Tax Treatment for Equity Intraday Traders

Author
By Sakshi Shah on August 14, 2019

Intraday Trading means buying and selling of stock on the same day. The trader squares off his trade on the same trading day and does not take actual delivery. The intention is to earn profits from the fluctuations in prices. Intraday Trading of Equity is considered to be a Speculative Income.

ITR for Intraday Traders View Plan

Head of Income, ITR Form and Due Date

  • Income Head – Business Income under head PGBP (Profits & Gains from Business and Profession)
    Equity Intraday Income or Loss is a speculative business income or loss as per the Income Tax Act
  • ITR Form – ITR-3 (ITR Form for individuals and HUFs having PGBP Income)
    Since Equity Intraday Income is a business income, prepare financial statements and file ITR-3
  • Due Date for FY 2018-19
    31st August 2019 – for traders to whom Tax Audit is not applicable
    30th September 2019 – for traders to whom Tax Audit is applicable

Calculation of Turnover

To determine whether the Tax Audit is applicable or not, we must calculate Trading Turnover. It is important to note that tax liability does not depend on Turnover.

Turnover of Equity Intraday Trading = Absolute Profit

Absolute Turnover means the sum of positive and negative differences.
Example: Rahul buys 100 shares of PNB at Rs.85. He sells the shares at the end of the day at Rs.88. On the next day, he buys 200 shares of Tata Steel at Rs.500. At the end of the day, he sells the shares at Rs.450.
Profit from Trade 1 = (88-85) * 100 = Rs. 300
Loss from Trade 2 = (450-500) * 200 = Rs. -10,000
Absolute Profit = 300+10000 = Rs.10,300

Applicability of Tax Audit

Situation 1: Total Trading Turnover is less than or equal to Rs.1 Cr
Tax Audit is not applicable

Situation 2: Total Trading Turnover is more than Rs.1 Cr and less than or equal to Rs.2 Cr
In case of losses = Tax Audit applicable
If the profit is less than 6% of turnover = Tax Audit applicable
If the profit is more than or equal to 6% of turnover = Tax Audit not applicable
(Note: If the Total Income is less than or equal to the basic exemption limit of Rs.2,50,000, Tax Audit is not applicable)

Situation 3: Total Trading Turnover > Rs.2 Cr
Tax Audit is applicable

Income Tax Calculation

Income Tax on trading income is calculated at prescribed slab rates as per the Income Tax Act as per the table below.

Taxable Income Slab Rate
Upto Rs.2,50,000 NIL
Rs.2,50,001 to Rs.5,00,000 5%
Rs.5,00,001 to Rs.10,00,000 20%
More than Rs.10,00,000 30%

Note: Surcharge is liable on the total income as per the prescribed surcharge slab rates. Cess is liable at 4% on (basic tax + surcharge)

Carry Forward Loss

Under Equity Intraday Trading, the loss can be claimed and carried forward if a tax audit has been conducted by a professional chartered accountant in practice. This loss can be carried forward to future years and set off against future profits to reduce the income tax liability.

Loss from Equity Intraday Trading is a Speculative Business Loss. It can be set off only against Speculative Business Profits. The loss can be carried forward for 4 years.