Many people are starting day trading to turn quick money. But trading carries obligations as well as rewards—especially in relation to day trading capital gains tax. Knowing how your profits are taxed will help you, if you trade in India.
Describe Day trading
Day trading—buying and selling stocks on the same day—allows Profit is meant to be obtained by using little price swings. Unlike long-term investments, day trades are short and quick.
Is Day Trading Considered Investing?
Day trading is not considered as investment. It is handled as a commercial enterprise activity. This results in non-taxed profits from day trading unlike those from normal capital gains. Under the Income Tax Act, they are rather taxed as business income.
Application of Day Trading Capital Gains Tax
Though we call it “capital gains,” in day trading it is handled differently:
- Day trader profits are regarded as speculative income.
- They are included to your whole income and taxed using your income tax slab.
- Unlike long-term investing, flat capital gains taxes are not existent.
For Improved Understanding, Here is an Example
Assume for a moment that your daily trading earnings over a year total ₹2,00,000. Together with your pay or other income, this sum will be included to your total income. Your tax slab will then determine how much tax is due.
Your trading profit will likewise be taxed at 20% if your whole income falls into the 20% slab.
Important Notes to Keep in Mind
- Day trading profits tax is handled as business income.
- Here you cannot apply the advantages of long-term or short-term capital gains tax.
- Should you have losses, they are classified as speculative ones.
- Only speculative gains allow one to set off speculative losses.
- You have to show trading as business on an Income Tax Return (ITR).
Advice for Day Traders
- Track all of your trades properly.
- Save a different account just for trading.
- See a CA for help or use tax software.
- Should profits be significant, pay advance taxes.
Last thoughts
Understanding how day trading capital gains tax is handled helps you stay out of tax department hot issues. Though trading seems easy, tax management can be challenging. Plan ahead then keep your trading and tax affairs free.
