Wherever gains are involved taxes cannot be ignored. One needs to understand the taxation of income very clearly. Gains from the sale of assets unlike other sources of income like salary, interest income rentals etc., are a little different and needs to be clearly understood. Gains from the sale of assets are taxed in two ways- long-term capital gains or short-term capital gains depending on the holding period. While there is little or no confusion on the long-term capital sale of assets, there is a lot of it in the short-term sale of assets. This is because taxation of short-term capital gains is based on delivery and non-delivery otherwise known as intraday.
The delivery-based gains where there is a movement of stocks out of your demat within less than 12 months is taxed as short-term capital gains. However, if an asset is bought and sold on the same day without taking delivery is known as intraday and is speculative. It is charged to tax as business income and treated as a speculative business.
The point to be noted here is we are discussing assets like stocks, mutual funds and not derivative products like futures and options that are taxed as a non-speculative business.
Intraday trading is done primarily to take advantage of the price fluctuations without taking actual delivery of the shares. Hence, gains or profits are treated as speculative and charged under the head profits and gains from business or profession as a speculative business. It needs to be noted that trading in futures and options even if it is intraday, is not a speculative business. Trading in futures and options is a non-speculative business.
Income from speculative business and non-speculative business both are aggregated with other non-business incomes like salary, rentals, income from other sources like interest etc., and taxed at the applicable slab rate.
However, being a business one can claim expenses against the income related to both speculative and non-speculative business.
Let’s understand this with an example
An individual discloses the following sources of income:
Let us calculate his income tax liability
Income from Salary INR 15,00,000
Property Rentals INR 50,000
Income speculative business INR 75,000
Income from Non-speculative business INR 25,000
Total INR 20,00,000
Tax On INR 20,00,000 based on the tax slab INR 4,12,500
Income tax slabs for Individuals aged below 60 years & HUF
Income slab | Rate | Tax | ||
0 | 250000 | 0 | 250000 | 0 |
250000 | 500000 | 5% | 250000 | 12500 |
500000 | 1000000 | 20% | 500000 | 100000 |
1000000 | 2000000 | 30% | 1000000 | 300000 |
2000000 | 412500 |
Long term INR 15,000Tax on Capital gains
(10% over and above INR 1 lakh (INR 2,50,000-INR 1,00,000)
Short term (15% of INR 50,000) INR 7,500
Total taxes (INR 4,12500+INR 15000+INR 7500) INR 4,35,000
Income includes negative income as well. Hence any loss occurring on any business can be set off against incomes and the unabsorbed losses can be carried forward to be set off against future incomes. There are rules prescribed for set-off and carry forward of losses by the income-tax. They are as below
Intraday trading means buying and selling shares without taking delivery of the same.
Intraday trading gains are taxed as speculative business income. The purpose of intraday trading is to take advantage of the price fluctuations. These gains are added along with your other sources of income and taxed as per the slab applicable.
Intraday losses are also speculative and therefore they cannot be set off against any other income other than intraday gains. However, they are allowed to be carried forward for 4 consecutive years to be set off against speculative gains.
No. Gains from trading in futures and options are normal business income to be taxed under the profits and gains from business and profession.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
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