Stock Trading means buying and selling financial instruments such as shares, mutual funds, commodity, currency, bonds, debentures, etc. An Investor does the buying and selling of stocks and securities with the intention of investing and building an investment portfolio. A Trader does the buying and selling of stocks and securities with an intention to earn quick profits due to fluctuations in prices. Trading Income comprises of equity delivery, equity intraday, equity F&O, commodity trading, currency trading, etc. While equity delivery trading in usually considered to be an Income from Capital Gains, all other forms of trading is considered to be Business Income as per Income Tax.
When the trading income is treated as business income, it is important to calculate the trading turnover to determine the applicability of the Tax Audit as per the Income Tax Act.
In the case of a stock trader, Tax Audit is applicable in the following situations:
If trading turnover is up to INR 1 Cr, the taxpayer has incurred loss or profit is less than 6% of Trading Turnover and total income is more than the basic exemption limit.
If trading turnover is more than INR 1 Cr and up to INR 2 Cr and the taxpayer has incurred loss or the profit is less than 6% of Trading Turnover.
If trading turnover is more than INR 1 Cr and up to INR 2 Cr, profit is more than or equal to 6% of Trading Turnover, and the taxpayer does not opt for the Presumptive Taxation Scheme under Sec 44AD
Traders need to choose their ITR form based on the instruments they have traded in, this could be Equity, Mutual Funds, Intraday, Futures & Options, etc. The income tax department has notified ITR Form based on different income situations. Here is the defined ITR Form for Trader or Investor.
A trader having Income from Capital Gains should file ITR-2.
A trader having Business Income should file ITR-3.
Trader who has opted for the Presumptive Taxation Scheme should file ITR-4 on Income Tax Website.
31st July – for traders to whom Tax Audit is not applicable
30th September – for traders to whom Tax Audit is applicable
FY 2020-21 Onwards
31st July – for traders to whom Tax Audit is not applicable
31st October – for traders to whom Tax Audit is applicable
FY 2019-20: Due Date to file Income Tax Return for in case tax audit is not applicable and Tax audit report is 31st December 2020. If Tax audit is applicable you can file your ITR by 31st January 2021
Tip
FY 2019-20: Due Date to file Income Tax Return for in case tax audit is not applicable and Tax audit report is 31st December 2020. If Tax audit is applicable you can file your ITR by 31st January 2021
Set Off and Carry Forward Loss – Income from Trading
Short Term Capital Loss can be set off against Long Term Capital Gain (LTCG) and Short Term Capital Gain (STCG). Trader can carry forward the remaining loss for 8 years and set off against future STCG and LTCG
Long Term Capital Loss can be set off against Long Term Capital Gain (LTCG) only. Trader can carry forward the remaining loss for 8 years and set off against future LTCG.
Speculative Business Loss can be set off against Speculative Business Income only. Trader can carry forward the remaining loss for 4 years and set off against future Speculative Business Income only.
Non-Speculative Business Loss can be set off against any income except Salary in current year. Trader can carry forward the remaining loss for 8 years and set off against Business Income in future years.
If the tax liability of the trader is expected to exceed Rs. 10,000, then they must calculate and pay Advance Tax. This is so as to avoid Interest under Section 234B and 234C. Advance Tax is to be paid in quarterly installments on 15th June, 15th September, 15th December, and 15th March. The trader should also determine the taxable income for each quarter, calculate tax liability, and make payment of Advance Tax online.
Tax Loss Harvesting – Income from Capital Gains
Tax Loss Harvesting is the practice of realizing the unrealized loss through the sale of shares. And therefore, adjusting it with the realized profits to reduce the tax liability. Before opting for Tax Loss Harvesting, the trader should be aware of the rules to set-off loss as per the Income Tax Act.
If you are a Trader or Investor having income from trading in equity delivery, intraday, or F&O, you can log in to Quicko to file your Income Tax Return on your own. You can also go for CA Assisted Plans to take the help of an expert to prepare and file your Income Tax Return.
I have incurred loss from F&O / Intraday trading. Is Tax Audit by Chartered Accountant mandatory?
Tax Audit as per Income Tax Act is mandatory if the profit is less than 6% of Trading Turnover. Since you have incurred a loss, Tax Audit under Section 44AB is mandatory. You must appoint a practicing Chartered Accountant to audit your books of accounts.
I am a trader having income from Intraday / F&O Trading. Am I liable to pay Advance Tax?
As per the Income Tax Act, an assessee whose total tax liability exceeds Rs. 10,000 should pay Advance Tax. Thus, if a trader’s total income tax liability exceeds Rs. 10,000, he/she should pay advance tax in 4 installments of the financial year. If the trader has opted for the Presumptive Taxation Scheme, he/she can pay advance tax for the entire financial year by 15th March.
I have earned profits from equity trading and F&O trading. How can I calculate the tax liability?
– Equity Delivery Trading is a Capital Gains Income. LTCG is taxed at 10% in excess of Rs. 1 lac. STCG is taxed at slab rates. – Equity Intraday Trading is a Speculative Business Income and taxed at slab rates. – F&O Trading is a Non-Speculative Business Income and taxed at slab rates.
Hey @Hari_Haran,
If your Income other than trading Loss is less than 2.5 lac & turnover less than crore , you won’t require Audit. You need to fill ITR 3