Intraday trading in equities (buying and selling stocks within the same trading day) is treated as speculative business income under Section 43(5) of the Income Tax Act. This has important implications for tax rates, set-off of losses, and ITR form selection.
Intraday vs Delivery Trading — Tax Classification
| Trading Type | Tax Classification | Tax Rate | ITR Form |
|---|---|---|---|
| Intraday equity (buy & sell same day) | Speculative Business Income | Slab rate | ITR-3 |
| Delivery equity (held overnight+) | Capital Gains (STCG/LTCG) | 20%/12.5% | ITR-2 or ITR-3 |
| F&O (Futures & Options) | Non-Speculative Business Income | Slab rate | ITR-3 |
| Commodity/currency trading | Non-Speculative Business Income | Slab rate | ITR-3 |
Intraday Trading Tax Rate
Intraday profits are taxed at your income tax slab rate (not a flat rate). If your total income (salary + intraday profit) is ₹15 lakh, you pay 20% tax on the portion in the ₹12–15 lakh bracket (new regime). There's no flat rate benefit like LTCG at 12.5% — intraday income is ordinary income.
Set-off of Intraday (Speculative) Losses
- Intraday loss can be set off ONLY against speculative income in the SAME year
- Cannot set off intraday loss against salary, F&O profit, capital gains, or other non-speculative income
- Intraday loss can be carried forward for 4 years (against speculative income only)
- F&O loss (non-speculative) can be set off against intraday profit
- To carry forward intraday losses: MUST file ITR-3 before the due date (July 31)
Tax Audit for Intraday Traders
Tax audit under Section 44AB is required for intraday traders if: turnover (sum of absolute intraday profits/losses) exceeds ₹1 crore OR ₹3 crore if digital transactions. If you also do F&O, both turnovers are combined. You always need ITR-3 for intraday trading — ITR-1 and ITR-2 are not applicable.
Deductible Expenses for Intraday Traders
- Brokerage and transaction charges (but NOT STT — Securities Transaction Tax)
- Internet connection expenses (proportionate to trading use)
- Mobile charges (proportionate to trading use)
- Subscription to trading platforms, data feeds, charting software
- Home office expenses (if trading from home — proportionate)
- Books, courses, seminars on trading (education for the trade)