Buying and selling shares within the same day is what is commonly known as intraday trading. In India, the Securities and Exchange Board of India (SEBI) regulates intraday trading. According to SEBI norms, investors need to maintain a minimum margin of 25% in order to do an intraday trade.
When we talk about taxes, the first thing that comes to our mind is the income tax. So, the obvious question that arises here is whether the gains from intraday trading are taxable under the Income Tax Act or not.
Let us find out.
Are profits from intraday trading taxable?
As per the Income Tax Act, any profit or gain arising from a business or profession is taxable. Therefore, if you are carrying out intraday trading with the intention of making a profit, then such profits will be considered your business income and will be taxed accordingly. However, if you buy shares for investment purposes and not for trading, any long-term capital gains arising from the sale of such shares will be exempt from tax.
What is short-term and long-term capital gain?
Profit or gain arising from the sale of a capital asset held for not more than 12 months before its sale is termed a short-term capital gain. On the other hand, profit or gain arising from the sale of a capital asset held for more than 12 months before its sale is termed a long-term capital gain. Short-term capital gains are taxable at normal rates, while long-term capital gains are subject to tax at lower rates.
Short-Term Capital Gain - 15% plus surcharge & cess as applicable
Long-Term Capital Gain - 10% plus surcharge & cess as applicable
When it comes to taxation, the trading business is primarily split into the following categories.
1. Speculative Business Income
Speculative business income is the money you make from trading during the day. As in intraday trading, you buy and sell shares on the same day and do not take delivery of the shares. This is why it is called speculative business income. There isn't a separate tax bracket or set of tax rules for income from speculative business operations. Instead, this income is added to the total income to determine the tax.
2. Non-speculative Business Income
This type includes all transactions that are not based on speculation. Non-speculative business income includes all the money made from Future & Options trades, delivery equity trades, commodity & currency futures, and options trades.
There are no separate tax rates or rules for businesses that are not based on speculation. Instead, they are added to the total income to figure out the tax.
Conclusion
Any profit earned from intraday trading is taxable under the Income Tax Act. Short-term capital gains from such transactions are taxed at normal rates, while long-term capital gains are subject to tax at lower rates.
It is important to remember that if you are carrying out intraday trading with the intention of making a profit, such profits will be considered your business income and will be taxed accordingly.
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