When to treat Trading Income as Speculative or Non-Speculative Business

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Sakshi Shah

Equity Trading
F&O Trading
Mutual Funds
Non-Speculative Income
Speculative Income
Trading Income

Tax on income from trading as capital gains or business income depends on the nature of the trading. Income from any business or profession is classified under the head “Profits and Gains from Business and Profession” in the Income Tax Return. Read when to treat trading income as a speculative business or non-speculative business income. Following types of trading income is considered as Business Income:

Note: Based on the nature of trading, Income from trading in Equity Delivery and Mutual Funds can be classified as either Income from Capital Gains or Business Income.

How to treat the sale of shares?
Read this article to determine if your income is a Capital Gain or Business Income?
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How to treat the sale of shares?
Read this article to determine if your income is a Capital Gain or Business Income?
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Speculative Business Income

As per the Income Tax Act, a contract in which the purchase or sale of any commodity including stocks and shares is settled without actual delivery, it is called a Speculative Transaction. Intraday Trading means trading in stock or security by squaring off the trade within the same trading day. Therefore, Equity Intraday Trading is Speculative Business Income.

The definition of Speculative Transaction specifically excludes derivative transactions i.e. equity F&O, commodity (intraday and F&O), and currency (intraday and F&O) trading. The trader enters into such transactions for the purpose of hedging and thus such income is a Non-Speculative Business Income.

In the case of Equity Intraday Trading, the share does not transfer to the trader’s Demat Account. The broker squares off the position at the end of the trading day for all intraday trades. Therefore, the buyer of the shares does not pay for the full value of shares. Instead, they should deposit the difference between buy value and sell value as a margin to execute the intraday trade.

ITR for Intraday Traders
Take help of an expert to file Income Tax Return for Intraday Trading
[Rated 4.8 stars by customers like you]
ITR for Intraday Traders
Take help of an expert to file Income Tax Return for Intraday Trading
[Rated 4.8 stars by customers like you]

Income Tax provisions for Trader having speculative business income:

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

Non-Speculative Business Income

Any business income that’s not Speculative in nature is a Non-Speculative Business Income. Hence, Non-Speculative Business Income include trades in Equity F&O, Commodity (Intraday and F&O), and Currency (Intraday and F&O). Since F&O Trading is a hedge and there is the delivery of the underlying security, it is non-speculative in nature. The definition of Speculative Transactions specifically excludes the Intraday Trading of Commodity and Currency and it is thus a Non-Speculative Business Income. Additionally, if the trader has significant trading activity in delivery-based equity trading and mutual funds, it is a Non-Speculative Business Income.

ITR for F&O Traders
Take help of an expert to file Income Tax Return for Futures & Options Trading
[Rated 4.8 stars by customers like you]
ITR for F&O Traders
Take help of an expert to file Income Tax Return for Futures & Options Trading
[Rated 4.8 stars by customers like you]

Income Tax provisions for Trader having non-speculative business income:

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

FAQs

Can I set off Speculative Business Loss against other Incomes?

The trader can set off the Speculative Business Loss only against Speculative Business Income. Trader can carry forward the remaining loss for 4 years and set off against Speculative Business Income only. Therefore, the trader cannot set off speculative business loss against any other income except speculative business profits.

Can I set off Non-Speculative Business Loss against other Incomes?

The trader can set off Non-Speculative Business against any income except Salary in the current year. Trader can carry forward the remaining loss for 8 years and set off against Business Income (speculative and non-speculative) in future years.

Is Intraday trading in Futures and Options also considered as Speculative Business Income?

No. Intraday Trading in F&O is a Non-Speculative Business Income. The definition of speculative transactions specifically excludes trading in derivative transactions. Further, such transactions are done with the intention of hedging. Therefore, the Intraday Trading of F&O is considered to be a non-speculative business income.

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