Tax Implications Of Intraday Trading Of Shares
Tax Exemption

Intraday trading of stocks means buying or selling shares within a day. On a particular day, the trader buys and sells shares based on expected volatility to make certain gains. The transaction settlement is without the delivery of shares. Hence, such income or loss from speculation trading is taxable as business income.

The transactions made intra-day are called speculative transactions. Any income from such a transaction is ‘speculative income’, and loss from such a transaction is ‘speculative loss’.

The taxpayer can claim deductions against the profits from intraday transactions for expenses such as broker’s commission, telephone expenses or other incidental charges related to the intraday trading.

The taxpayer must include the speculative income under the head ‘Income from business or profession’. While computing the income tax return, the income from business or profession, income from salary, income from other sources, etc., are added, and the income tax on the taxable income calculated as per the regular income tax rates.

If there is a speculative loss, the taxpayer can reduce it from the speculative income. The speculative balance losses can be carried forward and set off against the succeeding financial year’s speculative income. However, the loss of a financial year can be carried forward up to four subsequent years. The taxpayer cannot set off the speculative loss against any other business income. 

The taxpayer earning income from speculative transactions shall file the income tax return in ITR-3 form. The income tax department has not yet enabled the filing of ITR-3 for the assessment year 2021-22

Alternatively, the shares held for investment purposes are called capital assets. The share delivery takes place at the time of settlement. Income or loss from the sale of such shares is treated under the head income from capital gains. If the shares are sold after holding them for more than a year, they are long term capital gain, otherwise short-term capital gain. Income from a long-term capital gain of more than Rs.1 lakh is taxable at the rate of 10 per cent, and short-term capital gain is taxable at 15%.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in

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