If you’re earning income from shares through intraday trading, understanding how these profits are taxed is crucial for effective tax planning and compliance. Here’s a detailed breakdown of the taxation rules and guidelines:
1. Classification of Assets:
- Capital Assets: Held for the long term with the intention of capital appreciation and dividends.
- Tax Treatment: Capital gains taxed as Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG) based on holding period.
- Trading Assets: Bought and sold frequently for short-term profits.
- Tax Treatment: Treated as speculative business income for traders.
2. Intraday Trading Overview:
- Definition: Buying and selling shares within the same trading day to capitalize on short-term price movements.
- Tax Treatment: Income from intraday trading considered speculative business income.
3. Income Tax Rules:
- Income Head: Profits and Gains from Business and Profession.
- ITR Form: Traders must file ITR-3 and prepare financial statements.
- Due Date:
- July 31st (without Tax Audit)
- October 31st (with Tax Audit)
4. Tax Audit Applicability for Intraday Trading:
- Tax audit criteria based on turnover:
- Turnover up to ₹2 Crore: Tax audit not applicable if profits are at least 6% of turnover.
- Turnover more than ₹2 Cr and up to ₹10 Cr: Tax audit applicable unless Presumptive Taxation Scheme under Section 44AD is chosen.
- Turnover exceeding ₹10 Cr: Tax audit applicable regardless of profit or loss.
5. Calculation of Turnover for Intraday Trading:
- Turnover Formula: Absolute amounts of Profit/Losses.
- Absolute Turnover: Sum total of positive and negative differences.
6. Tax Calculation:
- Taxation Method: Intraday trading income taxed at slab rates.
- Slab Rates: Progressive tax rates based on income levels, with applicable surcharge and cess.
Example of Tax Calculation:
- Suppose Ektha makes a profit of ₹500 from her first trade and incurs a loss of ₹8,000 from her second trade, resulting in an absolute profit of ₹8,500.
- The tax on this profit will be calculated based on Ektha’s total income slab rate, with adjustments for surcharge and cess.
Ensure compliance with tax regulations and consult with a tax advisor for personalized advice on optimizing tax liabilities related to intraday trading income.
Source Of Information: Cleartax
