Mandatory Compliances Services

For Share Traders

Share Trading has become a popular activity amongst the taxpayers, due to the ease of trading via online trading platforms. However, these trading activities also has income tax implications. Income tax on share trading is calculated based on the nature of share trading activity pursued by the trader.

Capital Gain

A trader who is involved in stock market transactions as an investor and is focused on delivery based training, can earn returns as specified below.

  • Long-term capital gain If a taxpayer have held shares for more than 12 months before selling then the profit earned shall be treated as long-term capital gains. If the equity shares are sold after 12 months through recognized stock exchange by paying STT (Securities Transaction Tax), it is exempted from tax. But if the shares are sold off-market then 20% tax becomes payable on the gains earned. Exemption on LTCG is not applicable if the shares are traded outside India. Long term capital loss from equity shares can neither be adjusted nor carried forward and hence can only be foregone.
  • Short-term capital gains If a taxpayer have sold shares within 12 months of buying then the profit earned shall be treated as short-term capital gains. This is taxed at the rate of 15%. The taxpayer can avail benefit of shortfalls, if any other income of the investor other than short-term capital gain is less than the basic exemption limit. Losses in equity trading can be set-off against any short-term capital gains.

If the assessee have bought and sold equities in delivery based transactions, his/her income will be in the form of capital gains and will be taxed accordingly. Capital gains can be filed using ITR-2.

Business Income

Traders of the stock market, who are mainly dealing with non-delivery trade, the gains received can be classed into:

  • Speculative business income Profits derived from intraday trading are classified as speculative business income and the taxes for these gains shall be similar to the income tax earned through business. The income has to be reported as Business Income and needs to file ITR-3.
  • Non-speculative business income Profits derived from trading futures in a recognized stock exchange is classified as non-speculative business income. Taxes imposed on share trading in this case are similar to the one imposed on business income.

Depending on the nature of share trading different ITR forms have to be filed with the Income Tax Department.

  • Dealing in F&O / Intraday and tax audit applies - ITR 3 form needs to be filed.
  • Dealing in F&O / Intraday and tax audit does apply and not opting for presumptive- ITR 3 form needs to be filed.
  • Dealing in F&O / Intraday and opting for presumptive - ITR 4 form needs to be filed
  • Dealing in short term delivery based trades - ITR 2 form needs to be filed
  • Dealing in F&O / Intraday (whether presumptive or tax audit or without tax audit) and short term delivery based trades - ITR 3 form needs to be filed

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