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Posted on September 21, 2021
Tax Implications Of Intraday Trading Of Shares
Intraday trading is also known as Day Trading. As the name suggests it is simply the buying and selling of stocks on the same trading day. When we analyse the market, we can see that based on various elements the share prices keep fluctuating throughout the day, and what a trader does here is to utilize these price fluctuations for booking profits by buying and selling shares during the same trading day. Hence, an intraday trader would book the profits before the market closes on the day.
As intraday trading has 5-6 hours a day for completing buying and selling, the same can be opted only by those traders who are self-driven, risk-takers, and knowledgeable about the market progress.
Intraday trading is conducted using online platforms, and when a trader is buying stocks for a company he or she will have to specify, ‘intraday’ in the portal of the platform used. With this, the trader can sell or buy the same amount of the stocks on the same day before the market closes, and the major purpose of the trader here will be to utilize the movement of market indices during a day and book the maximum possible profits.
Often, it is said that a long-term investor can reap the maximum number of profits from the stock market and stock market trading. But profits can be booked during short-term also as in this, with the movement of the market indices, when the price goes high the trader can easily book the profits.
Say you bought 1,000 shares at INR 1,000 in the morning and during the day the prices went high to INR 1,100. Here along with the principal amount spent, you also book a profit of INR 1,00,000 (1000 shares*INR 100). And this can be made possible only through intraday trading.
Features of Intraday Trading
During the day, on the online trading platform where you have specified ‘intraday trading’, you should be taking a position as a trader and closing the stock within the trading hours of the same day. In case you failed to do so, the position would get squared off automatically on the basis of the closing market price of the share chosen. The trader will not be awarded the ownership of the shares in intraday trading as its major purpose is to reap the maximum benefit out of the price movements during the day.
Taxation of Intraday Trading
Unlike investment, where the trader will be taking delivery of shares and holding the same for at least a day, the intraday trader will only be trading the shares during the same day within the span of opening and closing of the market. They are not interested in holding the stock for the long term based on the prospects of the underlying stock but are keen on the gains which they can make within a day. Due to this same reason, it can be termed as a speculation transaction making it a business income.
In case the trader fails to book a profit, the broker will be squaring off the trader’s position or will be converting the same into a delivery trade. The transaction settlement will be made without any delivery of shares due to which the profit or loss booked from speculation trading will be taxable under the head, ‘Income from Business or Profession’. It is referred to as speculative transactions. The trader can also claim or deduct any expenses from the profit booked which can include brokers commission, telephone expenses, or other incidental charges which are related to the intra-day trading.
During the filing of ITR (Income tax Returns), the income earned by the income taxpayer from all the five heads which are, Income from Salary, Income from House Property, Income from Capital Gains and Income from Other Sources along with the Income from Business or Profession will be added to form the gross total income and forming the taxable income, on which taxes will be calculated as per regular income tax rates.
Suppose if the trader has a speculative loss, then the taxpayer can deduct the same from the speculative income. If there is any balance loss after such adjustment, then it can be carried forward and set off against any succeeding assessment years’ speculative income. It should be noted, that such carried forward is only allowed up to four subsequent years and it cannot be adjusted against another business income. ITR 3 which is for individuals and the HUFs who earn income from carrying a profession or from a proprietary business, is often used for filing income from speculative transactions.
At the same time in investment, the sale will be giving rise to long-term or short-term capital gains which would be based on the holding period of such shares. If the stocks are held for more than 1 (one) year, then they will be classified as long term and if held for less than a year they will classify as short term.
Thus, we can conclude that intraday trading is one easy way for booking profits by making use of the market indices and any one who would want to earn some quick profits by making use of the market and price fluctuations should opt for intraday trading rather than choosing any investment options.