Tax on Intraday Trading in India: What Every Beginner Should Know
Intraday trading is done when shares are bought and sold on the same day without holding them after the market closes. This type of trading comes with its own tax rules. Many beginners do not understand these rules while making their first steps into trading. However, the clearer you see things, the better you will plan your trading, keep records for your trading, and comply with tax regulations. The guide covers the basic tax laws regarding intraday trading in a simple manner.
Income Tax on Intraday Trading
Intraday trading does not involve taking delivery of shares. Trading is only done for price movement. Therefore, intraday gains are treated as business income by the Income Tax Department; this is termed speculative business income. It does not fall into the capital gains category. This would apply, at least in theory, whether you traded once or a hundred times.
What Is Speculative Income
Speculative income is defined as income received from trades that are opened and closed on the same day. Since intraday trades are concluded within a day session, they fall into this category. Taxation of intraday trading is subject to speculation income rules; knowing this helps you file your returns correctly.
Intraday Gains Tax
A gain made through intraday trading is added to a person’s yearly income. Such gains do not have a separate tax rate; therefore, they are taxed depending on the slab in which an individual finds him/herself.
That means intraday traders are taxed relative to their individual income. That is where many beginners tend to go wrong, presuming that all intraday trades come under fixed tax rates.
Deduction For Intraday Losses
Losses incurred through intraday trading are termed speculative losses. Such losses can be set against any speculative gains earned in that year. If a taxpayer is unable to set it off in that year, such losses can be carried forward for four years, but during the period, they can only be set off against any speculative gains.
Why Keeping Records Is Important
Intraday trading is considered a business activity, so one must keep simple records for it. Such records include:
- Trade statements
- Expense records
- Summary records
These could be maintained in electronic format. Proper records simplify the tax return process. A lot of beginners tend to skip this when they are learning how to start trading, but it is a vital step.
When A Tax Audit May Be Necessary
That depends on turnover and your level of profit. Intraday trading turnover does not refer to gross volume traded. It is calculated based on absolute profit. The sum will include absolute values of each profit and losses. An audit may be required if this turnover surpasses the threshold specified by the tax authorities. An audit may be required if your profit is extremely low regarding turnover. This is not usually known to beginners.
Intraday Income Reporting
Intraday gains and losses must be reported under “Business Income” while filing your return. The return should be filed using the form applicable for individuals having business income. Properly reporting the income section would reduce issues in the later stage. This is a simple step yet very important to comply with the laws.
Expenses You Are Allowed To Claim
Since intraday trading is a business, some related expenses can be claimed. Internet expenses, charges for using the online trading platform, advisory fees, and other costs directly linked to the act of trading are included. The expense must be connected to your trading work. Claiming the respective expenses decreases tax liability. Many novices just do not claim their expenses because they did not know about the regulation.
Importance of Learning Tax Rules Early for Beginners
If you want to learn how to start trading, tax rules are part of the journey. A clear understanding can help you to plan your trades and manage your risk. It also helps you decide your volume, your strategy, and your record-keeping style. Tax on intraday trading is not complex when you break it into simple steps.
Timely Filing Is Important
Timely filing of your return is important, which allows for the carry forward of speculative losses if ever required. Late-filing blocks some benefits. Early filing gives clarity concerning the income and taxes for the year.
Conclusion
The taxation of intraday trading follows a defined path: gains are deemed speculative business income; losses may be carried forward for four years. Proper bookkeeping should be maintained, while income is reported under business income. Knowledge of these tax rules goes a long way in building discipline and confidence in any beginner.
