Speculative Busines Income and Non-Speculative Business Income Tax Treatment

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 or non-speculative business income. Following types of trading income is considered as Business Income:

  • Equity Delivery Trading – When a trader buys an equity share from the stock market and holds it for more than a day.
  • Equity Intraday Trading – When a trader buys an equity share and sells it on the same day.
  • Mutual Funds Trading – Buying and selling of mutual funds – equity, debt, ETFs, etc.
  • Equity F&O Trading (Futures and Options) – Trading into Futures and Options with Equity Shares as an underlying asset.
  • Commodity Trading (F&O and Intraday) – Trading into commodity instruments and Futures & Options with a commodity as an underlying asset.
  • Currency Trading (F&O and Intraday) – Trading into currency instruments and Futures & Options with currency as an underlying asset.
Import Your Trades
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Import Your Trades

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

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.

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 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:

  • A trader should prepare financial statements and file Form ITR 3 on Income Tax Website
  • A trader can claim expenses directly related to trading income
  • Trading Turnover is the Absolute Profit i.e. sum of absolute values of profit or loss
  • The trader can set off the Speculative Loss only against Speculative Business Income
  • A trader can carry forward losses that remain for 4 years and set them off against Speculative Business Income only
  • Moreover, this income is taxable at slab rates as per the Income Tax Act

Non-Speculative Business Income

Any business income that’s not Speculative in nature is a Non-Speculative Business Income. Hence, this income includes 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 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:

  • A trader should prepare financial statements and file Form ITR 3.
  • Traders can claim expenses directly related to trading income.
  • Trading Turnover for Futures Trading is the Absolute Profit i.e. sum of absolute values of profit or loss. Trading Turnover for Options Trading is the sum of Absolute Profit and premium on the sale of Options.
  • The trader can set off Non-Speculative Loss in the current year against any income except Salary.
  • The trader can carry forward the remaining loss for 8 years and set off against both Non-Speculative Income and Speculative Business Income.
  • Moreover, this income is taxable at slab rates as per the Income Tax Act.

FAQs

Can I set off Speculative Loss against other Incomes?

The trader can set off the Speculative Loss only against Speculative Income. A 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 Loss against other Incomes?

The trader can set off Non-Speculative against any income except Salary in the current year. A 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 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.

Got Questions? Ask Away!

  1. 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

  2. Hi @Anoop

    Due date for filing the return has been extended.

    Due Dates to File Income Tax Returns for FY 2020-21 ( AY 2021-22 )

    Category of Taxpayer Original Due Date Extended Due Date
    ITR Filing when Tax Audit is not Applicable 31st July 2021 30th September 2021
    ITR Filing when Tax Audit is Applicable 31st October 2021 30th November 2021
    Tax Audit Report Filing 30th September 2021 31st October 2021
    Due Date for Filing Belated/Revised ITR 31st December 2021 31st January 2022

    So, You need to file ITR by 30th September 2021 when Tax Audit is not Applicable.

    Hope this helps!

Continue the conversation on TaxQ&A

1 more reply

Participants