Income Tax on Intraday Trading: How Gains & Losses from Intraday Trading are Taxed?

When it comes to filing income tax returns, knowing the different types of trading incomes are taxed is important. Intraday trading is one of the most common forms of stock market trading in India, but it also brings the most confusion from a taxation perspective. In this detailed article, we will help you understand everything you need to know about the Income Tax on Intraday Trading and how gains and losses from intraday trading are taxed.

What is Intraday Trading?

Intraday trading refers to buying and selling stocks within the same trading day. The trader does not hold the shares overnight. The aim is to take advantage of small price fluctuations during the day. For example, if a trader buys 100 shares at Rs. 100 each in the morning and sells them at Rs. 110 each in the afternoon, the Rs. 10 profit per share is his intraday profit. The key characteristic of intraday trading is that all positions are squared off before the market closes.

How is Intraday Income Categorized under Income Tax?

The Income Tax on Intraday Trading is not the same as tax on long-term investments. Intraday trading income is treated as speculative business income under the head "Profits and Gains from Business or Profession". This is because no actual delivery of shares takes place. The income is generated through speculative transactions made with the intention of making quick profits.

Under the Income Tax Act, this income is not considered capital gains. It is taxed at normal slab rates applicable to the individual. This means that depending on your total annual income, the tax rate on intraday income can go up to 30%.

Income Tax Return (ITR) Form for Intraday Trading

If you earn money through intraday trading, you must file your income under the business income category. For this purpose, ITR-3 is the correct form to use. This form is used by individuals and Hindu Undivided Families (HUFs) who earn income from a proprietary business or profession. You must also prepare your financial statements including trading profit and loss account and balance sheet if required.

In some simplified cases where presumptive taxation under Section 44AD is used, ITR-4 may be applicable. However, it is always advisable to consult a tax expert to determine which form is appropriate based on your income and number of transactions.

Tax Slab Rates Applicable to Intraday Trading Income

The Income Tax on Intraday Trading is applied as per the individual tax slab. There is no separate rate or special benefit like capital gains tax.

Old Tax Regime Slabs: 

• Up to 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%

• Above Rs. 10,00,000 – 30% 

New Tax Regime Slabs (FY 2025-26): 

• Up to Rs. 3,00,000 – Nil

• Rs. 3,00,001 to Rs. 6,00,000 – 5%

• Rs. 6,00,001 to Rs. 9,00,000 – 10%

• Rs. 9,00,001 to Rs. 12,00,000 – 15%

• Rs. 12,00,001 to Rs. 15,00,000 – 20%

• Above Rs. 15,00,000 – 30% 

Under the Budget 2025, individuals with income up to Rs. 12 lakh may benefit from an enhanced rebate under Section 87A.

What is Turnover in Intraday Trading?

Turnover is a very important concept when calculating tax liability on intraday trades. For intraday trades, turnover is calculated by adding the absolute profits and losses from all trades. This means you do not deduct losses from profits. Instead, both profit and loss figures are added to determine total turnover.

For example: 

• Profit from one trade = Rs. 5,000

• Loss from another trade = Rs. 3,000

• Absolute Turnover = Rs. 5,000 + Rs. 3,000 = Rs. 8,000 

The turnover amount helps in determining whether a tax audit is required or not.

Tax Audit Applicability for Intraday Trading

The need for a tax audit depends on your trading turnover and profit percentage. Here are the conditions: 

• If turnover is up to Rs. 2 crore (or Rs. 3 crore if digital receipts are 95%):

• If your profit is at least 6% of turnover and you opt for presumptive taxation under Section 44AD, tax audit is not applicable.

• If your profit is less than 6% or you have a loss and total income exceeds Rs. 2.5 lakh, tax audit is mandatory.

• If turnover is between Rs. 2 crore and Rs. 10 crore:

• If profits are at least 6% and you are not using presumptive scheme, tax audit is required.

• If turnover exceeds Rs. 10 crore:

• A tax audit is mandatory regardless of profit or loss. 

Advance Tax for Intraday Trading

Advance tax is required to be paid if your total tax liability is more than Rs. 10,000 in a financial year.

If you opt for the presumptive taxation scheme under Section 44AD, then 100% of advance tax must be paid by 15th March.

If not opting for presumptive taxation, you must pay advance tax in four instalments: 

• 15% by 15th June

• 45% by 15th September

• 75% by 15th December

• 100% by 15th March 

Carry Forward of Losses from Intraday Trading

Any loss incurred from intraday trading is considered as speculative business loss. As per the Income Tax Act, a speculative loss can only be set off against speculative income. If your speculative loss cannot be adjusted in the current year, it can be carried forward for up to four assessment years.

However, this carry forward is only allowed if you file your ITR on time: 

• 31st July – if tax audit is not applicable

• 31st October – if tax audit is applicable 

You must also maintain books of accounts and retain proof of your losses for future reference.

Expenses Deductible Against Intraday Trading Income

Being business income, the profit from intraday trading is eligible for deduction of business expenses. This includes: 

• Brokerage charges

• Internet and electricity bills used for trading

• Cost of software or trading tools

• Depreciation on laptop or computer

• Advisory and subscription fees

• STT and other regulatory charges 

These expenses must be directly related to your trading activity and well-documented.

ITR Filing Tips for Intraday Traders 

• Use the correct ITR form (usually ITR-3)

• Maintain trade summaries, brokerage statements, and P&L accounts

• Claim only legitimate and directly related expenses

• File returns before due dates to carry forward losses

• Consider hiring a tax professional if trading volume is high 

Capital Gains vs Intraday Trading Income

Many traders mistakenly report intraday trading under capital gains. This is incorrect. Capital gains apply when there is a delivery-based purchase and sale of shares. Intraday trading has no delivery; hence, it falls under speculative business income.

Capital gains may enjoy concessional tax rates (10% or 15%), but Income Tax on Intraday Trading is based on slab rates. Also, capital gains losses have a longer carry-forward period of 8 years and can be set off against both short-term and long-term capital gains, which is not the case for speculative losses.

Conclusion

The Income Tax on Intraday Trading is important for traders to avoid penalties and unnecessary tax notices. Since gains and losses from intraday trading are taxed under the head of business income, it's important to use the right ITR form, maintain all records, calculate turnover correctly, and comply with advance tax and audit provisions.

If you are a regular trader, maintaining proper books of accounts and timely tax filing can save you from future scrutiny. With proper planning, you can also reduce your tax liability by claiming legitimate expenses. Remember, speculative losses have limited set-off options, so report and file correctly to utilize carry forward benefits.

If you need any support, book a consultation with our experts through email at info@ccoffice.in or Call/Whatsapp at+91 9988424211.

FAQs

Q1. How is income from intraday trading taxed under Indian Income Tax laws?

Ans. Income from intraday trading is considered speculative business income under the head “Profits and Gains from Business or Profession.” It is taxed at the applicable income tax slab rates of the individual and not under capital gains.

Q2. Which ITR form should I use to file intraday trading income?

Ans. You should use ITR-3 if you are reporting income from intraday trading. Since it falls under business income, you must also prepare a profit and loss account and balance sheet. ITR-4 may be used only if presumptive taxation under Section 44AD is applicable.

Q3. What is the turnover in intraday trading for tax audit purposes?

Ans. Turnover in intraday trading is the sum of absolute profits and losses from all trades. Both profits and losses are added without netting off. This turnover figure is crucial for determining the applicability of a tax audit under Section 44AB.

Q4. Is tax audit mandatory for intraday traders?

Ans. A tax audit is not mandatory if your turnover is within Rs.2 crore (or Rs.3 crore if digital transactions are over 95%) and your profit is at least 6% of the turnover. However, it becomes mandatory if your profit is below 6% and your total income exceeds Rs.2.5 lakh.

Q5. Can I claim expenses against my intraday trading income?

Ans. Yes. Since it is considered business income, you can claim all direct trading-related expenses such as brokerage charges, internet costs, trading software, electricity, STT, and advisory fees. Proper documentation must be maintained.

Q6. Can intraday trading losses be set off against other income like salary or rent?

Ans. No. Intraday trading losses are treated as speculative business losses and can only be set off against speculative gains. They cannot be set off against salary, rent, or other non-speculative income.

Q7. How long can I carry forward intraday trading losses?

Ans. Speculative losses from intraday trading can be carried forward for 4 assessment years, but only if the ITR is filed within the due date (31st July or 31st October depending on audit applicability). These losses can only be adjusted against future speculative business income.