Equity Trading Income: Delivery, Intraday, Futures & Options

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Sakshi Shah

Business and Profession Income
Equity Trading
F&O Trading
Intraday
Trading Turnover

Equity trading includes means buying and selling of various financial instruments such as delivery stocks, intraday, futures, and options, etc. The buying and selling of stocks and securities are done with an intention to create an investment portfolio or to earn profits due to fluctuations in prices.

Different forms of trading include Equity Delivery, Intraday, Futures, Options, Commodity Trading, Currency Trading, etc. Therefore, it is important to understand the different types of trading to calculate trading turnover, determine the applicability of Tax Audit, determine applicable ITR Form, calculate tax liability, etc. Let us understand the different types of equity, intraday, futures, and options trading in detail.

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Have any questions ?
Have any queries for trading income, ask us on TaxQnA and we will answer it in the simplest way!

Equity Intraday Trading

When a trader buys an equity share and sells it on the same day, it is called Equity Intraday Trading. The intention is to earn profits from the fluctuation of prices in a single day. In the case of Equity Intraday Trading, there is no delivery of shares and therefore ownership is not transferred. For Income Tax, Equity Intraday Trading is considered as a Speculative Business Income since trading is done without the delivery of shares and with an intention to earn quick profits.

ITR for Intraday Traders
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ITR for Intraday Traders
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Example of Equity Intraday Trading

Below is the Price of 1 Equity Share of Sun Pharma

Date Time Price
29th January 2020 11:00 AM Rs. 445
29th January 2020 2:30 PM Rs. 451

Akshay buys 100 shares of Sun Pharma on 29th January 2020 11:00 AM and sells them on 29th January 2020 2:30 PM

Equity Delivery Trading

When a trader buys an equity share from the stock market and retains it for more than 1 day, it is called Equity Delivery Trading. It is called delivery trading because the intention of this purchase is to hold the share for a time long enough for the ownership to be transferred to the buyer. In this case, the share is delivered to the trader’s Demat account.

The intention is to earn short/long term capital gains. Equity Delivery Trading is considered as either Capital Gains or Non-Speculative Business Income.

ITR for Capital Gains from Investment in Stocks
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ITR for Capital Gains from Investment in Stocks
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Example of Equity Delivery Trading

Below is the Price of 1 Equity Share of Sun Pharma

Date Time Price
29th January 2020 11:00 AM Rs. 445
29th January 2020 2:30 PM Rs. 451
30th April 2020 1:00 PM Rs. 441

Akshay buys 100 shares of Sun Pharma on 29th January 2020 11:00 AM and sells them on 30th April 2020 1:00 PM

Income Tax on Equity Share Trading
Read about Income Tax on Equity Share Trading - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss, Tax Rate etc
Read More
Income Tax on Equity Share Trading
Read about Income Tax on Equity Share Trading - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss, Tax Rate etc
Read More

Equity Futures

When a trader expects the price of a share to move up or move down in the near future, they can enter into a Futures Contract. Therefore, a Futures contract is an agreement to buy or sell an underlying asset on a future date at a pre-agreed price. The trader is required to deposit advance money called ‘Margin’ with the brokerage house to ensure that they do not default in case of a loss. Once the trader squares off the futures position or the Futures Contract expires, the margins are unblocked. In the case of a Futures Contract, the buyer’s gain equals the seller’s loss and vice versa.

ITR for F&O Traders
Take help of an expert to file Income Tax Return for Futures & Options Trading
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ITR for F&O Traders
Take help of an expert to file Income Tax Return for Futures & Options Trading
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Example of Futures Trading

The price of the Futures contracts constantly fluctuates based on demand. Therefore, in the developed market today the futures price is based on demand and supply and one can check the average price on the stock exchange to see the price at which the future is available for them to buy.

Interpretation of Example: Since the expiry date is in less than a day and the futures price is close to the shares’ current price. However, this also means that the delivery of this share on the future date will be at Rs. 452 regardless of the current price of the share then i.e. even if the shares’ price was to increase to Rs. 460 on 30th Jan 2020 you would still buy them for Rs. 452. The future allows you protection from price fluctuation.

Given below is the snapshot of Futures Contract of Sun Pharma:

Example - Trading in Futures Contract (Equity Intraday futures options)
Income Tax on F&O Trading
Read about Income Tax on F&O Trading (Futures & Options) - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss,Tax Rate etc
Read More
Income Tax on F&O Trading
Read about Income Tax on F&O Trading (Futures & Options) - Income Head, ITR Form, Due Date, Turnover Calculation, Tax Audit, Carry Forward Loss,Tax Rate etc
Read More

Options Trading

Options is a contract with the right to buy or right to sell an underlying asset at an agreed-upon price today (strike price) on a specified future date. Hence, the buyer of an Option receives the ‘Right to Buy’ or ‘Right to Sell’ the underlying asset at a specified future date. Therefore, the seller of an Option has the ‘Obligation to Buy’ or ‘Obligation to Sell’ the underlying asset at a specified future date. The buyer may or may not exercise the option and thus pays a premium to the seller to attain this right. This is called ‘Option Premium’.

Buyer of an Option has a limited loss (premium paid) and unlimited profit while the Seller of an Option has an unlimited loss and limited profit (premium received)
Tip
Buyer of an Option has a limited loss (premium paid) and unlimited profit while the Seller of an Option has an unlimited loss and limited profit (premium received)

Example of Call Option

Akshay buys a Call Option on Nifty Index from Raj at a price of Rs. 1000 and expiry of one month from today. Akshay pays a premium of Rs.10 to Raj.

If the price of Nifty on expiry is Rs. 1200

If the price of Nifty on expiry is Rs. 800

Example of Put Option

Akshay buys a Put Option on Nifty Index from Raj at a price of Rs. 1000 and expiry of one month from today. And, Akshay pays a premium of Rs.10 to Raj.

If the price of Nifty on expiry is Rs. 800

If the price of Nifty on expiry is Rs. 1200

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FAQs

How do I calculate my Trading Turnover?

Trading turnover is calculated in case of equity intraday, futures, and options. In the case of Equity Intraday Trading, Absolute Profit is Trading Turnover. Trading turnover is required for understanding Tax applicability and Tax audit applicability as well.

What is Absolute Profit?

Absolute Profit means the sum of positive and negative differences in a trade transaction. Eg: Loss from Scrip X is Rs. -5000 and profit from Scrip Y are Rs. 8000, absolute profit = 5000+8000 = Rs. 13,000.

Is Trading Turnover same as Contract Turnover?

No. Trading Turnover is different than Contract Turnover.
Contract Turnover is the sum of the purchase value and sales value. It is not considered for income tax purposes. Trading Turnover or Business Turnover is the absolute profit i.e. sum of positive and negative differences. This turnover is considered to determine the applicability of the tax audit and the applicable ITR form.

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