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tax on share trading in india

  1. Share Markets and Taxations
    1. Share Market and Taxations Introduction
    2. Income Tax for Beginners Basic Concepts
    3. What is capital gains Long-Term and Short-Term How to Classify Your Income Correctly
    4. Business income Speculative and Non speculative
    5. share trading as business income Advantages and Disadvantages
    6. Indexation Explained and more about Taxation for Investors
    7. What is Indexation?
    8. Short term capital gain and days of holding explained
    9. Advance Tax Short and long term capital losses
    10. tax on share trading in india
    11. Carry forward business loss
    12. BTST Buy Today Sell Tomorrow and Tax-Loss Harvesting
    13. Balance Sheet and P&L Statements: Managing Trading Income as a Business
    14. Tax audit Scrip Wise and Trade Wise
    15. Section 44AD Audit Requirements: Understanding Balance Sheets, P&L Statements, and Books of Accounts
    16. How To File Income Tax Returns
    17. Income tax return FAQ Attachments, Due Dates, and Revisions
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Marketopedia / Share Markets and Taxations / tax on share trading in india

Here’s a revision before we move forward: 

If you hold equity investments for more than one year, your income is classed as a long-term capital gain (LTCG). Or, if the holding time is between one day to one year, then the gain is a short-term capital gain (STCG). A frequent trader or someone whose primary source of income is investing/trading should show their capital gains as business income.

In this chapter, we’ll take a look at the taxation of trading declared as business income. This falls into two categories:

  1. Speculative business income – Income from intraday equity trading is deemed speculative, since it involves trading without the intention of taking physical delivery of the contract.
  2. Non-speculative business income – Income from the trading of futures and options (both intraday and overnight) on all exchanges is considered to be non-speculative business income as it has been defined in this way. These instruments are used for hedging, taking delivery of underlying contracts, and giving delivery. Currently, most equity, currency, and commodity contracts in India are cash-settled; however, some commodity futures such as gold have a delivery option associated with them. Also, if you frequently execute shorter-term equity delivery based trades (held for between 1 day to 1 year) or it is your main source of income, then these should also be seen as non-speculative business income.

 

– Taxation of trading/business income

There is no single tax rate for income from a business. Both speculative and non-speculative profits must be included in your total income, along with any salary, additional business incomes, bank interest, rent revenue or other sources. To ascertain the applicable taxes due in the Financial Year 2020-21, please refer to Chapter 1 of the relevant legislation.

 

To illustrate, let’s consider the following scenario:

My annual salary: Rs. 1,500,000/-

Short-term capital gains from delivery-based equity: Rs. 80,000/-

Profits from F&O trading: Rs. 120,000/-

Intraday equity trading gains: Rs. 50,000/-

 

In order to determine my tax liability, I need to calculate the total income by adding my salary and business earnings (excluding capital gains):

 

Total income (salary + business earnings) = Rs. 1,500,000 (salary income) + Rs. 120,000 (profits from F&O trading) + Rs. 50,000 (intraday equity trading gains) = Rs. 1,670,000/-

 

Now, I need to calculate the tax based on the applicable tax slabs:

0 – Rs. 250,000: 0% tax – Nil

250,000 – Rs. 500,000: 5% tax – Rs. 12,500/-

500,000 – Rs. 1,000,000: 20% tax – Rs. 100,000/-

1,000,000 – Rs. 1,670,000: 30% tax – Rs. 201,000/-

 

Therefore, the total tax liability would be: Rs. 12,500 + Rs. 100,000 + Rs. 201,000 = Rs. 313,500/-

 

In addition, I have earned Rs. 80,000/- through short-term capital gains from delivery-based equity, which is subject to a flat tax rate of 15%. Thus, the tax liability for this would be: Rs. 80,000 x 15% = Rs. 12,000/-

 

Hence, the overall tax amount would be: Rs. 313,500 + Rs. 12,000 = Rs. 325,500/-

 

This example aims to provide a basic understanding of calculating tax obligations based on different sources of income. It is essential to keep these key points in mind when reporting trading as a business income for tax purposes.

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