Updated as on Aug Traders today have so much of compelling options to trade in the stock market varying from stocks, futures, or options to manage their capital more wisely and achieve their trading objectives. But on the other side, they are obligated under income tax regulations to file their returns in right manner and pay taxes on their trading profits. So, it becomes important for any trader to understand the taxation treatment of trading business in India so that they can plan their trading activity accordingly and achieve their goals.

In an attempt to make your task simple and easier while filing your income tax, we are writing these series of posts to help you understand how we traders are obligated under the law to take care of filling of our trading activities. Stocks sold after holding for more than days — Tax Free. Equity Intra-Day or Non-Delivery Trading — Taxed as per Tax Slab. Any transaction where you buy and sell the shares on the same day is a Day Trade. Any profits and losses arising from any such transaction will be considered as Speculative Activity.

As these incomes are considered as business income, so you can offset it with business expenses you incur to earn it like depreciation, internet bills, advisory fees, software charges, and more. Part VI — Getting Started With Trading — How to Trade Futures Market? How to Trade Bank Nifty Futures?

How to Trade Nifty Futures?

Getting Started With Trading : Tax Guide for Traders in India

Income tax regulations in India treats the activity of a trader and investor in different ways and have in-turn different taxation treatment and obligations. Still a lot of ambiguity is there in Indian taxation laws specially in case of how to treat short term income from trading in taxation. Rakesh Jhunjhunwala who is an investor and a trader must also have a lot of disputes with tax authorities on how to declare his trading as against investments.

The one who broke all the fixed rules of trading and laid down the foundations for others to follow. Investments for more than one year are considered to be long term and attract no tax on profits. Profits arising out from selling a stock after holding it for 12 months will be treated as a long term capital gain LTCG which as per the section 10 38 of the income tax act is exempt from tax provided such a transaction is done through a recognized stock exchange for which Security transaction tax STT is paid.

Shrinivasan has bought shares of Tata Motors at Rs. While on the other hand, if he has bought shares of DLF at Rs. If the investment and the consequent sale were done via an off-market transaction transferring from one DP to another persons DP , then the Long Term Capital Gain Tax on: Profits or Losses from long term investments will be treated as Long Term Capital Gain or Loss.

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Profits from Long term investments will be tax free Provided they are done through an exchange and sold after holding for more than one year, i. Losses from Long term investments cannot be adjusted against any short term and long term profits.

STT paid to the Govt cannot be claimed as expense for Investing. While on the other hand, any loss arising out of the short term trading can be carry forwarded to a period of 8 years against any short term capital gain or long term capital gain, if these loses are declared while filling the income tax returns.

Profits or Losses from short term investments will be treated as short term capital gain or loss. Loss from short term investments can be carry forwarded to a period of 8 years against any short term capital gain or long term capital gain, if these loses are declared while filling the income tax returns in respective years. Investors should take a good note of the total holding period of any stock they are planning to sell, as any stock sold after holding it for even days will be considered as short Term and not Long Term.

So, to take the benefit of the long term capital gain keep a fair note on the holding period of the stock. Another important point to consider here is that if you have bought and sold the same shares many times, then you will have to use FIFO method to calculate the holding period and in-turn your Capital Gains. While on the other hand, any loss arising from trading derivatives will be considered as Non Speculative Business Loss and can be offset against any other business income including speculative business income Income from Day Trading except salary in the same year.

So you can set-off against bank interest income, rental income, capital gains, but only in the same year. The balance, if any, can be carried forward and set off only against non-speculative business income within eight assessment years immediately succeeding the assessment year in which the loss was first computed.

For Example, In the year , Mr. Shrinivasan has a annual salary of Rs. Therefore, his taxable income will be Rs. The above criteria are very much applicable to those whose only source of income is trading business but if you are salaried or you have some other business income as your primary or core income source then it becomes easier to show your equity profits as capital gains.

So, you can be a trader as well as an investor at the same time. So, taxation rules are clear for speculative day trading and non-speculative futures trading, as any income from these two sources will surely has to be declared as business income.

But for long term investments, all the stocks that you have sold after holding for more than one year can be declared as long term capital gain and thus exempt from tax while if you are trading stocks frequently then all these income should be declare as speculative rather than capital gain. Therefore, it becomes important to stay consistent with what you are declaring self while doing tax returns.

So, consult a CA to determine what to declare self while filing tax returns to achieve your trading objectives in futures. ITR 4 should be used while filling taxation for individuals trading derivatives. Taxation rules are clear for speculative day trading and non-speculative futures trading, as any income from these two sources will surely has to be declared as business income.

So, he has to pay short term tax on 2 lacs profit and 1 lac loss can offset against any speculative profits within next four years. Profits from day trading equities will be considered as speculative income and will be added to other income and taxed as per your tax slab.

To carry forward the losses in the subsequent years, the perquisite is that they should be filed in the same year the losses were incurred, else you cannot carry forward them in the subsequent years. We can understand the pain you might have felt by having losses in your trading positions at the end of the financial year. Its really a pain which needs to be addressed and surely can be rectified. We all traders commit similar trading mistakes and felt into the trap.

If you had huge losses from day trading then you must have been trapped into the general philosophy of confusing day trading with trading every day.

Actually it is not. Also, if you have been trading futures market, then its important to note that trading is all about planning and following your trading rules strictly and nothing else. So, preparation is generally the key for the success of most professional traders and for traders it all about understanding the importance of designing a trading plan and implementing it.

They are no different than us, but just they remain stick to what they planned and follow it blindly. Every trader or an investor goes through this stage but its important to take steps to rectify it and not repeat it again.

And there is no better way than to learn from the Legends themselves. Refer to the below books and other recommended books on investing and trading to help you learn how some of the successful traders or investors deal with their losing steak, recovered from the bad days, make a mark from this business and made millions.

Any trader will have to undergo the audit of accounts if the Turnover for the financial year is greater than Rs. Turnover is being calculated to determine if you need a tax audit or not? Suppose, you bought 1 lot 25 units BankNifty futures at Rs. To understand the difference between the trading and settlement turnover calculation for audit, Refer to the illustration.

How to report F&O trading in your income tax return - Livemint

So, All such settlement profits and losses summed up together if exceeds Rs 1 crore, only then is the audit required. Advance Tax on Trading. When you have a business income you have to pay most of your taxes before the year ends on March 31st.

Advance taxes are required to be paid by individuals as well as corporate, so there are no exceptions. So, if you think at the end of the year, you will have taxable income say apart from salary, then advance tax has to be paid. As per our tax laws, any business income earned in India will attract the tax to be paid in advance as. So, if your tax liability comes out to be more than Rs.

This is very simple to calculate and pay if we talk of business income which is assured. But the issue comes with the business income or capital gains from trading as the income which was positive say till end of 15th September may turn out to be less if the trader incur losses in the subsequent months.

The net income at the end of the month may be less or even negative. In case of Futures, since it is considered as a business, you will have to pay advance tax on the estimated profits and say if you had a net loss in the year end then you can claim refund of the advance tax paid.

So, you can pay advance tax by Sept 15th for what was earned till that period and you can make the balance tax payment by March 15th.

So if you have booked profit from stocks, you can pay advance tax only on that profit. Also, if you have paid more tax than what was supposed to be paid as per your total business income for the financial year, you can claim a tax refund.

You can visit Advance Tax Calculator on Income tax Department website to calculate the tax to be paid. What about Advance Tax for Salaried? If you are salaried, you need not pay advance tax on your salary income as your employer deducts tax at source TDS from your salary regularly and pay it in advance to the government. But if you have any other income apart from salary then you are required to take care of your advance tax laibility.

So, any income from capital gains on shares or house property, interest on fixed deposits are required to be included and advance tax is required to be paid after adjusting for expenses or losses, if any. Can we choose the tax only at the end of the year as it is difficult to estimate the earning from trading?

How is Interest Calculated for Non-Payment of Advance Tax on Trading? For deferment of advance tax. The said interest is levied 0. If you are a salaried person, then profits from derivatives will be added to your salary income and will be taxed according to your tax slabs.

While on the other hand, losses from derivatives trading cannot be offset against the salary income but can be offset against any business income in next 8 years.

Any individual trader carrying out trading activity be it long, short or day term are obligated under the income tax law to file their returns before July 31 This year the date is extended to September 7, and it is September 30th for companies. In case your turnover exceeds Rs. Under section B, failure to submit the tax audit in time has a penalty of 0.

So, for any expenses you mention maintain the supporting documents for any future reference. STT, or Securities Transaction Tax , is a tax levied on securities trades excluding commodities or currency trades. STT is levied on trades on the National Stock Exchange NSE , Bombay Stock Exchange BSE , and other recognized stock exchanges. For commodities, CTT Commodities Transaction Tax is levied. If the trade is a equity delivery trade, than a tax of 0. However, if the trade is squared off closed within the same trading day, meaning it is a intra-day transaction, then the STT rate applicable is 0.

Can we deduct long term capital loss from stocks with business income for computing income tax? No, we cannot net off the long term losses against any income or gains. Can we carry forward the losses if not filed in the financial year? To get the benefit of carry forwarding the losses, it has to be filed in your income tax before the due dates for the financial year to get any benefit. Otherwise, you cannot claim the benefit. Taxation for Traders in India. Please note that all the information shared is solely for the general information purpose only.

No information, views, opinions or examples constitute a solicitation or offer by JustTrading. This very neat and thanks for the info. I mostly take delivery and have done some 10 times Intraday made about not more than Rs.

Can I declare myself Investor. Dear Sudhakar Income tax regulations had wide aspects to classify your trading activity as Business or Investment. Income below taxable limit. Still I received notices asking why I have not submitted returns for past 2 years. They are referring to my above trades under STT, STT and STT So I have decided to file this years return and I know I need to file ITR 4.

Please help in providing some ITR4 specimen for stock market traders….. Suppose as per portfolio position from backoffice I have: I dont now why it is required. So I think this is to be ignored and is to be taken as opening stock. So I think this is to be ignored and is to be taken as closing stock. Please help me with sample ITR 4 for this data. The first thing we need to evaluate is the profit or loss you had on your trading activity separately for long term, short term and speculative.

As your turnover is less than 1 crores and your total income is below the taxable limit of Rs. All the intraday profits should be shown under speculative business income while all short term equity delivery profits under capital gains head. So, it is advisable to file the same with the help of a CA so that you remain consistent with your future tax returns. My income below taxable limit. Still I received notice asking why I have not submitted returns past 3years.

Because my income laser than one lack all sources. My portfolio about 2lakh 70thousand. I have loss in 20y in day trading about My day volume buy and sell total is 50lack. Can i file income tax this year? Please give me advice. Income tax compliance is getting very strict these days. So all the traders or investors participating in the market are required to file their tax returns even if the total income is below tax limit.

As per law, Electronic filing of income tax return is mandatory for the taxpayer if the total income is more than Rs. Even many of the traders we are connected with are getting notices for non-filling of income tax returns. IT department are filtering out the accounts who are participating in the capital market but not filling their tax returns under STT, STT, STT, STT, STT and asking them to submit their response electronically under Complaince module.

Hi, request you to explain the taxation of Gold ETF and Liquid BEES ETF trading. Can I calculate turnover for these like Equity trading or only capital gains tax applicable for these. But any dividend received from liquidbees are tax free as they are taxed in the hands of the companies and not the investors. I just saw your article on Getting started with Trading — Tax Guide — Part VIII. The article is highly informative and has been written in a lucid manner. The language is simple and very expressive.

The examples added are making the points crystal clear with out any ambiguity. Indeed an excellent article. By the by, I need to have a copy of the said article. How do I get the same? Will you please email me to my id. Thanks for your great words. Will share with you the copy of the updated article on your email once the union budget is out this month end.

We really appreciate your for taking time to share your thoughts.. Kudos to your team for explaining a complex issue so easily. Please mail a copy of the updated article. Thanks Yatin for taking your time for sending us your wonderful words. We are really happy to hear the positive outcomes of our heart full efforts and initiative to help traders across to be independent and learn the skill of trading.

Really motivating for us. So, we will try to find some solution to deal with requests and to serve you all in a better way. Also, we are very happy to connect with the traders like you. Please let us know if you have any further questions; We are more than happy to help.

As there are many technicalities regarding taxation, We advice you to consult a Professional Chartered Accountant who can look into your individual accounts and get the taxation requirements completed as per the laws. I have received the below mentioned notice first time on 14th June by post.

Compliance Module on the e-filling portal at https: Now this time when my college final project is on my head this income tax notice I have to reply as priority on price the loss of my study. Now the question is about non -filling first I was totally unaware about this. So I decided myself to stop this way and priority focus on my study. So for earning job in I was doing share trading through broker as full time speculation, day trading and short term delivery.

In between I have start study full time and get admission in college July We can understand the situation you are in right now. You can deal with the notice by stating them online your reason for non-filling of income tax return as we are not the only one getting the notices.

IT department has send notices to almost 50 lacs for non-filling of return for assessment year Regarding Equities, IT department are filtering out the accounts who are participating in the capital market but not filling their tax returns under STT, STT, STT, STT, STT and asking them to submit their response electronically under Compliance module. So, any individual who have made transactions in stocks under the below heads and have not filled tax returns are getting the tax notices — STT Purchase of equity share in a recognised stock exchange — STT Sale of equity Share settled by actual delivery or transfer in a recognised stock exchange — STT Sale of equity Share settled by otherwise than by the actual delivery or transfer in a recognised stock exchange — STT Sale of option in securities derivative in a recognised stock exchange — STT Sale of Futures derivative in a recognised stock exchange.

It is advisable to file tax returns if you participate in equity markets and even filling of losses will help you set off your losses against profits in the next few years. So, ask your friends or relatives for any known certified professional chartered accountant or tax advisor and file the submission with help and ease for a very small fee as any incorrect submissions can lead to further notices from IT department.

Also, as you have participated in the market earlier and had losses we request you to go through the various articles that we have written on our website to help new traders or investors get an edge on their trading by learning the art of trading. Then you will be in a position to look at the nuggets all together.

Once you are done with your tax filling, do visit the articles and start getting back to trading with new goals in mind but this time with pre planning and with rules for trading, capital management. We truly believe that learner and effortful people like you will surely have a reward full and better trading career. All the very best. Thank you for your warm help. I really like your website contents the articles which you write so informative and knowledge able. For beginners and people like me have lesson after loss because of unaware in that situation your website is helping to many people.

Kindly keep this spirit of help. It will be great. We are in talk for tie up with some Chartered Account Company to help our users file and take care of their tax returns for equities. So, you can check online to locate a practicing CA near by your area or ask some friend for reference. As mostly all CAs file income tax returns for clients. They can easily guide you, take care of the notice from income tax and file your future tax returns. Also, Thanks a ton for sharing your wonderful thoughts.

We are really happy to hear the positive outcomes of our heart full efforts. Motivating words always inspire us to share more amazing articles. As it needs to be calculated script wise and not according to the total turnover of transaction you did within the year. You can refer to the article Tax Guide for Traders in India again to understand the whole taxation mechanism.

Turnover is generally calculated to know whether a trade needs an audit or not? And also by turnover it means the addition of the settlement profits and losses combined together. And i have no taxable income upto FY Is still after four years this time in july can i fill return for loss in FY AY and carried forward loss? To get the benefit of the carry forward of losses, the same needs to be disclosed in the tax returns in the same year before the last date.

As you are new to this, we recommend you to consult a chartered accountant who can take care of all the technicalities of filling the tax returns and this notice also. Incorrect submissions can lead to further notices from IT department it is better to take help of a CA as they will charge you a very small fees for this. Also, the CA can help and guide you regarding all the loans and interest payments and income you have generated during the last few years and also for the future tax fillings.

Dear Sir, I started trading in AY As I am retired and did trading online, I did not claim expenses. IT officer during assessment quoted ITR rule 8D. He said and amount equal to 0. The Rule 8D provides the method for computation of dis-allowance by the Assessing officer in case he is not satisfied with the correctness of the claim of expenditure made by the assessee.

We are unaware with the legality of Rule 8D, so will update you once we had a discussion with our known advisors and chartered accountants. Till then you can refer one of the article by KPMG of — Investment which has not resulted in any income cannot be considered fordisallowance under Section 14A read with Rule 8D 2 i of the Rules Also, one written by Subhash Lakhotia Here is why all tax payers should know the new 8D rule in on moneycontrol.

We suggest you to consult a Chartered Account who can look into your account to deal with this complex issue. I am a retired person availing pension under taxable limit. If I do only delivery base trading with short term gains and if the no of trades are about 15 per month, then can I use ITR2 for filing return?

Ministry of Finance has published a new circular in Feb which states that the trader if chooses so, can declare in the income tax returns all the profits arising from selling the shares whether they are from day trading, short term trading or long term trading as Business income. Also, if chooses so, can declare the profits from his long term investments as capital gains, but he has to be consistent while declaring the same in tax returns in the subsequent years.

Therefore, the income tax laws allows you to declare your long term profits as capital gains but same has to declared in the similar fashion in the subsequent years and all your short term trading as your business income. Refer Article Income from Equity Trading — Business Income or Capital Gains? Dear Sir Thank you very much for the reply. I will be thankful if you can kindly clarify my doubt little further. If all my trades are delivery based for which both side STT is paid and if I do not carryout any day trading then can I file my return in ITR2 and pay applicable tax for short term capital gain irrespective of number of trades.

We can understand the confusion you are into regarding your filing of capital gains as our tax laws are still unclear on these many aspects. But recently as we shared earlier, Ministry of Finance has clarified that now traders can declare their all trading income as business income and get it taxed as per their tax slabs and long term as tax free.

Following this will not be put under any kind of dispute by the income tax officer. Because there are other factors that the accessing officer might consider Frequency of Trading, Primary Source of Income, and Consistency of Declaring Self in Subsequent Tax Returns as discussed in the article Income from Equity Trading — Business Income or Capital Gains?

Like if your primary source of income is trading or you trade very frequently or sometimes you declare your short term gains as capital gains while sometimes as business income in tax returns then he may put a dispute. But, still the most important thing here is to stay consistent in filing your tax returns.

Thank you for the clarification. We are happy to be of any help. Do consult some of your known Chartered Accountant or Tax Advisers. They can guide you as per your individual case so that you can dedicate your time on your trading and investing business. Also, stay updated with new changes in the tax filing rules. We wish you a profitable and successful trading ahead in the coming years.

Also, do share your story or ideas that worked for you with other aspiring traders to help them in their trading journey that will be highlighted in our section My Story. It will be amazing to know your story and connect with a experienced person like you.

Dear Sir, I am new to stocks. If I were to declare myself as trader and pay income tax as per my tax slab, can this be done by March. Is advance tax necessary and will it cause any problems? I have no idea how much I might invest, trade, gain or loss.

So how does advance tax work? Thatswhy we always suggest our traders community to consult a chartered accountant or a tax advisers as they can file your tax returns as per the laws and which will make you free from all the worries of the complexity of tax rules so that you can focus on your trading.

If my earning till Sep was NIL and I choose to trade after SEP and earn say Rs. How does Income tax account for this?

1282 (Capital gains) How are capital gains from stocks taxed in tax return

Will there still be a penalty? Need to clarify that from the Chartered Accountant how they treat this.. BTW Good question, some work for my CA.

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Part VIII — Getting Started With Trading — Tax Guide for Traders in India. Speculative Business Income Equity Intra-Day or Non-Delivery Trading — Taxed as per Tax Slab Any transaction where you buy and sell the shares on the same day is a Day Trade.

Mandatory Tax Audit for Traders Any trader will have to undergo the audit of accounts if the Turnover for the financial year is greater than Rs. How to Calculate the Turnover for Tax Audit?

INCOME TAX ON INVESTMENT-TRADING IN SHARE-FUTURES-OPTION | SIMPLE TAX INDIA

Difference between Trading Turnover and Settlement turnover for audit? Signup now and you will get once-a-week update when we do awesome things around here! How to use HUF Account to Save More Tax? Latest posts by Just Trading see all Day Trader Lost Rs. Just Trading November 16, March 12, Taxation 36 Comments. Home About Start Here Products Resources Get Inspired Contact.