describes the manner intra-day transactions shall be reported in the Income Tax Return.

What is Intraday Trading?

Intraday Trading means buying and selling stock on the same day. The traders use to purchase shares under the cash segment in BSE/NSE & square off the trade on the same day without taking actual delivery. This is “Intraday Trading”. The intention of intraday trading is to gain from momentum price movements in the stock market. In the case of Intraday Trading, shares are not actually transferred to the Demat Account of the buyer as the net position is Nil at the end of the day. Instead of paying full consideration against the transactions, the net difference (gain/loss) is adjusted to the account of the trader.

Which head of income is suitable for Intraday profits & loss?

There are 5 major heads of income as per the Income Tax law. These are as below:

• Salary
• Income from House Property
• Profit and Gains from Business & Profession
• Capital Gains
• Income from Other Sources

Intraday gains & losses are to be reported under the head of “Profits and Gains from Business & Profession” (PGBP) while filing income tax return online. As per the Income Tax law, Intraday Trading is considered a “Speculative Business” while calculating the taxable income of the assessee. You can claim a deduction for expenses like brokerage, and STT for calculating net profits from intraday trading.

Is deduction for expenses allowed against intraday profits & losses?

The Income Tax Law allows the deduction of expenses incurred against the profits of any business. Thus, you can also claim a deduction for expenses incurred in intraday trading against the profits/losses earned from intraday trades. Following expenses are generally allowable in respect of intraday transactions:

• Brokerage
• Securities Transaction Tax (STT)
• SEBI Charges
• Exchange Transaction Charges
• Stamp Duty etc.

Which is the suitable ITR form for intraday trading?

Since intraday trading is considered a “Speculative Business”, you should efile income tax return in the Form ITR-3 in the case of Intraday trading. ITR-3 is the form prescribed for “Individuals & HUFs having income under the head Profits & Gains from Business & Profession. However, in the case of a firm or LLP, Income Tax efiling shall be made in Form ITR-5 for reporting of intraday gains or losses.

What is the tax rate applicable for intraday trading?

• In the case of individuals & HUFs engaged in intraday trading, the applicable tax rate will be ranging from 5% to 30% plus surcharge & cess, depending upon the income slab they fall in.
• In the case of a partnership firm or LLP, the applicable tax rate for intraday trading is 30% plus applicable surcharge & cess.
• Whereas in the case of companies, the tax rate will be either 22%, 25%, or 30% plus applicable surcharge & cess (based on the tax regime opted by the company)

What is the last date of filing ITR for intraday trading?

The last date of filing ITR for intraday trading depends on whether a tax audit is applicable in your case or not. Following are the deadlines for tax audit report filing and the income tax return filing:

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Is Set-off & carry forward of intraday trading loss allowed or not?

Losses incurred on intraday trading in equity are considered “Speculative Business Losses” which can be adjusted only from speculative income in the current year as well as in future years. F&O profits and losses are treated as “non-Speculative” in nature. Therefore, you are not allowed to set off intraday losses against F&O profits.

According to Section 73 of the Income Tax Act, speculation losses can be carried forward up to 4 years and could be set off against speculation income only. On the other side, F&O losses could be carried forward for the next 8 years.

Whether maintenance of books compulsory in case of intraday trading under section 44AA?

• In the case of an individual or HUF having income under “Profits & Gains under Business or Profession”, it is compulsory to maintain the books of accounts where the income exceeds Rs. 2,50,000 or gross receipts exceed Rs. 25 Lakhs in any of the three preceding financial years. For assessees other than individual or HUF, the limits are Rs. 1,20,000 & Rs. 10 Lakhs respectively.
• If you are an intraday trader in stocks and your income or turnover exceeds the above limits in any of the three preceding financial years, you are required to maintain books of accounts and furnish a Balance Sheet and Profit & Loss A/c while doing income tax e-filing.
• The brokers provide contract notes, client ledger & holding reports in respect of share transactions which will help you in maintaining your books of accounts.

How to calculate turnover for intraday trading?

A lot of people have misconceptions about the calculation of turnover in the case of intraday trading. In intraday trading, sales volume should not be taken as the turnover. Rather, turnover of intraday trading is equal to the difference of purchase and sale value in absolute terms. Absolute Terms mean sum of the positive and negative differences (ignoring signs).

Let’s take an example to understand it:

Ramesh is a trader in the stock market and makes the following transactions in the month of March 2022. Calculate his turnover.

Solution:

Calculation of Turnover:

Note: The method of calculating turnover in the case of F&O trades is the same as that of intraday trading.

When is tax audit required for intraday trading?

• The provisions of tax audit are given under section 44AB of the Income Tax Act, 1961. The turnover limit as prescribed by section 44AB is Rs.1 crore beyond which tax audit is compulsory.
• If the turnover is more than Rs. 1 crore, tax audit applies and you should get accounts audited from a Chartered Accountant and file the Tax Audit Report in the Form 3CB-3CD to the Income Tax Department.
• Further, if the turnover is more than Rs. 1 crore but less than Rs. 2 crores, you may avoid the audit by declaring a minimum of 8% profits (6% in case of digital transactions) u/s 44AD of the Income Tax Act. But it is not a viable option looking into meager profits on intraday trades.

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For expert & professional Income Tax Return filing services click on: https://www.taxwink.com/service/income-tax-return-filing

For any assistance for ITR filing you may contact at 09660930417.

Disclaimer: The above article is meant for academic purposes only. Readers are requested to act diligently before applying the information contained in this article.