How Gains from Intraday Trading are Taxed

11 Nov 2021|

1 min read |

by ICICI Securities Team

Introduction

Assets are classified into two categories. If you hold an asset for longer than a year, it is called a long-term asset. If you buy and sell an asset within a year, it is a short-term asset.

If you are a trader, and make a profit on selling long-term shares, you are exempted from paying tax on up to Rs. 1 lakh of profit earned. However, you will be taxed at 10% on the remaining profit. On the other hand, if you profit from the sale of shares held for less than a year, your gains are taxed at 15%.

Intraday trading comes under speculative business. Your gain from intraday trading is added to your income and taxed as per the relevant tax slab. Let’s assume that you earn an income of Rs. 15 lakhs per annum, and a profit of Rs 5 lakh from intraday trading. In this case, your total taxable income becomes Rs. 20 lakhs. This is taxed as per the applicable tax slab rate.

Here’s an example on how to calculate tax for all relevant scenarios:

Long-term capital gain (LTCG):

You buy 1000 shares of XYZ co at Rs. 500 each on August 3^rd2021 and sell them at Rs. 650 each on September 3^rd 2022. Your profit will be (1000*650-5,00,000) = Rs. 1,50,000. For LTCG, you are exempted from paying tax on Rs. 1 lakh and will be charged 10% on the remaining Rs. 50,000, along with surcharge and cess.

Short-term capital gain (STCG):

In this scenario, you buy 1000 shares of XYZ co at Rs. 500 each on August 3^rd 2021. You sell them each at Rs. 650 on December 3^rd, 2021. Here your profit of Rs. 1,50,000 will be charged at the rate of 15%. Additionally, the applicable surcharge and cess as per the Income Tax Act will be charged.

An interesting point to note is that according to the Income Tax Act, Long-Term Capital losses can only be set off against long-term capital gains. Similarly, Short-Term Capital losses can only be set off against short-term capital gains. You can carry forward the loss for eight assessment years immediately following the assessment year in which the loss was first computed.

In day trading:

You buy 50,000 shares of XYZ co today at Rs. 150 each and sell all 50,000 shares during market-closing hours at a price of Rs. 175. Then, the gain of (50000*175- 50000*150) =Rs. 12,50,000 is added to your income and taxed according to the relevant income tax slab.

As per income tax rules, your loss from day trading cannot be set off against profit from long-term capital gain and short-term capital gain. It can only be set off against profit from day trading.

Conclusion:

As a day trader, you would be aware of the risks arising from market volatility. Hence, it is important to understand how taxation works in day trading. This then enables you to make the right decisions to gain as much as possible after tax deductions.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.