Intraday Trading in Securities: Trading in securities is a good source of passive income. Anyone can engage in trading activities through a stockbroker or a sub-broking firm to earn some additional money as an option for meeting some side expenses. In India, incomes from any source are to be disclosed before the tax authorities. Mostly, investors engaged in intraday trading forget or purposely ignore to report the incomes from this source. 

As a mandate there is a requirement to disclose it before the income tax department through filing an Income tax return, else ignoring them from tax view might get one into big trouble.  Income tax is charged on incomes of a taxpayer accumulated from all taxable sources. It is essential and mandatory for every taxpayer to report incomes received from multiple sources to the government.

Intraday trading, the trading limited to a span of a single day only, also attracts Income tax obligations. If you are also making some short or big revenues from this activity and are unaware of the Income-tax obligations you might have to meet, then you should disclose before you receive a tax notice from the department read the text below to know “How Intraday Trading requires extra tax efforts from you? “.  

About Intraday Trading 

When an investor is not in an intention to invest in any long term security and makes purchase & sale of securities within a single day only, all that counts to intraday trading. Intraday trading can be done by any investor by opening a Demat account, thereby self investing or by directing the associated sub-broker or stockbroker.

Income Tax on Intraday Trading 

Income tax on Intraday trading activities is not charged in the way as it is charged in a normal trading business. Intraday trading in tax terms is a separate business activity and all incomes or losses from such activity should not be reported under any other business activity.

How it is computed?

The tax department estimates for turnover of an intraday trader by computing the “Absolute Profit “received by him. Absolute Profit is the total of all positive and negative differences from all intraday transactions within a period.

For instance: Rahul invested in 

5 April 2020 – 500 shares and bought them at Rs 100. By evening he sold all shares at the price of Rs 110. * Profit = 10*500 = Rs 5000.

 

6 April 2020 – 200 shares and bought them at the price of Rs 55 and sold them on the same day at Rs 50. * Loss = 5*200 = Rs 1000.

 

7 April 2020 – 1000 shares and bought them at the price of 120 and sold them for Rs 125. * Profit = 5*1000 = Rs 5000.

 

Absolute Profit = Rs 5000 + Rs 1000 + Rs 5000 = Rs 20,000.

The Absolute profit is adjusted as the turnover of the taxpayer and income from trading altogether is disclosed in the profit head of ITR.

How to disclose in Income tax return? 

Filling an Income tax return, you have to report all incomes received within a year in their appropriate tax heads. Income from Intraday Trading is considered as separate business income and hence is to be reported under the tax head “Profits and Gains from Business and Profession (PGBP)”.

Intraday Trading is business income, but why?

Other than having few trades, if an investor opts for intraday trading in normal course in addition to his primary business activity or profession, it is also treated as a separate business activity.

Is Audit and carry forward of losses applicable on Intraday Trading?

In case of tax audit as per Section 44ADB, if the turnover (Absolute Profit) in the Intraday Trading business rises above the audit exemption limit, not including turnover of any other primary or secondary business activity, then the taxpayer is required to get his accounts audited through a tax professional.

Yes, past losses can be claimed under Section 44AD or can be carried forward to the successive 4 to 8 years depending on the securities traded (Equity or Futures/Options) and incomes received.

Conclusion: 

If you are earning some good revenue in Intraday trading, then do not forget to report and deposit income tax on it, else you will end up receiving tax notices and paying huge tax penalties levied by the Income-Tax department.

Ignorance of tax obligations might get you into big trouble. To live compliance free, talk to our business expert online at info@taxreturnwala.com