Expenses a Trader Can Claim in ITR

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Sakshi Shah

F&O Trading
income from trading
Income Tax
Last updated on February 1st, 2024

Traders in financial markets frequently face numerous expenses in the course of their business. Knowing which costs are eligible for tax claims is vital for effective financial management and compliance with tax regulations.

Expenses a Trader can Claim

A trader can claim all the expenses directly connected to the trading business as a business expense. The expenses incurred should be wholly and exclusively about business and professional income. Below is a list of expenses that a trader can claim against trading income.

Can I claim Tax paid as a Business Expense?

Expenses that a Trader cannot claim in an Income Tax Return

Points to remember for Trader who claims Business Expenses

A trader having Business Income should claim valid business expenses in the P&L Statement. They also need to prepare financial statements and file ITR-3. The trader also needs to calculate the trading turnover and determine the applicability of Tax Audit to file ITR.

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Which expenses can a trader claim on the sale of shares?

Income from sale of shares is taxable under the head Income from Capital Gains. An investor or trader can deduct the expenses which are wholly and exclusively incurred on the transfer of shares, from the sales consideration. Thus, a trader or investor can claim expenses such as brokerage, stamp duty, sales commission, etc. in the ITR. Such expenses are deductible only to calculate the Capital Gains. However, the Securities Transaction Tax (STT) is not allowed as a deductible expense against capital gains as per the announcement in Budget 2008.


Can trading expenses still be claimed if we opt for the new regime?

Under the New Regime, you can claim all trading expenses. Business expenses are allowable under both regimes.

Can I claim a margin penalty as a business expense?

A margin Penalty is a penalty levied on trades performed without sufficient margin. Margin penalty paid to the stock exchange/broker is not an infringement of law. Thus, it does not violate Explanation 1 of Sec 37 and is deductible as a business expense.

Should STT be treated as tax paid or as an expense?

In Budget 2008, the Finance Minister removed the rebate that had earlier allowed STT as a deduction from tax payments. Instead, the Finance Minister allowed claiming STT as a business expense. Furthermore, the clarification stated that STT would only be allowed as an expense if the income is classified as business income rather than capital gains.

Can API subscriptions be allowed as business expenses?

Yes, we can claim it as a business expense if it is directly related to the business.

Got Questions? Ask Away!

  1. Hi @Saurabh_Ghosh

    1. The treatment of income from the trading activity will remain the same irrespective of company account or individual account. They are classified under the same income heads such as capital gains or business/profession and taxes are calculated accordingly.
      If your turnover is less INR 400 cr then the Income Tax slab rate is 25% for companies. For Individuals, the income tax liability is taxed at the applicable slab rates.
    1. To claim GST ITC, you need to have a GST registration and need to file a GST return. However, when filing your Income Tax Return, you can claim expenses directly related to your trading activity like electricity bills, internet expenses, etc.
      Keep in mind, if you are claiming GST ITC you cannot claim the GST amount in your expense.
      For eg: if the electricity bill is INR 1180 (180 being GST), and you are claiming the ITC on INR 180, you claim only INR 1000 as an expense when filing your ITR. In case you do not have GST registration, you can claim the total of INR 1180 when filing the ITR.
  2. Thanks for the reply!
    So what i understood file gst for gst itc and remaining file itr for 100% benefit of expenses.

    So which is better practice to do,

    Have gst and file both gst and itr or just simply file itr no need of gst.

    I mean which gives complete benefit for expenses.

  3. @Saurabh_Ghosh,

    The GST Act specifically excludes Securities from the definition of Goods. So there is no requirement for traders to have GST registration.
    The GST paid on trading expenses such as brokerage, transaction costs, turnover fees, etc can still be claimed as an expense when filing the ITR.

  4. Thanks for that article it clearly solved most of my doubt!

    Last query to ask!:pray:
    Assume I’m GST Registered Security Trader

    If I buy computers, other consumer Durable expenses for my new trading desk office does getting GST ITC + Remaining Amount as ITR is the best policy to manage expenses ? (since I get gst ITC return + Remaining amount as expenses return in ITR)

    (I know GST not required just asking is it a better way to manage taxes)

  5. @Saurabh_Ghosh

    Since GST ITC claimed can only be used when you have GST liability. So it might make sense for a trader to claim ITC along with other expenses when filing the ITR.

    However, if you have GST payable then you can claim the ITC credit against that liability.

  6. @Saurabh_Ghosh,

    Also, since Capital Market traders are not required to have GST registration.

  7. Hi @nishant_khemani,

    You can drop your contact details on our contact us page so our team can get in touch with you to understand your requirements, tell you more about the process, pricing and discounts :slight_smile:

  8. Hi @Saurabh_Ghosh,

    Unlike, F&O and intraday trading which are classified as business activity for income tax purposes, you cannot claim expenses like brokerage, internet expenses, legal and professional fees, etc for short-term and long-term capital gains. But an investor can claim, any transfer expenses except STT like brokerage, stamp duty, etc for capital gains, when filing ITR.

    However, the Income Tax Act has defined the particular sections under which exemptions can be claimed on capital gains earned. The intention of the exemption is to allow the taxpayer to invest in a new Capital Asset within a specified time limit without any tax burden.

  9. @Saurabh_Ghosh,

    There has always been this question and a debate around the treatment of gains from equity shares as business income or capital gains.
    The answer is derived from the taxpayer’s intent of the transaction. Here’s an article discussing when to treat the sale of shares as Capital Gains or Business Income

Continue the conversation on TaxQ&A

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