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Taxation On Traders

This document discusses taxation requirements for income from intraday equity trading and futures and options (F&O) trading. It states that income from intraday equity trading is considered speculative income, while income from F&O trading is considered non-speculative business income. It provides an example to demonstrate how trading income from both sources is added to salary to calculate total income and tax liability. It notes that a tax audit is required if there is a loss from intraday trading in order to carry losses forward for future tax benefits. Speculative losses can be carried forward for 4 years while non-speculative losses can be carried forward for 8 years. It also outlines when a tax audit is required based on business turnover.

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194 views5 pages

Taxation On Traders

This document discusses taxation requirements for income from intraday equity trading and futures and options (F&O) trading. It states that income from intraday equity trading is considered speculative income, while income from F&O trading is considered non-speculative business income. It provides an example to demonstrate how trading income from both sources is added to salary to calculate total income and tax liability. It notes that a tax audit is required if there is a loss from intraday trading in order to carry losses forward for future tax benefits. Speculative losses can be carried forward for 4 years while non-speculative losses can be carried forward for 8 years. It also outlines when a tax audit is required based on business turnover.

Uploaded by

balakrishna
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Taxation

for
Traders
Income from Intraday Equity Trading
Income from Trading F&O

Prepared by:
CA Siddharth Saraf

https://about.me/ca.siddharthsaraf
02

What is Intraday
Trading ?
When the trader squares off his trade position on the same day, it is called
Intraday trading. The nature of income depends upon the type of trading.

Equity Intraday Trading - Speculative Income


F&O Intraday Trading - Non-Speculative Income

1. Speculative business income – Income from intraday equity trading


is considered as speculative. It is considered as speculative as you
would be trading without the intention of taking delivery of the
contract.
2. Non-speculative business income – Income from trading F&O (both
intraday and overnight) on all the exchanges are considered as non-
speculative business income as it has been specifically defined this
way. F&O is also considered as non-speculative as these instruments
are used for hedging and also for taking/giving delivery of the
underlying contracts. Even though currently almost all equity,
currency, & commodity contracts in India are cash-settled, but by
definition, they give rise to giving/taking delivery (there are a few
commodity futures contracts like gold and almost all agri-commodity
contracts with the delivery option to it).Income from shorter-term
equity delivery based trades (held for between 1 day to 1 year) are also
best to be considered as non-speculative business income if the
frequency of such trades executed by you is high or if
investing/trading in the markets is your main source of income.

CA SIDDHARTH SARAF
03

Taxation of
trading/business
income
Let me explain this with an example:

My Salary – Rs.10,00,000/-
Profits from F&O trading – Rs.100,000/-
Intraday equity trading – Rs.100,000/-

In order to find out my tax liability, I need to calculate my total income by


summing up salary, and all business income (speculative and non-
speculative).

Total income (salary + business) = Rs.10,00,000 (salary income) +


Rs.100,000 (Profits from F&O trading) + Rs.100,000 (Intraday equity
trading) = Rs 12,00,000/-

I now have to pay tax on Rs 12,00,000/- based on the tax slab –


0 – Rs.250,000 : 0% – Nil
250,000 – Rs.500,000 : 5% – Rs.12,500/-
500,000 – Rs.1,000,000 : 20% – Rs.100,000/-,
1,000,000 – 1,200,000: 30% – Rs.60,000/-

Hence Total Tax : 12,500 + Rs.100,000 + Rs.60,000 = Rs.172,500/-

I hope this example gives you a basic orientation of how to treat your
income and evaluate your tax liability.

CA SIDDHARTH SARAF
04

When is Tax Audit


required ?
If there is a loss in Intraday trading, it is
mandatory to get tax audit done.
Intraday Trading Income or Loss must be considered as a business income
and cannot be treated as Capital Gains. Thus, if there is a loss in Intraday
trading, it is mandatory to get tax audit done.

If the loss is negligible and you do not want to claim it, you may ignore the
Intraday transactions in the tax return to avoid tax audit. Please note that
in this case, there are chances of receiving a notice from the income tax
department and an appropriate response needs to be submitted.

For how many years can I carry forward


the loss ?
A trader can claim and carry forward the loss only if he gets his books of
accounts audited as per provisions of tax audit under income tax act. He
can set off the previous year’s loss against income of future years and
save taxes.

Loss can be carried forward for:

Speculative Loss (Equity Intraday Trading) - 4 years


Non-Speculative Loss (F&O Intraday Trading) - 8 years

CA SIDDHARTH SARAF
05

When is Tax Audit


required ?
Turnover more than Rs 10 Crore &
Turnover is less than Rs.10 Crores but
profits are lesser than 6%

An audit is required if you have a business income and if your business


turnover is more than Rs 5 crore for a financial year (from FY 20-21). In the
case of digital transactions (equity transactions are 100% digital), this
turnover limit is Rs 5 crores. For equity traders, an audit is also required as
per section 44AD in cases where turnover is less than Rs.5 Crores but
profits are lesser than 6% of the turnover and total income is above the
minimum exemption limit.

CA SIDDHARTH SARAF

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