3.1 – Are you a trader or investor, or both?
Identifying yourself as a trader or an investor is the first step to filing your income tax returns.
You can decide on your own to show your stock investments as either capital gains or business income (trading), irrespective of the period of holding the listed shares and securities. Whatever stance you take, you will have to continue with the same in the subsequent years.
So, before filing income tax returns, you will have to first classify yourself as an investor, trader, or both. We will, in this chapter, help you figure this out in line with what most Assessing Officers (AOs) would be expecting. By income, I mean both profits and losses.
When trading or investing, you need to classify your income under one of the following heads are –
- Long-term capital gain (LTCG)
- Short-term capital gain (STCG)
- Speculative business income
- Non-speculative business income
- Dividend income
Let us understand what each of these means.
Long-term capital gain (LTCG)
Assume you buy stocks or Mutual Funds today for Rs.50,000/- and sell the same after 365 days at Rs.55,000/-, then the profit or gain of Rs.5,000/- is considered as a long-term capital gain. Generally speaking, gain or profit earned by investing in stocks or equity mutual funds and selling after 1 year from the date of purchase can be categorized under LTCG. Before the Union Budget announced in July 2024, in India, any gains realized and categorized as LTCG (equity & equity MF) were completely exempt from taxes for the first Rs 1lk and attracted a 10% LTCG tax if the gains for the year exceeded Rs 1lk. Do note that the purchase and sale of shares have to be conducted via a recognized exchange, meaning you should have paid STT.
From FY 2024-25 onwards, the Union Budegt increased the exemption of Rs 1 Lacs to Rs 1.25 Lacs, and long-term gains exceeding Rs 1,25,000 will be taxed as follows:
- If the sale occurred before July 23rd, 2024, the tax rate is 10%
- If the sale occurs after July 23rd, 2024, the tax rate is 12.5%
The threshold of Rs 1,25,000 applies to the total long-term capital gains for both periods (before and after July 23, 2024)
The above tax rates shall not apply if the investment and the consequent sale were made via an off-market transaction and not via a recognized stock exchange. Basically, you should have paid Securities Transaction Tax (STT).
For Unlisted stocks – Tax on LTCG of such shares is 20% (after giving effect to indexation) until FY 2023-24. From FY 2024-25, tax on long-term capital gains will taxed :
- At 20% (with indexation) for sales made before July 23, 2024
- At 12.5% (without indexation) for sales made on or after July 23, 2024
Unlisted stocks are those company shares that are not listed or traded on any recognized stock exchange in India. Tax treatment of foreign shares will also be the same.
The Union Budget of 2018 introduced a grandfather clause that can reduce your LTCG tax liability. For all stocks held before 01 January 2018, the acquisition cost for the purpose of computing capital gains will be the higher of the actual purchase price or the maximum traded price on Jan 31st.
Assume you bought Infosys shares worth Rs.1,00,000/- in 2015, and they were worth Rs. 5,00,000 on 31st January 2018. If you sell those shares today for Rs. 20,00,000 today, your tax liability will be based on Rs. 15,00,000 (Rs. 20 lks – Rs. 5 lks), and not on Rs. 19,00,000 (Rs. 20 lks – Rs. 1 lk). If, however, the value of these shares on 31st January 2018 was less than your purchase price of 1,00,000, then you may consider your actual purchase cost for computing the LTCG tax applicable to you.
Short-term capital gain (STCG)
Assume you buy listed stocks or equity-oriented mutual funds today for Rs.50,000/- and sell them within the period of 12 months, say at Rs.55,000/-, then the profit or gain of Rs.5,000/- is taxed as a Short term capital gain (STCG).
Generally speaking, gain or profit earned by investing in stocks or equity mutual funds holding for more than 1 day (also called delivery-based) and selling them within 12 months from the date of purchase can be categorized under STCG.
Until FY 2023-24, the tax on STCG in India was flat at 15% on the gain or profit from the sale of shares or equity-oriented mutual funds.
From FY2024-25 onwards, tax on short-term capital gains will be taxed as follows:
- At 15% for sales made before July 23, 2024
- At 20% for sales made on or after July 23, 2024
Therefore, if you buy Infosys shares worth Rs 100,000/- today and sell the same 10 days later for Rs.120,000/-, then you are liable to pay 15% on Rs 20,000 (STCG) or Rs 3000/- as taxes if sold before July 23rd, 2024.
If you sell the shares after July 23rd, 2024, then you are liable to pay 20% on Rs 20,000 (STCG) or Rs 4000/- as taxes.
Speculative Business income
As per section 43(5) of the Income Tax Act, 1961, profits earned by trading equity or stocks for intraday or non-delivery are categorized under speculative business income. Currency trading is also considered speculative since there is no STT (unless you are using currency derivatives to hedge).
There is no fixed rate like capital gains tax rate when you have a business income. If you have a business income, it has to be added to the rest of your other income and tax has to be paid as per the tax slab you fall in.
For example, assume my profit from trading intraday stocks was Rs. 100,000/- for the financial year and my salary was Rs. 800,000/-. So, my total income for the year is Rs 9,00,000, and I have to pay taxes on this as per my tax slab (new regime), Rs 40,000 in this case, as shown below.
| SL No. | Slab | Taxable Amount | Tax Rate | Tax Amount |
|---|---|---|---|---|
| 1 | 0 to Rs.300,000 | 300,000 | 0% | Nil |
| 2 | 300,000 to 7,00,000 | 400,000 | 5% | 20,000 |
| 2 | 700,000 to 9,00,000 | 2,00,000 | 10% | 20,000 |
| Total Tax applicable | Rs. 40,000 | |||
So, the point here is that one needs to club the speculative business income with other income sources and identify the taxable amount. Once this is done, the tax has to be paid based on the tax slab to which one belongs.
Non – speculative Business income
Income from trading futures & options on recognized exchanges (equity, commodity) is categorized under non-speculative business income as per section 43(5) of the Income Tax Act, 1961.
As discussed earlier, business income has no fixed tax rate, you are required to add the non-speculative business income to all your other income, and pay taxes according to the slab applicable to you.
For example, assume a trader cum hotelier earns Rs 500,000 by trading F&O. Besides this, assume he also earns Rs.20,00,000/- from his hotel business. Therefore, his total income for the year is Rs 25,00,000/- (Rs.500,000 + Rs.20,00,000), and therefore, his tax obligation is as follows
| Sl No. | Slab | Taxable Amount | Tax Rate | Tax Amount |
|---|---|---|---|---|
| 1 | 0 to Rs.300,000 | 300,000 | 0% | Nil |
| 2 | 3000,000 to 700,000 | 400,000 | 5% | 20,000 |
| 3 | 700,000 to 1,000,000 | 300,000 | 10% | 30,000 |
| 4 | 1,000,000 to 1,200,000 | 200,000 | 15% | 30,000 |
| 4 | 1,200,000 to 1,500,000 | 300,000 | 20% | 60,000 |
| 4 | 15,00,000 + | 1,000,000 | 30% | 300,000 |
| Total Tax applicable | Rs.440,000 | |||
Effectively, the businessman here is paying 30% of his F&O profits as taxes.
You might wonder why trading equity intraday is considered ‘speculative,’ but trading F&O is considered ‘non-speculative.’
When trading intraday, there is no intention of taking delivery, and hence, it is considered a speculative business. F&O is defined as non-speculative by the government, maybe because it can be used for hedging and also for taking/giving delivery of the underlying contract.
Dividend Income
From FY2020-21 – Section 115BBDA of Income Tax was abolished, and Dividend incomes became taxable as per the applicable slab rates.
From 1st Oct 2024 onwards, any sum paid by a company (both listed and unlisted) for the buyback of its own shares will be treated as a dividend with no deduction allowed for expenses, including the cost of acquisition.
When the shareholder later sells other shares, you can claim the original cost of acquisition of all shares (including the bought-back shares).
3.2 – Pros and cons of declaring trading as a business income
Let us look at the bright side first; here is a list of advantages of declaring trading as a business income
- Low tax – If the total income (trading + any other) is less than Rs.300,000/-, then there is no tax implication (as per the new regime), and now, even if less than Rs.700,000/- effectively, one has to pay zero tax as you can avail a rebate if total income less than Rs 7lks.
- Claim expense – One can claim the benefit of all expenses incurred for the business of trading (while for capital gains, only charges on your contract note other than STT can be claimed). For example, brokerage charges, STT, other statutory taxes while trading, internet, phone, newspapers, depreciation of computers and electronics, research reports, books, advisory, etc.
- Offset the loss with gains – If one incurs any non-speculative F&O trading loss, this can be set off against any income other than salary. For example, if I incur a Rs 5,00,000 loss in trading F&O and my other income (like rent & interest, excluding salary) is Rs 10,00,000, I will have to pay tax only on Rs 5,00,000.
- Carry forward the F&O loss – If there is a net loss any year (non-speculative F&O + any income other than salary), and if income tax returns are filed before the due date, the loss can be carried forward for the next 8 years. During the next 8 years, this loss can be set off against any other business gain (non-speculative business income). For example, if you had a net loss of Rs 5,00,000 this year trading F&O, which was declared on time, you can carry forward this loss next year, and assuming you made a profit of Rs 20,00,000 next year, you can set off the previous year’s Rs 5,00,000 loss and pay taxes only on Rs 15,00,000.
- Carry forward your intraday equity loss – Any speculative or intraday equity trading loss can be set off only against any other speculative gain (note: you cannot set off intraday equity trading loss, which is considered speculative. with F&O trading, which is considered non-speculative). Speculative losses can be carried forward for 4 years if the returns are filed on time. So, assume an equity intraday trader makes a loss of Rs.100,000/- this year; he cannot offset this against any other business income. However, he can carry it forward to the next year (up to 4 years). Assume the next year he makes a profit of Rs.50,000/- by trading equity intraday. Then, in that case, he can use the previous year’s Rs.100,000/- loss to offset the complete gains of this year (Rs.50,000). The balance loss of Rs.50,000/- can still be carried forward to the next 3 years. So do note that the partial offset of losses is possible.
The following table summarizes the above points –
| Head of income under which Loss is incurred | Whether loss can be set- off within the same year | Whether Losses can be carried forward and set-off in subsequent years | Time limit for carry forward and set-off of losses | ||
|---|---|---|---|---|---|
| Under the same head | Under any other Head | Under the same head | Under any other Head | ||
| Losses of F&O as a Trader | Yes | Yes | Yes | No | 8 years |
| Speculation Business | Yes | No | Yes | No | 4 years |
| Capital Gain (Short-Term) | Yes | No | Yes | No | 8 years |
Now, here is a set of drawbacks for declaring your business income –
- Potentially high taxes – If you fall under the 30% tax slab, you will effectively pay 30% of all your trading profits as taxes
- ITR Forms – Declaring business income would mean having to use an ITR3 or ITR 4, which would mean needing the help of a CA to file your IT returns. This can be an added effort and cost, especially for those salaried people who might have been using the very easy ITR 1 or ITR 2 (we will discuss more on this topic in the chapter on ITR forms).
- Audit – Having to maintain the book of accounts, which will need to be audited if your turnover goes above Rs 10 crore (was Rs 1 crore until FY 19/20) for a year or if your profit is less than 6% of your turnover (we will discuss more on this topic in the chapter on Turnover)
3.3 – What are you? Trader, Investor, or Both?
Coming back to our original discussion, according to CBDT
Investor: anyone who invests with the intention of earning through dividends
Trader: anyone who buys and sells with the intention of profiting from the price rise.
As an investor, you can claim all your delivery-based equity gains/profit as capital gains. However, as a trader, it becomes your business income, which has its own pros and cons, as discussed above.
The rule is very clear with respect to F&O trading and intraday equity trading. F&O trading has to be considered as a non-speculative business, and intraday equity as a speculative business. So, if you trade these instruments, you have to use ITR 3 to file IT returns. So even if you are salaried, you have to compulsorily use ITR3 and declare this income (profit or loss) from trading as a business.
Unlike what most people think, losses are also recommended to be declared. Hiding trading activity on the exchange from the IT department could mean trouble, especially in case of any IT scrutiny (IT scrutiny is when the assessing income tax officer (AO) demands you to meet him and give an explanation on your IT returns). The chances of getting a call for scrutiny are higher when the IT department systems/algorithms pick up trading activity on your PAN, but the same is not declared on your ITR.
For equity delivery-based investments, if you are holding stocks for more than a year, you would have received some kind of dividend, and even if you didn’t, you can show them all as investments and claim an exemption under the long-term capital gain. If you are buying and selling stocks frequently (yes, it is an open statement, but there is no rule that quantifies ‘frequent’) for shorter terms, it is best to declare that as non-speculative business income instead of STCG.
Another thing to keep in mind is that if investing/trading in the markets is your only source of income, and even if your trading activity is moderate, it is best to classify income from all your equity trades as business income instead of capital gains. On the other hand, if you are salaried or have some other business as your primary source of business, it becomes easier to show your equity trades as capital gains, even if the frequency is slightly higher.
Thankfully, you can be a trader and investor both at the same time. So, you can have stocks meant as an investment for the long term, and stocks meant for shorter-term trades. Just because you indulge in a lot of shorter-term trades wouldn’t necessarily convert all your long-term holdings or investments into trades and, therefore, bring those long-term gains under business income. However, it is important to clearly demarcate your trading and investment portfolio while filing returns.
Similarly, if you are trading F&O or intraday equity trading, you compulsorily have to classify yourself as a trader, but you can still show your long-term investments under the capital gains head to get the benefit of LTCG being exempt from taxes.
So, you can be an investor, trader, or both, but make sure to keep the above points in mind and consult a chartered accountant before filing returns.
Even though this might seem confusing, rules are made for 1% of the population that is trying to break them. As long as your intent is right, you know the basic concerns of the IT department and keep those in mind while filing IT returns. It is quite simple. But stay consistent with the way you classify yourself, and don’t keep switching between being an investor or trader to declare your short-term equity trades.
If you follow these simple rules, let me assure you—you won’t need to fear the taxman.
Before we wrap this chapter, here are some interesting links that you should read through.
CBDT circular on the distinction between trades and investments.
Business Standard – Is your return from stocks capital gains or business income?
Economic Times – Are you a stock trader or an investor?
Taxguru – Income from share trading – Business or capital gain?
Moneycontrol- Investor or trader: The argument continues
Key takeaways from this chapter
- Trading F&O (Equity, currency, commodity) is considered a non-speculative business
- Trading intraday equity is considered a speculative business
- Equity holdings for more than 1 year are considered long-term capital gain (LTCG)
- Equity holdings between 1 day to 1 year with a low frequency of trades are considered short-term capital gain (STCG). In case of a high frequency of trades, it should be considered as non-speculative business income
Disclaimer – Do consult a chartered accountant (CA) before filing your returns. The content above is in the context of taxation for retail individual investors/traders only.
Since my income was not taxable last year, I didn’t file returns. I’ll be filing returns first time this year. My question is Can I offsets gains in this year against the loss from last year, since I had not declared it last year?
Vishal, to carry forward loss it has to be filed within the due dates. So no, you cannot offset.
Is it possible to file belated returns now.
Yes you can file belated returns which is advisable, but you can’t carry forward that loss.
Hi Nithin,
I have a similar question but bit different, I have filed the returns ontime with salary income details but have not disclosed trading losses for last 3-4 years, can I revise / rectify the returns now for those last 3-4 years and carry forward the losses to offset?
Sri, you can revise last two years, and since you have filed on time, so yeah you can declare the loss in the revised return and carry forward.
Hi,first let me appreciate for detailed explanations provided in this article.i request you to put a snap shot of filled ITR forms for an investor,trader and both.i personally invest in delivery based equity and few i hold for more than a year and most i do positional trades plus investing in markets is my only source of income.Thanks in Advance.
my total income (salary+trading) profits less than 250000/ .it means I have no need to file tax return.
No need to file, but it is best you do. Will help you in the future to have income tax returns when applying for loans or any kind of credit.
sir, I have the same question and got answer on your reply. I have a very little knowledge about taxation…thats why I want to know if I dont need to file ITR, then what do you want to say by “best you do”??
The issue is, income tax department gets access from exchanges on all trades done. They have softwares that pickup people who have traded but not declared it on the ITR. They don’t get to know if any tax was evaded or not. So there is a chance of getting notice, asking why you haven’t declared.
Thanks Nithin, Wonderful article.
Would you help me in understanding if I can put Short term Equity-Delivery gains under the Capital gains head and Intraday+FnO under Business income while filing ITR4. Many Thanks.
Yep, that is the right way Vivek. Intraday equity trading has to be under speculative business income and F&O as a normal business income, but yes both under business income.
This means Vivek has to declare himself as both trader as well as investor? or Just declaring trader will do ?
As soon as you do this – use ITR3 to show F&O trading as business and equity investing as capital gains, you are declaring as if you are both trader and investor.
Hi Nithin,
A Great initiative and an excellent tutorial. Thanks a ton for this. I love Pi by the way and I am much profitable trading options for this financial year with Pi.
I have a question on carry forward loss.
I am a NRI and I had filed my returns before to carry forward my F&O trading loss. The Income sources I have that are taxable are:
1. Rental income from a flat and a shop (approx. Rs. 175,000 PA)
2. Dividend from shares (Approx Rs. 12,500 PA)
3. Short term F&O Trading Loss of Approx Rs. -211,000
4. Interest on Fixed Deposits sitting in my NRE Account (Exempt from tax)
My question is, what will be the carry forward loss in the above case? Will it be the net of 1, 2 and 3 above whice is Rs. 23,500 OR will it be the full amount of Rs. 211,000?
Thanks so much for your time.
James,
Dividend from shares is anyways exempt from taxes.
But yes, you can netoff your rental and interest income with trading loss. So your carry forward loss would be -2.11 + 1.75 + interest on deposits
Thank you so much Nithin, that was really very helpful.
what does off-market transaction mean? And what is meant by listed and non listed stocks?
Pearl, when you open a demat account, you also get something called a delivery instruction booklet (very similar to your cheque book that you get for a bank account). Similar to how you can transfer money using cheque book, you can transfer shares using this DIS (delivery instruction slips). This happens off the exchange, as no trade is recorded on the exchange. Hence called off-market transaction.
Non-listed stocks are basically private companies which don’t trade on the stock exchanges.
Thank You Sir for your wonderful effort.
I want to ask one question.
If I buy shares and sell with in 4-6 months ,can I show this as non-speculative business income?
Dheeraj, if you are not actively trading i.e buying and selling after 4 months, you can show it as short term capital gain. Business income only if you are doing this actively.
Sir,
If i am buying/selling and hold time of shares is b/w 1-2 months… can i define this under STCG or business income ??
STCG
Sir I am a army soldier and I involved in equity trading in all segment which ITR form should I use for financial year 2017-18,and if I fill Itr 1 for 2015-16,and and2016-17,how It can be revised by itr4 for showing future and options trading P/L.
You can revise the returns. ITR 4. From this year it is ITR3.
Hi NIthin, I wish to thanks a lot for this wonderful effort. Good explanation about the market related taxation.
And one doubt for me. If i trade (speculation & non-speculation) and Short term Gain/Profit though the buy & sell of stocks. then, i re-investment the whole amount (include my gain) and get profit again and so on. Should i pay the gain income tax. or The capital gain tax exempt like real estate short term reinvestment concept.
Saravana, Doesn’t work like real estate, you have to pay taxes on booked profits. All long term capital gain (stocks held for more than 1 year) is exempt from taxes.
Thank you for your instant reply Nithin.
“Equity holdings between 1 day to 1 year with low frequency of trades is considered Short term capital gain (STCG), else in case of high frequency of trades it should be considered as non-speculative business income”.
One more doubt in the above statement. Equity holdings between 1 day to 1 year trading with Low frequency & High frequency means how many day or duration. Could you please explain the correct days or duration for (Low & High).
Thanks in Advance.
Saravana, like I have mentioned in the chapter above, there is no such fixed number of trades to consider low or high. But a general rule to follow is that if trading is your primary business, then best to consider it as non-speculative business income. If trading is not your primary source of income, even if number of trades is a little higher, you can still show it under STCG. But best to consult your CA once.
Hi,sir
Can i take advantage for my loss in equity in all segment for my tex benifit.
Yep, do read through all the chapters.
Thank you very much for all the informative articles. I have a few questions about filing my taxes.
I have just started investing and trading since Feb 2015. The money (Rs 7,00,000) was given to me by my father since he wants me to get involved in trading . He is a Government employee and does not have time to trade himself.
I have no other income since I am a student. I have incurred loss worth Rs 90,000.
1. Which ITR form should I use?
2. Should I show the Rs 7,00,000 that I have taken from father as my income or not? Or will it be treated as gift from family? We want to file legitimate returns and are not looking to divert my father’s funds in my name.
3. I have no income. I made a few profitable trades but mostly losses, (net loss = Rs 90,000). Should I show this as Short Term Capital Loss or loss in business. Trading is not my business and in the future we will be making Long term investments only once I get a job.
Thank you very much for all the hard work you are doing and the modules in Varsity have been very helpful. Thank you.
1. Explained in the module Tushar, it depends on what you are trading. If you are doing only equity delivery trades than ITR2, otherwise ITR4.
2. 7lks is not your income, it is a gift and hence no tax liability.
3. As I said, if you have done intraday equity or F&O trading, it has to be shown as a business using ITR4. Do read up all the chapters, all details you know already there.
Also since your net income for the year is negative for the year, you no mandatory to file returns. But it is preferable.
HI NITHIN,
> I AM A SALARIED EMPLOYEE. MY SALARY IS RS. 4,50,000.
> I HAD TAKEN A PERSONNEL LOAN OF RS. 5,00,000 LAST YEAR.
> I AM DEFINITELY A TRADER NOT AN INVESTOR, AS I ONLY TRADE IN F&O.
> I LOST THE AMOUNT DUE TO MY LACK OF KNOWLEDGE IN TRADING. BUT, I DID MAKE PROFITS FEW TIMES WHICH I NEVER MOVED OUT OF MY TRADING ACCOUNT AND BY THE END OF THE YEAR I HAD LOST THE ENTIRE AMOUNT.
> THIS HAPPENED LAST YEAR AND I HAD NOT FILED MY RETURNS LAST YEAR. AND I HAVE LOST SOME MONEY THIS YEAR AS WELL.
> NET IN 2 YEARS MY LOSS WOULD BE MORE THAN RS. 6,00,000/-
> CAN I DECLARE THE LOSSES OF PREVIOUS YEAR THIS YEAR??
> WHAT ARE THE DOCUMENTS THAT I NEED TO PROVIDE FOR FILING THE RETURNS?? AND WHERE CAN I ACCESS THEM?? ((IS IT AVAILABLE IN A SINGLE DOCUMENT AS IN A CONSOLIDATED ANNUAL REPORT OF MY LOSSES AND PROFITS OR SOMETHING SIMILAR))
> WILL I BE ABLE TO CARRY FORWARD THE LOSSES OF MY PREVIOUS YEAR TOO IF I DECLARE FOR BOTH THE YEARS??
>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>><<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>> BEEN TRADING FOR QUITE A LONG TIME, AND ZERODHA IS SIMPLY AWESOME <<<<>>>>> THANKS A TONNE FOR THE VALUABLE INFORMATION THAT YOU’VE BEEN SHARING EVERYWHERE <<<<<
Karthik, what do you mean by last year. If you are talking April 2014 to March 2015, then yes of course you can declare those losses when filing returns this year. But if you are talking April 2013 to March 2015, you can still file late returns, but you won’t be able to carry forward the loss. April 2015 onwards, you need to file returns only by next september. If you are trading at Zerodha, go to tax P&L, has everything you need. Do check out the other chapters, has everything you need to know about filing returns.
Please accept my APOLOGY for the use of CAPS. That was seriously unintentional.
🙂 cool np.
Hi Nithin,
Wonderful initiative from you and the team at Zerodha. All the articles and modules have been of great help. Thank you for such thoughtful and helpful content.I have a few questions revolving around carry forward of losses.
1.) I am a trader and had a loss of 4 lacs in F&O. I had filed it in time and since there was no other source of income, it was carried over fully. Next year I made a profit of 1.5 lacs. Now how much is to be the brought forward loss. Is it 4 lacs or is it 2.5 lacs (4-1.5). There is no other income source. 1.5 being non taxable profit, can 4 lacs be carried forward? I understand it is for a maximum of 8 years.
2.) If profit is 3 lacs (which is in taxable bracket), then how much is to be brought forward? Is there an argument that since the full loss cannot be reduced, the 4 continues to be brought forward?
Thanking you in advance
1. You can carry forward only 2.5lks (4-1.5). Yes, you can carry forward for 8 years max.
2. If profit is 3lks, you can carry forward 1lk (4-3). Only the net loss can be carried forward. 🙂
Hi Nitin
I am a trader & I trade both in F&O & short term equity.I also have long term holding.So do I have to add my LTCG to my income & pay tax accordingly or can I declare it as a LTCG & avail the benefit of 0% tax.
Dinkar, like I have mentioned in the post, this is a very grey area. But yes if you are investing activity is not very frequent, you can show all of that under capital gains and get benefit of 0% tax for long term. You can show F&O as business.
that mean I can declare myself as a trader & investor at the same time.
sir, if i trade in F&o only then suppose if my turnover remains less than a crore and profit over 8% of my turn over but my income is below 2.5lacs and my source of income is only from trading , then will i have to file it return ?
2. if my income is between 2.5 <income<5, then i have to as usual 10% ?
Waiting anxiously for your reply sir .
1. Not mandatory to file the return if ur net income is below 2.5lks. But it is best if you did.
2. Yes 10% of your income above 2.5lks if ur income falls between 2.5 to 5.
The above case is of F&O (non speculative business) and you’ve mentioned in para 3.1 about this business income as follows:
“business income has no fixed tax rate, you are required to add the non- speculative business income to all your other income, and pay taxes according to the slab applicable to you”
As per the case stated by Mr. Jha, Suppose…..
His Turnover = 90,00,000 (<1 Cr)
His Profit = 8,00,000 [over 7,20,000 (8% of turnover)]
His income = 2,00,000 (<2.5 Lakhs)
Now the profit from F&O business should be added to his other income. So his taxable income becomes 8,00,000+2,00,000 = 10,00,000.
So, his tax slabs should be as follows:
0 — 2,50,000 = 0
2,50,000 — 5,00,000 = 12,500 (considering present 5% tax rate)
5,00,000 — 10,00,000 = 1,00,000
__________________________________________________________________
So his total tax liability should be Rs. 0 + 12,500 + 1,00,000 = 1,12,500, NOT Zero as replied by you.
Please clarify where did I go wrong while calculating the tax liability in the above case??
WHat you have calculated is correct as per the current tax slab. Some of these answers are 3 to 4 years old, when the slabs where different.
Thanks Sir for answering.
Hello Nithin, From the employers perspective is it fine if I trade in intraday and F&O and file ITR4. Why I ask is most of the companies say for the full time positions the employee should not indulge in a business activity. Also I am a central govt. public sector employee and can I trade in intraday and F&O( I know I should consult HR, but I am not getting convincing answer). Many thanks
Nithin,
Thanks for the detailed explanations. I am house wife. My husband given 10lacs rupees to do investment in stock market. And I am doing stock investment actively ( so frequently buying/selling every month). Shall I show the profit as non speculative business income?. Whether I have to show the initial source of money 10lacs also income?. My husband already paid tax for this money.And in the article you mentioned about Audit, what kind of audit I have to maintain. Currently I didn’t have any such practice. Please guide me on this
Regards,
Deepika
Sir, My query is regarding different Mutual Funds offering Monthly Income Plans, does they remit any proceedings every month may it depend on respective applicable NAV ? one more thing, often they use some terms like 1) direct & 2) SWP, what r these mean, kindly clarify.
I am a daily stock market trader. i do intraday & take short term (4-5 days) deliveries also. But this time due to bad market condition, i am holding my short term position in a specific stock for more than 2 months and i have incurred heavy loss in that scrip. i have bought different quantity at different point of time at different prices
now i find it difficult to do accounting for them and show that as my investment for long term, as i have done intraday trading in them and short term trading also. now i plan
to keep this stock for more than 1 year.should i sell my current holding in this stock at on a given day at a price and book them as short term capital loss. and buy
same stock at a price the very next day and keep that for more than one year to claim long term capital gain.
Thereofore can i be a intraday trader with loss(which is to be carry forward for 4 year) and have short term capital loss(to be carry forward for 8 years)
and also have long term stocks (to be kept for more than 12 months). secondly, in the above description, can i show shore term capital loss in this stock and long this same
stock for long term(more than 12 month),so that i claim short term loss to be carry forward for next 8 years and benefit long term capital gain for this stock to be hold
more than 12 month.
Please Advice, you will be highly appreciated.
Thanking you
you sincerely.
I HEARD THERE ARE SOME SOFTWARES THAT HELP AUTOMATIC DOWNLOAD OF CONTRACT NOTES AND THE SOFTWARE TAKES CARE OF THE REST. CAN YOU SUGGEST ONE.
If you are a Zerodha client, our reporting platform Q already has this feature to generate Tax P&L statements.
Hi Nithin,
I confuse on the sentence on “irrespective of the period of holding the listed shares and securities”. it is indicate long-term capital Gain also consider as business or capital gain tax and that’s also fall on tax slab or remain 0% for (Long-term Capital Gain)
It means that even if you are investing very actively, you need not be worried about it being considered as a business income.
Hi Nithin,
Given the latest circular, can we declare our trading income (less than 12 months) as business income and still have a separate portfolio for for long term holdings and make use of LTCG exemption when we eventually sell them.
After the new circular, yes you can. But you need to maintain separate books (tab of expenses) so there is no confusion.
Hello sir,
In 2014, my income from salary was 3 lac and income from equity trading was RS. 91000. Will I be allowed to file return now?
Yes you can file delayed returns.
Hi Nithin,
I have a very basic question. I wish to classify myself as both trader and investor. I will show all my F&O and intraday activities as Business income and all equity deliveries as Long/Short term Capital Gains. Is this OK to follow this pattern?
Secondly, If I follow the above approach, how can I divide the cumulative expense shown in “Tax P&L” report between Long Term capital gains, Short term capital gains and Business income?
After the latest CBDT circular, yes you can.
You will need to divide this expense on your own. We are working on a new tax P&L which will do this, but will take some more time.
Hi Nithin Sir,
Thanks for very nice info about TAX.
I am a fresher in Tax related things. However, My doubt is my annual income only from F&O Trading is 6 Lakhs. So I have to pay a total of 45000 as TAX [ 25000 + 20000 ]. But my total expenses from all these
” Brokerage / CTT / STT Total / Service Tax / SEBI charges / Total transaction charge and etc…. ” are 50000. So what could be the state ?
How much I have to pay ?
You can reduce all these expenses from your total income. Do go through this: http://zerodha.com/varsity/chapter/taxation-for-traders/
Hi, Great article!
I have few questions:
1. If I am trading in F&O using my friend’s account, any tax on the business income will be paid my friend right?
2. What if he want to give me profit share/commission post tax deduction for my perpetual help,will I also need to pay tax on this income generated? Assume that this income to me will run in several lacs per annum.
1. yep
2. Any money that comes to you either has to be as income or loan. If it is an income, yeah you have to pay taxes as per the IT slabs. But whatever money you get as income, your friend can show that as an expense and hence not have to pay taxes on that.
Hi Nitin Sir, is central govt. employee allowed to do intra day trading in shares and if yes then what things to be kept in mind?
Check this brochure which is intended to serve as a guide.
Does this apply on a PSU employee??
Is a PSU employee considered as an Govt. employee?
Can a PSU employee trade/invest in market????
Best to ask your company.
What will happen if a government employee has already done intraday trading due to lack of this information?
Hmm.. should be okay as long as he/she hasn’t done any trading based on privilege information.
Hi Nithin,
i am Employee in private company and have a salary 7lpa. I have opened trading account in nov-15 , i have invested 6000 RS and started learning trading. Most of trading i have done Intraday and some delivery based also which i kept less than 4 days. I suffer loss in delivery based trading and turnover is 21000 and intraday turnover is 700.
I wanted to know do i required to audit and record audit-book as its less than 8% of turnover, which form i have to fill for income tax return and which category is best for me as trader (Business Income), Invester (Capital Gain) or both.
Thanks in advance.
Use ITR4, yeah you will need an audit because you have intraday trading where your profit is less than 8% of the turnover. Alternatively, if your intraday trading is very less, instead of showing a loss, declare a profit of 8% of the turnover and get away from need of an audit. So if your intraday turnover is Rs 1lk, show 8% as profit, which Rs 8000. The tax slab you are in, you will need to pay 20% of this as tax, or Rs 1600. This will be cheaper than going for an audit which might cost anywhere between 5k to 15k.
Ideal way would be to get an audit done.
Dear Sir,
Thank you for your reply.
My short term capital gain turnover is 21270.10 and loss is (-) 1657.50 and intraday turnover is 475.65 with profit is 113.65 which is more than 8%.
Can i show (-) 1657.50 under STCG and 113.65 under Business Income so i think i can avoid audit.
Please assist me
Thanks
Ankita
Yes, you can.
Nitin, wouldn’t it be wrong as we’re not showing the correct information? What if AO ask us to prove that we did earn a profit instead of a loss as we’re mentioning. The reason I am asking this is because I am also under the same situation at the moment. Your example gave me a hope to avoid the audit. Please assist. Thanks.
Iqbal, on a profit you are paying taxes to the government. I don’t think this should be an issue, but do speak to a CA.
Sir
Pl go through Point No. 4.of the key take aways.
you have given it as the non-speculative income
The income from the high frequency intraday equity will be considered as speculative income.
All intraday equity trading has to be considered as speculative. The 4th point just talks about F&O trading.
Sir, I think Yogesh is correct here, you need to change below to speculative business income as you are talking about high frequency of trades (not Futures&Options).
“Equity holdings between 1 day to 1 year with low frequency of trades is considered Short term capital gain (STCG), else in case of high frequency of trades it should be considered as non-speculative business income”
If you buy stocks for delivery and sell, since you have taken delivery it is not speculative. It is speculative when you trade without taking delivery.
Thank you sir for your reply , I got it now
Trading Stocks Intraday – Speculative Business Income
Trading F&Os – Non speculative Business Income
High Frequency trading stocks – Non speculative Business Income (not STCG)
I am salaried person. I have not yet started investing in stocks directly(only in MF). I don’t intend to do Intraday trades. If I do Delivery based and F&O, then all the trades done through Delivery should be considered as Capital Gains(Short and Long term), whereas any F&0 trade has to declared as business income. Am I right..?
Only issue would be with STCG, if the frequency is more and holding duration is less, then it should be considered as business income.. Am I right..?
Yes all F&O has to be declared as non-speculative business income.
If you see the post above, I have given link to an updated CBDT circular from this year. It says that irrespective of how often you do delivery based trades, you can still show it as capital gains if you wish. You can also show as business income, but whatever you show, you have to continue showing it based on the same logic in the future.
i was trying various website to clear my doubt about F & O and how to treat it while filing ITR. To file TR 2 or 4 .
By reading Zerodha articles my doubt get cleared and also learn other things which has in hence my financial understanding.
Thanks a lot for such simple and clear articles.
The CBDT circular (2 Mar 2016) shows the following:
“Where the assessee itself, irrespective of the period of holding the listed shares and
securities, opts to treat them as stock-in-trade, the income arising from transfer of
such shares/securities would be treated as its business income”.
I understand that the assesse has the option of treading the income as business income but it doesn’t give the choice to the assesse to treat it as Capital gains. Is my understanding correct?
The CBDT circular given in this chapter talks about “shares & securities” but in this chapter “stocks or Mutual Funds” is used in many places.
Does this mean whatever is written in all these chapters is applicable for mutual Funds also, especially equity Mutual Funds?
Yes, applicable to equity mutual funds as well.
Hi Nithin,
Following is what is written in red in the beginning of the chapter:
“It now says that an individual can decide on his own to either show his stock investments as capital gains or as a business income (trading) irrespective of the period of holding the listed shares and securities. Whatever is the stance once taken, the taxpayer will have to continue with the same in the subsequent years”.
Does this mean that the individual can decide to show gains from frequent(say twice a week) high volume stock trading as capital gain and maintain that stand in the future?
Yep, that is what the circular from CBDT implies.
Hi Nithin!
Can all expenses related to Trading be shown as part of the business expenses. Eg. The brokarage, STT & Others related to delivery based equity BUY or SELL be shown as expenses towards non-speculative business income? (while we are involved in both investing and trading)
Yes, all expenses while trading can be added as cost of your acquisition while calculating capital gains.
Hi Nithin
I want to know about Margin Intraday Future Trading comes in Speculative or Non-Business Speculative Income.??
All trading in F&O can be Non-speculative business income.
I got my answer by reading this Q&A about Intraday F&O trade using Margin amount. But here turnover in trading account becomes too high. What if profits are less than 8% on this speculative business in the trade account?
Or is it the actual money transferred to trade account (from bank account), that needs to be counted as Turnover?
Can you check the chapter on turnover, I have explained this in detail there.
In light of the this CBDT circular can you guys please upload a sample ITR4 specially the balance sheet schedule for an investor who invests in listed securities, take delivery and sell later. Your sample ITR4 does not deal with this. Thanks
Excellent article. I have a question. Is LTCG not taxable under all circumstances even for AY 2014 15?
If I declare myself as a trader/business income person, I don’t have any salary, will my LTCG also become taxable?
It depends on how you declare, if you declare it as LTCG, then no tax. If you declare it as non-speculative business, then yeah u need to pay.
If I submit ITR 4 , will I be still be able to declare LTCG as non taxable? I don’t have salary income. I have small intraday gains, some STCG gains and huge LTCG for AY 2014 15 ( last assessment year, not filed yet). What is the correct form for me?
Intraday gains can be shown only on ITR4. Yes on ITR 4 you can declare capital gains and get exemption on long term capital gains.
Dear Nithin
I am transferred by my company out of India & I am having demat account in which i am trading in F&O and also doing investment in share for short term and long term from my normal savings account but since i am transferred out of India can I continue with my this demat account and do trading in F & O and invest for short term and long term from same normal bank savings account or i will have to open new demat account and do it from my NRO or NRI account. Please advice on my query on my e-mail so that i can keep it for my future reference. What about shares lying in my demat account. E-MAIL ID : [email protected] please reply on this e-mail ID.
Thanks & Regards
Paurush, it is best to open a new NRI trading and demat account. Move all the stocks in your resident demat to NRI demat. Everything you need to know about opening a NRI account is here.
Dear Nithin, You are blessed. Depth of knowledge combined with simplicity of expression is just great. Makes life simple for many.
Dear Nithin, Just 2 querries or rather reconfirmations (a) Am I correct in position all mutual funds as an investor and give myself the benefit of LTCG/STCG whereas anything to do with stocks/FnO/delivery/intraday etc. under business head ? (b) Is STT to be treated as a business expenses ? Thanks
a. yep
b. yep
Pls move this new comment box to the top
Pls darken the text colours…. Light grey is very difficult to read….. a minor alteration in the css file should do it
Dear Nithin
Suppose I do 500 trades a year including these (Equity intraday, equity delivery and F&O). I don’t have any other source of income. Now if I come under 30% tax slab, and acc. to the new CBDT circular…
1.) I can show this income either as ‘Business’ or ‘STCG’…Right?
2.) And does it mean that I can not change my instance (whether Business or STCG) ever in future once taken? Or can we change this stance after 3-4 years?
3.) What instance would you prefer should I take?
4.) Whatever instance I choose…my LTCG is not disturbed (i.e. I have to pay no tax on this)… Right?
Or Equity Intraday and F&O can not come under STCG and compulsorily have to be shown as business income?
Basically the main confusion is can I show certain part of my delivery trades as STCG or not?
1. Only equity delivery you have an option to show as either STCG or business. Equity intraday is speculative business, F&O is business compulsorily.
2. You can’t change the stance with similar activity. But if your activity reduces, you should be able to.
3. You will have to decide.
4. If you are showing them as capital gains, yep, doesn’t get disturbed.
Zerodha has clearly wiped out my doubts. Thanks a lot.
Now, a big confusion is that as I have already filed my return for FY2015-16 and also claimed refund of excess of tax while filing ITR2. Since, I am a trader with salaried income these speculative and non-speculative subject made me to think whether I should refile my tax return under ITR4.
Pls Guide me whether I should refile ITR4 (Note: Ihave already filed ITR2).
Yes, suggest you to refile using ITR4.
Hi Nithin,
I am working in a software company and have a salary 6 LPA as CTC and paid tax of Rs 13000 for FY-2015-16. I have opened Demat & trading account in Sept 2015. My primary aim is to invest for long term. But I have done some short term investments.
As per EQ tax P&L breakdown – FY-15/16 of Q backend, for me there is:-
Short-Term Turnover = Rs 11,544
Short Term Profit = Rs 379
No of total Short term trades = 8
Total Charges = 97.85
DP Charges = Rs -114.8
My queries are:-
1. Do I need to pay any tax for this?
2. Is an auditing required in my case?
3. Which ITR form I have to use for e-filing?
4. My company has filed ITR-1 already for me but not e-verified yet. If in case ITR-1 is not the right one, then can I re-file it?
Please help me. Thanks in advance.
1. On the net profit (after reducing all charges), you will have to pay 15%.
2. No
3. ITR2, you will have to show this as short term capital gains.
4. Yes you can refile.
Thanks a lot for your valuable help.
Nithin, out of the 8 Short term trades mentioned above, one stock I have purchased in CNC and sold the next day. Will it make any difference in taxation you have mentioned(tax %, ITR ,audit requirement)? I am a newbie in market so little confused. Please help.
All I learned from here that to be very successful in life, one must wake up early in the morning as Nithin does.
Lol 🙂
I have filed the returns in time with salary income but didn’t give F&O losses for last 3 years (FY2012-13, FY2013-14, FY2014-15), can I revise / rectify the returns now for those last 3 years and carry forward the losses to offset?
Sri, you can revise for FY 14/15, and since you have filed on time, so yeah you can declare the loss in the revised return and carry forward.
Hi Nithin, When you say FY 14/15, you mean 2 financial years FY 2013-14 and FY 2014-15 or only for FY 2014-15? Please confirm
only FY 14/15
Ok Thanks Nitin,
1. earlier you had mentioned 2 years, so I was asking, as per this I can do for only one year FY 2014-15 and FY 2015-16 is till open till end of Sep, so only these 2 years I can do?
2. During FY15, I had earned bank interest, now that I will show F&O losses in revision, as per details provided above I can club interest earned in to F&O losses (business income), will I be eligible to get the refund on tax paid on interest income?
1. You can only revise for FY 14/15 and FY 15/16.
2. Yes you can revise and request for a refund.
You are a great help Nithin but I have more questions 🙂
FY 2012-13, FY 2013-14 I have filed ontime with Salary income but didn’t include F&O losses as mentioned earlier, if I rectify / revise for these years, I know I can’t carry forward the losses as you mentioned earlier but can I club bank interest earned during each year with F&O losses (as a business income) and claim for tax refund? Or even refund is not possible coz they are more than 2 years old?
Sri, for those years you cannot revise/rectify. There is a deadline upto which you are allowed to rectify/revise.
Cheers,
Hi Nithin,
Is a partnership firm/private limited company deriving income from stock market, also allowed to choose to be a trader, investor or both? Or should these entities necessarily declare their income as business income?
Partnerships/companies can also show both capital gains and business income.
In the above Qs, partnerships/private limited companies or even PSUs should be having flat 30% tax rate on thier busines income (both intraday and F&O) and they should be having 10% tax rate on LTCG (it’s 2018 budget) and 15% on STCG.
Right??
yes
Dear Sir,
I look forward for your valuable advice. My query is little long.
In FY 2014-15, I had loss about 5 lakhs from indtraday share trading (No delivery of equity share in demat A/C). Other than that my total income (Salary + Bank Interest) is below Rs. 1 lakh. I consulted a CA and he put this under Short Term Capital Loss in ITR4 form to be carry forward.
However now I came to know that this must be under speculative loss.
Was my ITR filling incorrect ? Does speculative loss require book keeping and auditing?
I have received IT notice for Limited Scrutiny for security transactions. How should I deal with it?
In the FY 2015-16, I had profit of Rs. 900 from indtraday share trading. Other than that my total income is around Rs. 5 Lakhs. I filled the ITR4 for this year as well but I have not shown this Rs. 900 profit as I am not sure where to add this income and also I have not transferred this profit from my DEMAT account to my bank account. Is this comes under tax liability even if you have not transferred your profit from your DEMAT to bank A/C?
Does my this year intraday trading require book keeping and auditing?
Thanks for your help, Sir.
ITR 4 is correct, but yes it should have been speculative loss. Audit/book keeping requirement is if your turnover is more than 1 crore or profit less than 8% of turnover (check the chapter on turnover). If your turnover was below 1crore, no audit was required in your case in 2014/15.
Ideally you should have showed this profit in your ITR4 for 2015/16. It doesn’t matter if you have withdrawn it to your bank or not. You can revise your return even now. Audit requirement is again based on your turnover.
Dear Sir,
Thank you so much for excellent and crisp article, I have one question, I am salaried employee and primary income is salary.
I invest for short term and long term delivery based stocks.
(1) I bought 100 ITC may 2016 , and 100 FIEM shares in June 2016 and they are in my demat account .
(2) On 29th Sept ( Surgical strike by India) I sell 100 ITC and 100 FIEM shares , and after that ( on same day ) market goes down and I bou those shares back again same day.
This is treated as day trading on 29th Sept ? or I shall calculate profit as Profit = Purchase price ( as in May/Jine ) – Sale Price on 29th Sept.
and new holding starting on 29th Sept. And these being LTCG / STCG.
Kindly clarify.
Thanks for your time , apreciate it.
If you sold shares in a fear of price eroding and you bought this back and that too as a one off incident, you can consider this as capital gains itself. If you show this as an intraday trade, you will be required to use ITR4.
Hi,
My friend got loss of 4 lakhs… Is it mandatory to show that loss. He thought it was not required to file ITR. He got scrutiny notice.
What he has to do now ? He traded intra day and so the buy and sell value was in crores but since he got loss he never thought that he had to show that loss in ITR. Please explain in detail about this situation so that many will understand…
Ram, go through the entire module, has explanation.Now that you have received notice, you will have to explain to the income tax officer that you didn’t declare because there was no tax to pay and you had a loss.
Hi Sir,
I am salary employ and do trading in commodity segment. In FY15-16 salary income was 5 lakh but loss in Trading 2.5 lakh
Now my query is given below
1. should i need to show loss in ITR even do not want carry or take benefit from future income from same head.
2. what will happen if not show loss in ITR and IT AO can take any action regarding this. I have read mutiple post but anywhere not mention what happen if not shown loss in ITR.
3. if it is must to show in ITR, can i fill ITR 4 and declare profit more than 8% to avoid audit treatment
Please guide me on quey.
Sorry, no stock tips here 🙂
Hi,
I am having taxable income ( salary + trading) less than Rs 2,50,000, I did intraday as well as delivery trading and did not file any ITR. Do i need to? and I intend to classify myself as investor not trader but I have already did many interaday trading from Jan 2016 to Sep 2016 (without any ITR). Do I need to as my income is less than Rs 2,50,000.
Thanks and Regards
Neeraj Patel.
Neeraj, not mandatory but it is advisable to file your ITR. You will need to use ITR4.
first of all infinite thanks to GOD that you’re blessed with such a great way of expressing things in such a simple way and so compassionately and humbly even though possessing such a deep and great understanding. and greatest of all that you are really blessed to possess a desire to use all your abilities for working selflessly for in best interest of the people at large and without a greed to earn by sharing your knowledge and service.
you are really breaking all the barriers that you may have faced as an trader and my prayers with you to make this world a better place to live in.
one question. :p
if a 18 year student has short term capital gain less than 2.5lakhs and greater than 1lakhs earned by investing in stocks or mutual funds for 6 to 7 months and that is his only income then do i have to pay flat 15% on my STCG, also tell me what if it would be LTCG that is if the case would have been same only difference that i would have sold the stocks after 1year, will i be required to pay flat 15% tax on LTCG which is less than 2.5lakhs and more than 1lakh.
🙂 thanks Ankur. Do go through the entire module. If your total income is less than 2.5lks, there is no tax that needs to be paid, not even 15% on STCG or LTCG. Any kind of tax has to be paid, only if you fall under a tax slab.
Thanks a lot for this elaborate article. I have been for this since some time and most of my doubts have already been clarified here.
I have a question on claiming expenses such as (Telephone, Laptop, electricity etc.,). As I am a housewife and all the bills are in my husbands name (because he owns the house) Is it possible to claim those expenses? Or is it mandatory to have in my name to be able to claim it?
I am guessing your husband is not already claiming those expenses, if he isn’t you definitely can. As long as you are using them for the business of your trading.
Cheers,
Thanks for taking time to respond. Yes, He isnt claiming those expenses. All the bills are directed to him as he owns the place.
Correcting typo above: I have been looking* for this since some time and most of my doubts have already been clarified here.
Very nice article indeed.
First time I have read an article which is so clear and compact about Taxation in Trading. Thank you so much. Just one question. If you are an active trader, trading in equity and futures, both intraday and delivery and your total income is below the taxable income, do you still have to file income tax return.
Not mandatory to file, but advisable to.
Can I show investment in stocks under 80 c?
No. Tax saving mutual funds (ELSS) .
Sir
In key takeaway point 4
You write non speculative where as it should be speculative income
Yogesh since these are delivery based trades, they are non-speculative.
Hi Nithin,
This is a great article. Thanks for all your help to clarify the rules & the process. I have few basic questions here.
1. I understand that we need to declare ourselves as Investor or Trader or both. In my case it will be both since I have long term investments as well as F&O. But my question is, where do we declare it ? Is it somewhere in my ITR file, or is it somewhere in my profile created under incometax govt site, or is it to be done by my broker ? Please clarify.
2. I am trading through 2 brokers – one is obviously Zerodha, another is ICICIDirect. It is a different topic why I am maintaining 2 different accounts, but here my question is – what is the consequences of a mismatch of my “activity type” in these 2 accounts ? To explain it better: I am doing mostly investment activities in ICICI. And in Zerodha I am doing mostly F&O and few short term trades. So I am an Investor in ICICIDirect and I am a trader in Zerodha. So how do I declare myself (once I know an answer to Qs 1) ? I guess I have to select the option “Both” but is it really available as an option ? Or do I declare myself as Investor in ICICIDirect and as Trader in Zerodha – which will inherently give me a status of “Both” ? Please throw some light how I should classify myself. Of course I want to take the zero tax benefit on my LTCG, so cannot show that as business income. I have always shown that as LTCG in previous years (but I did not do F&O trading earlier).
3. How do we make a swicth.. I mean what is the process ? I know that we should not make a change. But in case I find out that my “declaration” at present is not correct somewhere, I have to change it at least once to rectify it. Is it allowed and what is the process ?
–
Thanks a lot in advance.
1. There is nothing like declaring. You use an ITR 4 and show all F&O under business income and equity investments under capital gains.
2. Ah, doesn’t matter how many accounts you have. You just just file ITR4 like I mentioned above. Combine all capital gains and show as one on ITR4.
3. There is no status as such to switch, just start using an ITR4 from this year. That’s it.
Thanks a lot Nikhil !
Hi Nithin,
As you said earlier non – speculative business gains(profits) can be offset with any other business income or rental income or interest on deposits
Speculative business gains (profits) can be offset with only other speculative gains. My question is there any such source of income( apart from intraday trading) available that will generate speculative gains(profits) or to offset speculative business gains, i need to generate intraday trading profit and then only I can offset.
Regards,
Nishigandha
Hmm.. all gambling kind of activities – lottery, horse racing, etc comes under speculative.
Thank you Sir.
Have filed returns but not included trades in the last 4 returns filed. would it be possible to file belated returns for all these earlier years? if yes, what is the penalty for late filing.
You can revise a return within one year of filing provided it’s filed within due dates. So you can revise only for FY 2015-16. Penalty would essentially mean paying the tax that might have gotten evaded with interest rate. If there is a loss, nothing.
Hi Nithin
Can we offset the losses in F&O partially in the current year, and carry forward part losses to the next year when we believe we can make correct use it based on the slabs.
Yes, you can.
Thanks for clarifying Nithin! Do we have to pay the adjusted amount of tax before 31st March of the current year, or do we get time to do our calculations and pay the adjusted tax along with the last date of filing returns (31st July)?
You get time till 31st July
Hi Nithin,
If I have 10Lakhs profit and 9Lakhs as the loss, can I record 7.5L as Profit for the current financial year [after adjusting 2.5L from losses to current financial year] and set off remaining 6.5L loss to next financial year?
My CA says as per Section – 72, Income-tax Act, 1961-2016, we can only set off the net loss (supposing we have more loss than profit for a year) to the next financial year!
Yes your CA is correct.
I have borrowed money from family and friends upto Rs20 lakhs, I have used that money to Trade in the Nifty Options(Intraday), now for about 6 months I have Traded in a discipline way and made about 30%(Rs 6,00,000) returns, I had agreed to share Half of the Profits that I make with the people from who I borrowed the money.
1.) Now Should I pay taxes from my account for all the 6lakhs or should I pay it only for 3lakhs which is 50% of the profit generated.
2.) If I pay Taxes for all the 6 lakhs, which is around Rs 45000, and transfer half of the remaining amount to my lenders (either online or by cheque) will they be exempt from the Taxation for this income, If yes, what forms should I use to show this legally.
3.) If I pay Taxes for only 3 Lakhs, and transfer the remaining amount to them, what forms should they use to show this as income from trading F&O, (because it will not be traded in any of their accounts)
Thanks in Advance
1. When you are giving back 3lks, show it as interest you have paid for the loan taken. You will need to pay tax only on the remaining 3lks.
2. They will be exempt from taxes only if they show this as return of their original capital. If they show it as profits/interest earning, they will need to pay taxes. Best to do as in point 1.
3. They can’t show this as trading F&O income, they can show it as interest income.
Btw, borrowing/pooling money to trade markets is a grey area in terms of compliance.
prepared in short the effective points from your chapter
TAXATION SHARE MARKET
Circular No.6/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct
Taxes North Block, New Delhi, the 29t h of February, 2016
Sub: Issue of taxability of surplus on sale of shares and securities – Capital Gains or Business Income – Instructions in order to reduce litigation – reg.-
So before filing income tax returns,
you will have to first classify yourself
as an investor, trader, or both.
When trading or investing you need to classify your income
1- Long term capital gain (LTCG)
*
Assume you buy stocks or Mutual Funds today for Rs.50,000/-
and sell the same after 365 days at Rs.55,000/-,
then the profit or gain of Rs.5,000/- is considered
as Long term capital gain
tax on LTCG is at 0%.
Do note – the purchase and sale of shares
has to be conducted via a recognized exchange.
If the investment and the consequent sale were done
via an off-market transaction,
Non listed stocks –
Tax on LTCG is 20%
(for example purchase and sale of shares belonging to
startup companies by Venture Capitalists)
Listed stocks – Tax on LTCG 10%
Short term capital gain (STCG)
**
Assume you buy today,
listed stocks or equity oriented mutual funds
for Rs.50,000/-
and sell the same within the period of 12 months,
say at Rs.55,000/-,
then the profit or gain of Rs.5,000/-
is taxed as a Short term capital gain(STCG) .
Generally speaking, gain or profit earned
by investing into stocks or equity mutual funds
holding for more than 1 day (also called delivery based)
and selling them within 12 months from date of purchase can be categorized under STCG.
Currently tax on STCG in India is
flat 15% on the profit
3- Speculative business income
As per section 43(5) of the Income Tax Act, 1961,
profits earned by trading
equity or stocks for intraday or non-delivery
is categorized under speculative business income.
THERE IS NO FIX RATE TAX AND SO
TAX HAS TO BE PAID, AS TAX SLAB
For example, for the financial year
my profit from trading intraday stocks was Rs. 100,000/-,
and my salary for the year was Rs.400,000/-.
So my total income for the year is Rs 5,00,000,
and I have to pay taxes on this as per my tax slab
3- Non-speculative business income
Income from trading futures & options on recognized exchanges
(equity, commodity, & currency)
is categorized under non-speculative business income
as per section 43(5) of the Income Tax Act, 1961.
It has no fixed tax rate, you are required to add
the non- speculative business income to
all your other income, and pay taxes
according to the slab applicable to you.
Pros and cons of declaring trading as a business income
Here is a list of advantages of declaring
trading as a business income:
1-Low tax –
If the total income (trading + any other) is less than Rs.250,000/-,
then there is no tax implication
and if less than Rs.500,000/- effectively
one has to pay less than 10% of income as tax.
2- Claim expense –
One can claim benefit of all expenses incurred
for the business of trading
(while for capital gains only charges on your contract note
****************************
other than STT can be claimed).
****************************
For example, brokerage charges, STT, other statutory taxes
while trading, internet, phone, newspapers, depreciation of computers
and electronics, research reports, books, advisory, etc.
3- Offset the loss with gains –
If one incurs any non-speculative F&O trading loss,
this can be set-off against any income other than salary.
For example, if I incur Rs 5,00,000 loss in trading F&O
and my other income (like rent & interest, excluding salary) is Rs 10,00,000 ,
I will have to now pay tax only on Rs 5,00,000.
4- Carry forward the F&O loss –
If there is net loss any year
(non-speculative F&O + any income other than salary),
and if income tax returns are filed before due date,
loss can be carried forward for
the next 8 years.
During the next 8 years, this loss can be set-off
against any other business gain
(non-speculative business income).
For example, if you had net loss of Rs 5,00,000
this year trading F&O which was declared on time,
you can carry forward this loss next year
and assuming you made a profit of Rs 20,00,000 next year,
you can set-off the previous year’s Rs 5,00,000 loss
and pay taxes only on Rs 15,00,000.
5- Carry forward your intraday equity loss –
Any speculative or intraday equity trading loss
can be set-off only against any other speculative gain
(note: you cannot set-off intraday equity trading loss
which is considered speculative
with F&O trading which is considered non-speculative). S
peculative losses can be carried forward
for 4 years if the returns are filed on time.
So assume an equity intraday trader makes a loss of Rs.100,000/-
this year, he cannot off set this against any other business income.
However, he can carry it forward to the next year (upto 4 years).
Assume the next year he makes a profit of Rs.50,000/-
by trading equity intraday, then in that case
he can use the previous year’s Rs.100,000/- loss
to offset the complete gains of this year (Rs.50,000).
The balance loss of Rs.50,000/-
can still be carried forward to the next 3 years.
So do note, partial offset of losses is possible.
Now, here is a set of drawbacks for declaring your business income –
Potentially high taxes –
1- If you fall under the 30% tax slab,
you will effectively pay 30% of all your trading profits as taxes
2- ITR Forms – Declaring business income would mean
having to use an ITR4 or 4S, which would mean
needing help of a CA to file your IT returns.
This can be an added effort and cost especially
for those salaried people who might have been using
the very easy ITR 1 or ITR 2
3- Audit – Having to maintain the book of accounts
which will need to be audited
if your turnover goes above Rs 2 crore
(was Rs 1 crore until FY 15/16)
for a year or if your profit is less than 8% of your turnover
Dear,
Please clarify the taxable income in the scenario given as below :
1. I earned Rs 3,00,000 as income through professional service.
2. I also earned STCG of Rs 5,00,000 .
3. I made loss of Rs 15000 in intraday trading.
Now in this case should I proceed as given below :
Total income = 300000+500000-15000 = 785000.
Suppose I have deposited 150000 in PPF to save tax.
Net taxable income will be =785000-150000= 635000.
Now tax is exempted for Rs 2,50000.
Net Taxable income = 635000-250000=385000
Tax @ 10% for 250000 = 25000 and tax @ 20% for 185000 = 37000. Total tax payable = 25000+37000= 62000
OR tax calculation should be :
Total income from professional services and intraday trading = 300000-15000 = 285000.
PPF Investment = 150000. Net Income after PPF investment = 285000-150000= 135000 ( Less than threshold of taxable income limit of Rs 250000). Nil Income tax but
For STCG of Rs 500000 = Net tax payable @ 15% = 75000.
Please clarify ??
Intraday trading is speculative business, so that has to be carried forward, can’t set it off against your professional income or STCG. You can carry forward this intraday loss to next year.
How the rest will work is, you reduce 1.5lks (PPF) from your total income 8lks (3+5). You are left with 6.5.
In this 6.5, the first 2.5 there is no tax. You are left with 4.
This 4lks will be charged a flat 15% = Rs 60,000
So Rs 60000 and Rs 15000 of carry forward intraday loss to next year.
Hello sir,
But as u stated in chapter tax on STCG will be flat at 15%, so isn’t this should be 15%of 5lkh & tax on 3lkh will be as per tax slab??
It is 15% flat if you are in the 20% tax slab. If your total income is less than 5lks, you get the benefit of paying as per your income tax slab. So if your salary is 2lks and STCG is 1lk, you pay 10% of just 50k. First 2.5lks is tax free and then next 50k is at 10%.
sir,
If by adding my salary income and STCG my total comes in 30% tax slab, will i still pay flat 15% or something different??
i m waiting for ur reply..
No, you get the benefit of maximum 15% on STCG. If you are in the lower slab, you pay as per your tax slab.
Dear Nitin , You have mentioned that you can indicate part of your portfolio for trading purpose and part of your portfolio as long term holding while declaring yourself as a trader. Just to understand you correctly, are you implying that some stocks which I intend to hold for long term against some which I intend to trade short term ? Can you please confirm. Additionally, does the same logic apply if you trade some bonds through Zerodha and do I have the freedom of treating some of them as short term and some for long term ? Thanks
Yes and yes.
Hi Nithin,
I have salary of above 7 lacs and I do invest and hold stocks for long term and occasionally do some short term trades also.
As per Zerodha tax P&L breakdown – FY-16/17 from Q backend, for me there is:-
Intra-day / Speculative profit = -50.85
Intra-day / Speculative turnover = 50.85
Short-term profit = -1978.55
Short-term turnover = 27304.20
Long-term profit = -370.50
Long-term turnover = 903.50
No of trades done (Sold during FY 16-17) are:-
Intra day trades = 2
Short term trades = 9
Long term trades = 1
My queries are:-
1. Do I need to pay any tax for this?
2. Which ITR form I have to use for e-filing?
3. Is an auditing required in my case? If yes, can I show profit of 8% of turnover and pay 15% tax on that to avoid tax audit?
4. Is it required to show my stock purchases that are not sold yet in the tax filing time?
Please help me. Thanks in advance.
1. No profits, so no tax.
2. ITR 2 (you have intraday, but since it is so little, you can maybe show this as short term itself. Best to speak to a CA).
3. If you use ITR2, no audit. But if you show intraday as speculative business, yeah audit needed.
4. Best to show it.
Thank You Nithin for valuable response. I will speak to CA about intraday trades.
Just to understand better, audit requirement when profit is below 8% of turnover is only applicable to intraday and F&O trading and not applicable for short term and long term delivery based transactions? Am i right?
Yes. Only for business income, not for capital gains.
Thanks.
Hii Sir, I am planning to show STCG as Non-speculative business income. Trading is only source of income for me. Zerodha provides me with combined charges for both INTRA-Day and STCG in one excel sheet (TAX P&L Report). If I have to show STCG as a non-speculative business income then how can I separate the charges from the combined one. Please clarify. Thank you.
Rajiv, we are working on the new tax P&L which will show this. Until then you will have to manually separate out these charges.
Hello
Very informative article indeed.
I would like to know that whether central government employees are allowed or not to do share trading.
I am a central government employee and confused as I am not able to find reliable information. Kindly help me in this regard.
Hello Sir…
My sister had shares worth around 4 lacs in her Demat a/c in BOI….She had bought them around 10 years back. She transferred those shares to my Zerodha Account and I Sold them for her 2 days back, all the 4 lacs worth shares…So now how much tax should I pay for that…Kindly educate on this…Thanks.
This can be shown as a gift to you and if your sister had paid STT when she bought the shares 10 years back, there is no tax in your hands as the gain is all long term capital gain.
Hi Nithin,
I am a regular trader in Zerodha. I have LTCG, STCG and FnO trading activities. I need your help with respect to the following suggestion you made: “you can have stocks meant as investment for long term, and stocks meant for shorter term trades. Just because you indulge in a lot of shorter term trades, wouldn’t necessarily convert all your longer term holdings or investments into trades and therefore bring those long term gains under business income. But it is important to clearly demarcate your trading and investment portfolio while filing returns.”
–
I understand this and I want to apply this for my taxation because I want to show my STCG as Business Income, without impacting the zero tax on my LTCG. But the CA who is working on my case (mine is Audit case, hence I had to take a CA) is of the opinion that I can either show the capital gains as LTCG-STCG, or I have to show both of them as business income. He said, the moment I show the STCG as business income, it will convert the LTCG also into business income. I have told him about your article, and he happens to know you as well. But he categorically mentioned that the concept which you explained is wrong. Now I am in a fix. I have already paid 50% of his fees as advance and I cannot come out without forfeiting my money. Moreover, it is very difficult to find a CA who even understands these terms. At least this CA understands it clearly although he has a different opinion.
–
I have told him about the circular but in vain. Can you please help me how I should handle it ? I do I convince him ? Can you refer any CA who agrees to your concept, and may be I can have my CA speak to that CA. I will have to incur huge tax if my LTCG is shown as business income. On the other hand, I can save good amount of tax if STCG is shown as business income because then I will remain under Rs. 2.5 lakh slab, hence zero tax on short term trades.
–
Thanks in advance,
Sudipta.
Sudipta, hmm.. The loophole here is that we can show all stocks held for over 1 year as LTCG to get tax exemption and those lesser where you made a loss as business loss. This essentially is a way to cause a loss to exchequer. I know CA’s who avoid taking this route, but I also know a lot of our clients who do and haven’t had an issue. Deciding on declaring your business as trading or capital gains just to benefit the way you are saying, is not advisable. Best to declare as STCG itself.
Btw, if your total income is below 2.5lks, STCG doesn’t apply. You wouldn’t need to pay the 15%.
Respected Sir,
i am government servant, and i do trading since last 10 years, in intraday, deliverybase, marginplus intraday, option trading, when i calculate my purchase price & sell price i have to count all expense related to brokerage with STT or all expense related to brokerage without STT………. i mean when count profit or loss STT is count with brokerage or not? please guide me……..
You need to exclude STT if you are calculating for capital gains (delivery based). For business income, (intraday) you can include.
Sir I’m a PSU bank employee and I did intraday trading for about one month and recently I came to know that central government employees can’t do speculative trading that is intraday…kindly guide me whether to stop it or carry on it..
Hmm.. best to double check with your bank directly on if you are allowed or not.
Any solution found??
Can Intraday trading (Equity) profit be declared as Short Term Capital Gains or do I need to declare it as Speculative Business Income ?
It has to be shown as speculative business income.
Hi Sir,
I invest in shares for both long term and do short term trading as well – short term trades are all delivery based. ie I buy shares and hold them for 2-3 months and then sell them.No intraday or F&O activity.Till 2015 I used to do only long term trades and it is only since last year that I have started doing short term trading. Hence I am bit confused on how to show the profit/loss in ITR.
I am aware that I need to fill ITR2 based on my trading activity. For short term trades, I kept reinvesting the original amount+profit in the same stock.Eg in stock A,I invested 30000,after 3 months I sold it earning profit of 5000.Then I reinvested the same 35000 again in the same stock and earned 4000 profit.Then third time I reinvested the 39000 in same stock and made profit of 3000.I keep following same pattern for other stocks as well.
My query is – while declaring STCG,we have to mention invested amount and profit.So do I mention it as follows:
1. Investment – 30000 and profit – 12k or
2. Investment – 30k+35k+39k and profit – 12k
Please clarify
On the ITR you need to mention total buying value and total selling value. STCG automatically gets calculated. So total buying value : 30+35+39, calculate total selling value similarly.
Thankyou Sir for your response.
1. So in my case, I would have to fill the details as below,correct:
Full value of consideration 35+39+40 = 114000
Cost of acquisition without indexation = 30+35+39 = 104000
Profit = 10000
2. In addition,(this is just for my info) – if I had made a loss of 3000,then this needs to be updated in CFL section – under assessment year 2016-2017?
3. Apart from these 2,is there any other details I need to mention regarding STCG in ITR?
1/2 yes
3. Thats all the info.
Dear Nithin,
i am a house wife. There is no income other than interest on saving account, FD and capital gains from trading. Last year, the trading was started in Delivery based, Intra day and F&O.
If you consider total turnover in F&O, it is 5.96 lacs and a loss of 1.12 lacs, whereas in Intraday, the turnover is 0.81 lacs and a loss of 67K. The turnover in Short term is 13.24 lacs and profit of 0.75 lacs.
Considering that I DO NOT have a business set up where I can show expenses on rent or telephone bill or staff etc, what ITR return form should I use to book the loss?
If it is ITR3, I do not have balance sheet or profit/loss statement with me as I do not have business set up.
it will be great if you can clarify the same
Warm regards,
Pallavi Nene
It is ITR3. You don’t need to be a business setup to have a balance sheet. It is quite simple for anyone to make a personal balance sheet.
Dear Sir, i am a private employee and a regular trader and trades in F&O mostly in zerodha (intraday as well as BTST), i have even done some Short term equity trading, how to proceed with tax filing..which ITR to consider am i required to fill ITR 4 ? or can i go ahead and file returns thru Clear tax website with addition of F&O in same STCG column please guide sir.
one more thing wanted to ask volue of trading activity (turnover) would be considered how in case of F&O trades like margins used or whole lot value ?
ITR3. Go through all the chapters, I have explained in detail on how to calculate turnover and everything.
Hello sir!
I am filling my returns for the first time this year, and I’ve been trading since 2014.
Since my income was not taxable and turnover was less, I did not file the ITR return.
Since trading is the only thing I do, I want to declare trading as Business (and also as investor if possible, for LTCG).
My question is,
1)If I treat the profit and losses from trading as business income, and suppose “If I hold some shares for more than 1 year, then can I declare it as LTCG, to take tax exemptions? ”
Meaning, if I purchase say 100 Reliance shares to do delivery based trading, but if it’s value goes down and I continue holding it for more than 1 year, then can I claim it as long term capital gain later when I sell? Because I bought with intention to trade and it accidently turned into long term holding. Please guide me on this.
2) Shall the Dividends earned on the shares I trade be except from tax completely? Or it will be taxable if I declare trading as business?
1. yes you can have both investments and trades at same time.
2. Yes, exempt.
Thanks for reply sir.
In reference to above question,
When I declare trading as business, I do accounting as ; The shares purchase go into Purchase account and shares sold go into sales account. The profit is calculated as Sales-Purchase= Profit.
Now, if I buy say 100 X Reliance, I make entry of it in purchase account.
But if I have not sold these, at the time of filing return, it will show under Purchase account on left side and Closing stock on right side of the P&L statement of my right?
And later if I want to declare it as LTCG if it crosses holding period of 365 days, How will the accounting entry be changed from Purchase account to Investment?
This is a very big question bothering me since 2 years. If you can clarify this, It will be a game changer and bit relief.
If you are declaring trading as a business, you can’t suddenly tomorrow decide to change it as capital gains. If it is investment you show separately under capital gain. If it is business income, you show the way you are. You can MTM all your equity trades based on March 31st closing price. you can start the next year with closing march 31st price. If capital gains, you show it under capital gain right from the start.
Hi Nithin,
I have a query, when you mention that a person can be trader as well as investor same time. Can I declare my equity delivery & MF profit (kept for a year) as LTCG while the other lesser duration holding as business profit? Also, can I show the cost for laptop and internet connection charges as cost? I actually posted a query but seems missing.
You need to be consistent at this. Just to show your laptop/internet charges as expense you can’t show your short term gains as business and reduce it. You can show these as expense if business income.
Nithin, my intent for considering self a trader in not just to manage cost. Instead, as I left my job for business purpose only and will be starting it. Currently my focus is for short term returns via equity and yes parallel to that I had some MF investment i did for tax saving purpose. I am asking abiut those, if I redeem those now, can I show them as LTCG along with my this year’s profit from trading. As I mentioned that business is what I am pursuing and no salary income, isn’t it better to define self as trader? Also, like you mentioned that for trader gains or profits are taxable as normal tax bracket, instead of fixed 15% on STCG.
Yes, mutual funds for sure you can show as capital gains. Yes if you are doing this full time, you can show it as business income. But don’t selectively show certain stocks as capital gains and others as business income.
Hello Nithin,
I’ve one question regarding intraday trading in equity.
Net purchase value is Rs 261290.
Net sales value is Rs 262836.
Difference is Rs 1546.
According to your article, Rs 1546 is turnover and 6% of Rs 1546, i.e. Rs 93 is profit from business.
But logically isn’t the full amount, i.e. Rs 1546 should be treated as profit from business. Because that’s the money I’ve earned. How can we treat Rs 1546 as turnover that’s very low.
Further if any person earns 90 lakhs….He/she would be very happy to offer only 6% as profit.
What do you say?
Thanks
You are talking about section 44AD. Which was made for small businesses who wanted to avoid an audit if turnover wasn’t much. Rs 1546 is the profits and taxes has to be paid by adding that to your income. Yes this is kind of a loophole for a trader to show 6% of turnover as profit and pay tax around it. But taking any such route to avoid paying taxes can be a pain tomorrow, chances of being asked to pay tax with penalty. This is meant for small businesses to avoid audit, as long as it doesn’t cause a loss to the government.
Since the turnover is less than 2 crores, everyone will definitely choose section 44AD. No penalty and tax can be levied as there is no breach of any law.
And the question still remains unanswered…… What should be the turnover?
Thanks
Turnover is the P&L in case of trading. Do check the chapter on turnover.
Hello Nitin,
Can you help me regarding short term capital gain on selling shares . Suppose I bought shares of 1 lac and sold them after 6 months at a profit of 50,000. The amount i will in my account would be after-tax return or do i need to mention that profit at the end of financial year and will be taxed according to the slab?
Thank you
You have to mention that at end of year in your ITR and pay 15% maximum tax on STCG.
Hello Nithin,
I’m a cent gvt employee working n postal dept. Doing trading with zerodha since a month. I had done an intraday trading without my knowledge once on my very first day of trading. Later after squaring off only i came to know about it( its a loss anyways) . But after that i have been using CNC method( only purchased not yet sold one). Will it draw any disciplinary action?? Can u throw light on it plz and also suggest whether i can do delivery trading on short term and long term?? My dept files returns for the employees through a/cs section. Should i inform the a/cs section regarding this? Which form i should file to them? Or should file directly?? Kindly answer plz
1 trade and all shouldn’t be an issue. You will have to file your return using ITR2 to show your equity investments.
Tnk u Nithin. As a central gvt employee can i invest in short term and gain income or is it banned for us? Or should invest only in long term alone??
Equity investing for both short and long term is allowed almost everywhere. As long as you don’t have access to some privy information of the stock.
Hello Nithin sir,
I am a long term investor and have stocks worth of 40 lacs in zerodha ac. I am studying trend following treding in futures for more than 3 years and i want to start trading in futures. So can i be both “Investor and Trader”? If i trade in futures can i get benefit of my long term investment in stocks?
Yes you can.
Thank you sir.
Hello,
I would like to be treated as a long-term investor in terms of taxation. Hence I won’t be selling shares before holding them for at least 1 year. Now, I have been accumulating one stock say Infosys for more than 1 year. I got 50 shares which was bought before two years and I have 20 shares that I bought 6 months before.
Now if I sell 50 shares alone, would that consider as long-term turnover ? I would hold the remaining 20 shares till it reach 1 year holding period. Can you please confirm whether this would be fine so that I can maintain my status as ‘Long term investor” ?
hii Nithin Kamath,
my name is Sahil and I have been trading last 14 months and as I read this module it was clear that for an intraday equities and f&o trader it is advantageous to declare their trading activity as business income if they earn less than 5 lakhs but a bit demoralizing to read that an intraday equity and f&o trading activity specially intraday can only be considered as business income and if profits are more than 10lakhs trader is entitled is to pay 30% of his profits as tax to government assuming trading is his only source of income .is there any way this tax can be reduced ? .As this makes trading a not so lucrative business as trading is very risky business and a zero-sum game government shouldn’t be proposing such high taxes for a trader
Sahil, everyone in India (even salaried) have to pay 30% tax above 10lks. No way to get around it. But since you show this as business income, you can reduce all business expenses from this. Check all the chapters out.
Nitin sir, I am a central govt. employee. I want to buy a particular stock every month for next 20 years as an investment. By buying this way , is it speculation? How I have to file ITR every year and can my department/govt. may have any objection. Should I have to open a demat account. Please reply soon sir.
No, if you are investing into stocks, it is not speculation. You need to use ITR2. There shouldn’t be any issues, unless your department has restrictions on investing.
Hello,
I have a full fledged business and filing returns under section 44AD since my turnover is less than 2 crores. I also have long term investments in equities in my personal name. I am planning to start trading in F&O in my personal name.
Will trading in F&O affect my long term holdings in the sense that will my long term holdings come under the scanner and might be at risk of being declassified as long term holdings ? My assumption is that even if I am trading in F&O (or for that matter in intraday), my long term holdings will always remain as long term holdings. I plan to declare any income from F&O or intraday as business income.
If there is any possibility that my long term holdings will come under the scanner after I start F&O or intraday, then I am thinking of doing F&O and intraday trading under a new HUF entity of which I will be karta.
But from what I have read here, as long as you properly classify your F&O and intraday income as business income, you can be a trader and investor as the SAME time. So there is no risk to your long term holdings being reclassified also as business income.
Please confirm.
Thanks.
Trading F&O won’t affect your long term holdings. They are both separate activities.
Hi Nithin,
Thanks for that wonderful tutorial.
Last 3 years i got losses around 3.75 lakhs (this year 50k) in fno. My net salary is more than 5lakhs. Can use any of my losses to exempt from the tax. I never declared losses in tax filling.
If i buy idfc tax advantage mf, can i show it for tax exemption if yes what is the maximum amount i can invest in this. What is the minimum lock in period? I didn’t see any lock in period while purchasing in coin so how will this work? Can you please help me in understanding this.
Thank you in advance.
Sri
If you haven’t filed your losses within time, you can’t carry that forward. Also trading losses can’t be setoff against your salary. Only against your other business income.
Yea, tax saving funds can be invested into. 3 years lockin. Upto 1.5lks you get exemption.
Hi Nithin,
My salary is 9lpa. This year my intraday trading(F &O ,equity,commodities) is at net loss of 1 lakh.
So if i declare the loss , will my taxable income will become 8lakh?
Thanks
Teja
You can’t netoff trading losses with salary. You can set it off against other business income.
Hi Nithin,
Is it completely legal/safe and possible to take opposite positions in NSE and BSE at the same time in Intraday Equity trading using Zerodha?
Eg: If I am expecting a fall or rise in price for Stock A (Intraday Equity)but not sure about the direction, I buy 200 shares of Stock A in NSE and at the same time I sell 200 shares of Stock A in BSE. Is this kind of orders Legal? Will these orders dont get negated since both are different exchanges? If so can I place both orders using Bracket Order(BO) or Cover Order(CO) in Zerodha?. Kindly answer.
Thanls,
Deepak
You can place such orders only for intraday. It is legal. Check this.
Hi,
I have occurred a loss of 65000 in indraday trading for this financial year, can I declare it while computing my tax for this year as loss, and can I show my other income of 2,0000 which is taxable minus 65000 = 135000 as taxable income. Please answer.
Pradeep, intraday is considered speculative business income. You can’t set it off against salary. Do go through all chapters, explained in detail.
Hi Nithin
First of all many many congrats for starting such a visionary company “Zerodha”. You have changed the way trading is done and seen. So, many congrats for that.
I am salaried person, I have around 5k profit in short term equity, -22k loss in intraday and -6k loss in F&O.
(i) Could I set off the gain in short term equity with loss in intraday
(ii) or i will have to pay 15% STCG tax on profit in short term equity
(iii) turnover include turnover of short term equity + F&O + intraday or it is individual turnover and if we fulfil the condition of > 1cr or < 1 cr + < 8% profit, then we have to get three forms audited from CA.
(iv) Could I use ITR1 while filing ITR or I have to use ITR3 only.
1. No you cannot.
2. Yes, you have to 15% on STCG.
3. If you are showing as STCG, then no need to calculate this activity for turnover. Yes for F&O and intraday, you have to follow the condition. It is now 6%.
4. ITR3 since you have intrday and F&O.
What if I made loss of 1000 in equity (holding for more than 1 year),
Profit of 3000 on F&O. This means I have to pay tax on 2000.
Do I need to declare -1000 and +3000 both while filing my ITR.
Can I find out from Q, If I require auditing or not? I am just learning and doing small transactions.
No, you can’t setoff equity or capital gain losses with F&O or business income. You need to pay taxes on 3000. If your turnover is extremely small, you don’t need to. Go through all chapters in this module.
Thanks a lot for your reply. You are visiting my campus on Sunday, but unfortunately I will not be able to meet you as I am on vacation.
Sir, Where should i start ? If i wanted a career in Indian stock markets?
From Jan 2018, LTCG is 10%. Please correct that in the above article if I’m right.
Can you please confirm whether classifying myself as an investor or trader is a choice for only speculative and non-speculative business income or for LTCG and STCG also?
Let me explain my doubt thro’ a small example below:
LTCG=10k
Intraday profits=15k
No other income or business
Now, can LTCG + Intraday (speculative business income) be shown as business income and since it is 25k and comes well within the 0% IT slab, i don’t have to pay any tax?
It is technically applicable only from April 1st, the new LTCG rules. Will have it updated.
Intraday is speculative, can’t be combined with equity delivery/F&O (which can be shown as non-speculative business income).
Sir I am a govt. employee and my salary is around 4.3 lakh in FY 17-18. I am new to this trading world and have started trading on November 17. My ID is YS6854. I have done intraday and hold shares for long term. Sir I didn’t come under tax in my salary account. But I have few questions in my mind.
1. Can I have to fill the form for trading activity since it is less than 6 months. If yes than which form do I need.
2. I have booked more losses than profit in intraday should I have to mentioned it in the form.
3. From where did I will get my intraday data of trading.
4. I am confused in declaring myself trader or a investor under Speculative Business income or Non Speculative Business income.
Please help.
It is not safe to mention ID in a public place like this.
1. ITR3 form, and you have to file this before due dates which are between July to September usually.
2. Yea
3. Didn’t get ur question.
4. Can you go through all chapters of this module. Have explained in detail.
Answer to 3rd question- login into http://www.q.zerodha.com for intraday data.
1. For STCG, we can deduct brokerage charges, statutory charges, commission charges, etf fees, GST, etc. under expenses right? But cant include STT, right?
2. My father transferred the shares from his demat to mine which he had bought more than 10 years back as a gift. Now if I sell these what are the tax implications in this case? Since he bought them long back I dont know if he paid STT or not, how do i check that- he doesn’t have the contract notes or other docs and also has closed his demat a/c too.
3. Currently, my source of income is only via STCG, LTCG, interest on savings/deposits. So I have to show STCG under business income and LTCG under capital gains right? If in future or next year I find anther source of income then i can shift the STCG under capital gains head right?
Thank you
1. Yeah
2. If 10 years back, it must be on the exchange. It should be okay as long as he brought through a broker.
3. You can show STCG as STCG itself. If you are doing this like a business then yeah, show equity delivery under business.
Hi Nithin,
I am a VERY SENIOR CITIZEN & investing with Zerodha for over an year now. I have sincere appreciation to the Zerodha team .
Now coming to my query:
I have profit- STCG-386000.00 & intraday only 199.00.
My turnover- 13.5 lacs & Profit is about 29%.
As per IT rules i need not pay tax / file return, but still I would like to file return (hope i am right 🙂
Shall I use ITR-2 showing the entire as STCG or ITR-3?
Hope no need of audit in my case.
Could you please take a look at your convenience.
Best to use ITR3, and yeah no need of audit.
Hi,
Please define frequency of trades!
Is 25(pairs, one buy&sell one pair, and 25 such pairs) intraday trades/day considered as high frequency?
How much is high? How much is low?
Thanks.
Unfortunately there is no clear indication from IT department on this. You have to define and follow it.
Thank you sir for your reply.
A few more questions.
1. I intend to show intraday as speculative business income and, delivery + Mutual Fund holdings as LTCG, as I intend to hold them for a period of more than 365 days. Am I right in doing so?
2. Also I, by accident sold off ONE & only ONE kotak delivery stock. I had intended to keep it for more than a year. Now how to show this stock and where(STCG or LTCG) ?
It will be really odd if I show all delivery + MF holdings as LTCG and only one as STCG.
3. Lastly, how to calculate taxable amount (without the help of q.zerodha.com) when it comes to delivery or Mutual Funds holdings?
I have the buy price of delivery but since the delivery haven’t been sold I can’t know the sell price so I cannot calculate profit or loss.
Same with Mutual Fund holdings.
How does one go about calculating taxable amount on a SIP with 5-year lockin period?
Thank you sir for your valuable input.
1. yes
2. No issues if you show one share as STCG.
3. Calculate all realized gains for more than 1 year and those less than 1 year. You have to pay taxes only on realized gains, so don’t have to declare what isn’t already sold.
Hi Sir,
Another question.
Lets say a company’s shares were down from (example) 300Rs to around 20Rs and I buy it, thinking that it would be worth a lot in the future, and if the company goes out of business,
1. What should my course of action be?
(Sir, please answer this in two parts.
Part A. Before going out of business when stock still at Rs 20.
Part B. After it goes out of business.)
2. What happens of my stock and money invested after the company is out of business?
Thank you.
Hi,
Is STCG and LTCG are flat 15% and 10% respectively? e.g.
If my annual taxable income from salary and other sources is 200000 and STCG is 100000, then should I have to pay
a) 15% of STCG 100000 = 15000 or
b) 5% of 50000 = 75000 according to tax slab
Thanks
b, 5% of 50k
Hi,
I have gone through every comments on this page and found the answer I am looking for. However I am now confused about the following situation,
My speculative business income is 150000
Non speculative business income from Fno is -90000 and
STCG from delivery based selling is -7000
Can I carry forward non speculative loss and STCG loss in next year and pay taxes for 150000 in this year? Or do I have combine all the sources together i.e. 150000-90000-70000 and pay taxes accordingly?
carry forward non speculative loss and STCG loss in next year and pay taxes for 150000 in this year
With reference to 3.2 summary table…….
the intersection of row “Losses of F&O as a Trader” and column “Whether Losses can be carried forward and set-off in subsequent years —>Under any other Head” should be…….. ‘Yes’ !!
Isn’t it ??
This is a little grey. The conservative approach is to set-off in subsequent year only under the same head.
Sir,
Please ignore above ques. Please consider the following Qs….
Suppose, I have been an investor so far and have been declaring myself as investor in ITR but……
what if after 1/2 years (in subsequent years), I get comfortable at trading and start active trading!
Because my activity has changed from investing to both investing and trading, Can I not change my stance in subsequent years from being investor to being both investor & trader and declare the same while filing ITR?
Yes, you can. But the idea is to not keep doing it just for saving on taxes.
Thanks a lot for the answers, Sir !!
Kudos to you for conceptualising the idea of Varsity!
You’ve done an amazing feat of Zerodha/Varsity and You’re doing it wonderfully.
Dear Nithin,
Nice to go through your articles. I have been an investor for the last 3 years in equity shares and MFs. I filed ITRs2 myself successfully for all these years as an investor only. In the current FY 2018-19 i made 6 transactions in F&O for the first (and last time as well) and incurred loss of Rs 32000. The tun over of F&O is only Rs 38000. Besides this I have FD inerest income and STCGs also. My query is can I continue with ITR2 taking F&O loss as speculative Or Should I file ITR3 taking F&O loss as non-speculative. Considering small and one time activity whether Tax Audit is compulsory in this case? I dont intend to make good the loss or claim any expenses since I am not a trader. My net taxable income is Rs 200000 after section 80C deduction and first level of Rs250000 exemption limit. Please clarify.
I have seen several write ups but yours are very straight and clear.
Thank you.
Best to use ITR3 and show F&O as non-speculative on it (btw, speculative also can be shown only on ITR3). You wouldn’t need an audit as your overall turnover is quite less and you are not in the taxable bracket.
Thank you Sri Nithin for the reply.
I do come under tax bracket @ 5% and a little on STCGs also. Is n’t tax audit compulsory still? Can I file ITR3 without tax audit as no audit case or show 6% of F&O turn over as profit and get away without audit ? which is better? This is the crux of the issue my mind is obsessed with. Please advise.
If your turnover is less, you can show 6% profit and avoid audit. But I’d say it is always best to carry forward loss, which will mean you will need an audit.
Sir, can I deduct any expences incurred for STCG. Example- brokerage, stamp duty etc.
Yes you can. You can show it in the cost of acquisition.
Thank you sir,
But I have one more dought. In zerodha q the expences for speculative business and STCG are given combined. So can I deduct all my expences in STCG? Or I have to bifurcate expences of STCG and speculative business. And how can I bifurcate these expences?
Sourav, you will have to bifurcate yourself. The new P&L from this year which we will launch in the next couple of weeks will have this bifuracated.
Thank you sir?
I am a central government employee started trading in F&O segment and equity delivery. I am unaware of whether central government employee is allowed or not to do F&O. I know that speculative trading is not allowed so by definition F&O being non-speculative should be allowed.
Also if it is allowed then under which ITR could it be filled?
I wouldn’t know of this Amey, best to confirm with someone at your organization. ITR3.
I’ve gone through the module and I am pretty sure that I will need to use ITR 3 form, however, I would request you to share your guidance as well.
I am a salaried person and earned about 6L and also did intraday trades (With loss) and short term trades (With profit). Some Mutual Funds LTCG as well. Apart from that I have not been involved in F&O etc.
With the amount of turnover, I am also required to do an audit.
INTRADAY GROSS PROFIT₹-31,091.05
INTRADAY TURNOVER₹51,992.35
SHORT TERM GROSS PROFIT₹9,272.54
SHORT TERM TURNOVER₹9,33,049.93
LONG TERM GROSS PROFITN/A
LONG TERM TURNOVERN/A
TOTAL CHARGES₹18,897.76
My questions–
1. I need to use ITR3 form as I have speculative loss and STCG + Salary income, right?
2. It’s very first time I am going through the procedure, can you tell me generally how much an audit costs?
3. Do you have any other suggestion for me as to how should I proceed? Going forward, I will not be involved into Intraday trades.
Please help. I am so very anxious. It’s way too overwhelming for me.
1. Yes
2. Audit starts at around 5 to 10k.
3. Like I have mentioned earlier, since your turnover is low for intraday, maybe you can show 6% of turnover as profits (instead of loss) and avoid audit. Do speak to a CA about this. On this 6% of profits, you will need to pay some tax though.
Thank you Nitin for your prompt reply. I do not know how you manage to run a forum in spite of running this business. One can learn a lot from such an attitude.
I actually have one more doubt in mind. (By now, I’ve gone through the whole modules and most of the comments).
As I have shared my turnover with you above which is-
INTRADAY GROSS PROFIT₹-31,091.05
INTRADAY TURNOVER₹51,992.35
SHORT TERM GROSS PROFIT₹9,272.54
SHORT TERM TURNOVER₹9,33,049.93
1. So my question is, when you are saying, I can show 6% profit, instead of loss, I only have to keep the Intraday turnover in mind right? My short term turnover does not really come into the picture in this case. (I understand your disclosure of discussing it with CA)
2. when filing ITR 2, I will simply put the profit of 6% for Intraday and proceed normally with the actual turnover and profit for STCG, right?
These are all the doubts that we have.
Once again, I really appreciate what you are doing man. Allah bless you.
1. Yes, only intraday turnover is business. Short term is capital gains and no concept of turnover in that.
2. Not ITR2, but ITR3. Speculative Business turnover can’t be shown in ITR2.
sir I am a Karnataka state government employee I am having a Demat account I am doing the currency future trade since this year 2018 & I am having equity in my account @ 1.5 lackh whether I’m eligible for currency future trade>? if not. can I close currency segment and continue investing in equity
Best to double check with your department if you are allowed to trade currency or not.
Hi,
Is it possible to have my long term investments in direct equity(shares bought and held for period greater then 1year) taxed as per LTCG rate and my short term trades(held for more then 1 day and less then a year) taxed as per the non-speculative business income rates under one PAN? If yes, could you pls. refer how? Thanks.
Yeah u can. but you need to demarcate business from investment correctly. Also stick to the same stance for a few years.
Thanks for replying.
How can the demarcating of the portfolio’s be done. Could you pls. elaborate on this or refer to the relevant instructions.
Thanks
Just make sure you don’t mix up charges of each other. Keep entire transactions separate.
Sir
My income is from interest.
From dec 2017 i started trading
and my intraday profit is 527 and short term loss of 2882.5 on turnover of 259990.
Pls assist me to file ITR
1 which form to be used.
2. Short term loss can be set off against interest income or not
1. ITR 3 idEALLY, But considering very little turnover, maybe u can look at using ITR2 itself.
2. No, cannot.
Hi sir
I m govt. Employee can I trading in F& O
Best to confirm with your department.
Dear SIr
I do trading in the Futures (F&O) market and have been filing ITRs under business income. For “Nature of Business”, as F&O trading is not specifically shown, I have entered code “0809-Financial Services Sector-Others”. These codes have expanded considerably from current year.
Pls advise which code to use for PURE F&O TRADING activity alone. Should I use 13010, or 13014 or 13018. Or can I simply use 16019.
Also in P&L, I have been showing the total of favourable transactions (i.e profits) as “SALES” under Item [1A(i)] and total of unfavourable transactions (i.e losses) as PURCHASES under item [6], thereby arriving at gross profits and deduct some basic expenses (telephones, internet, etc) to arrive at net profits.
Instead of this, can I show the gross profit (i.e net of profits & loss transactions) under Item [1A(iii)] without the need for PURCHASES, etc ? (expenses will continue to be shown under relevant heads)
Thanks
Check this. 13018 I think.
I think you can, but about filling your ITR, best to consult a CA.
Hi Nithin,
When is Zerodha filing for IPO?
Should we include or exclude STT while calculating Net sale amount for STCG?
For Cost of acquisition we add up all costs except STT to cost of purchase of shares. So, what do in sale amount?
Do the same for sell side as well, what you do buy side.
One error i noticed in the updated portion (in red).
As per the circular:
1. The assessee is free to declare his income from trading as Business Income irrespective of the period of holding
2. In case the assessee decides to classify gains on shares held for over an year as long term capital gains, he should continue to classify it as the long term capital gains itself
3. For any other cases (sale of shares within a year of purchase) the classification into business income or capital gains will depend on the facts and circumstances of the case
So the part where you have written ”It now says that an individual can decide on his own to either show his stock investments as capital gains or as a business income (trading) irrespective of the period of holding the listed shares and securities” is incorrect.
Individual can decide for himself only in case the period of holding is more than a year
I hv zerodha account. I buy a share and sell it after 1-2days. So is it
1. non-speculative business income OR of STCG ? As here it is written that ” there is no rule which quantifies ‘frequent’ “, So i am confused.
2. Which ITR should i fill?
3. Zerodha Tax P&L Report says:
INTRADAY/SPECULATIVE PROFIT₹-476.45
INTRADAY/SPECULATIVE TURNOVER₹5,143.15
SHORT-TERM PROFIT₹44,736.28
SHORT-TERM TURNOVER₹16,22,127.75
Is audit required ? or Showing 8% of 5,143.15 as MY INCOME will be good enough?
1. STCG
2. ITR2
3. Since your intraday turnover is so less, you can combine it with short term profit. No need of audit if ITR2/capital gains.
is it possible to get a return of above 1lac (capital gain) within the period of 12 months? has this ever happened in the past …. if so, under what tax slab does it come? is it flat 15%(STCG)?
Of course, there are many who earn that much. Yes, STCG for gains under a year at flat 15%
I hold a portfolio of stocks ( some were bought more than 1 yr ago). Now if I start trading in futures, to hedge and to speculate, will it change my stock investments to business income and attract 30% or can i continue to be an “investor” and follow the 15% stcg and 10% ltcg tax rate. And how will my futures income be treated ( from hedging and from speculation).
Hi sir,
i only do intraday, and the profits are below 2,50,000 rs and don’t have any other income,
1) so which category do i fall in STCG or speculative business income?
2) suppose the equity profits goes more than 2,50,000 rs , then do i have to pay taxes as per STCG which is 15% or speculative business income which is 10%?
1. Speculative
2. Business income as per your tax slab. It is 5% for 2.5 to 5lks.
Hi sir,
Last year i did some intraday trading. My profits were small (in double digit only).
1) I forgot to file it in this year itr. I filled itr-1 as last time. What should i do now?
2) if i fill the itr again, should i fill itr-4 with presumptive income criteria.
3) btst trades gains are speculative incomes or short term gains?
Thank you. Pls reply asap. I am worried.
1. Yeah, you can revise your ITR.
2. If it is extremely small you can maybe show this capital gains and use ITR2. Otherwise ITR3.
3. Debatable, but you can maybe show it as short term capital gain.
Sir i have a question.
I am confused here on this STCG vs business income.
The confusion is about the trading being FREQUENT as mentioned in the chapter.
So my question is that if lets say i bought shares worth 30000₹ and sold them a week later for (lets say) 35000₹. And every week i am buying shares and selling them weekly anf if i am doing this constantly for 30-45 weeks of a years(meaning i am trading almost every week of the year).
So will then my profits come under STCG or business income? Because i am not able to understand this FREQUENCY thing here. How much frequency in numbers make difference in STCG and Business income?
Please answer otherwise won’t be able to understand next chapters.
Like I said, this is a grey area. There are many who show this as STCG and many who show as business income – both are okay, you can decide on the option after talking to your CA. But if this kind of trading is your primary income, you should I think show this as business income.
Dear sir i am doing swing trading where I can get delivery of stock and hold it for 7-20 days and then sell it after stock price moves upwards to 5%.
And I am do it 20 times in a month or I buy and sell 20 times a stock.
So my question is can i A trader or invester
So in the case above I have to pay STCG or show it as non-speculative business income while filling my taxes.
As I am doing 20-30 transactions a month and take delivery and sell after 7 days in this case I am invester or trader…kindly help me. Thanks.
Hmm.. I’d say a trader. It is best to show as non-speculative business income.
R/sir,
If my income from salary and from trading or investing is less then 2.5 lakh can i have to pay any tax?
Or If my inome is less then 2.5 lakh mark can i have to pay STCG tax.
No taxes if less than 2.5lks. Even STCG is to be paid at only 5% if your total income between 2.5 to 5lks.
Hi,
Do individual trader/investor needs to get a GST No.? Or he only needs to file income tax returns?
No
[…] https://zerodha.com/varsity/chapter/classifying-your-market-activity/ […]
hi sir,
i trade in usdinr F&O. it will be treated as speculative income or considered non-speculative business.
in this Chapter 3 Classifying Your Market Activity it is not clear. somewhere it is mentioned as speculative income and somewhere considered non-speculative business. i will quote what is written
1) ” As per section 43(5) of the Income Tax Act, 1961, profits earned by trading equity or stocks for intraday or non-delivery is categorized under speculative business income. Currency trading is also considered as speculative since there is no STT (unless you are using currency derivatives to hedge).
2) Key takeaways from this chapter
Trading F&O (Equity, currency, commodity) is considered non-speculative business
Trading intraday equity is considered speculative business
Equity holdings for more than 1 year is considered Long term capital gain (LTCG)
3) Non-speculative business income
Income from trading futures & options on recognized exchanges
(equity, commodity, & currency)
is categorized under non-speculative business income
as per section 43(5) of the Income Tax Act, 1961.
kindly clear currency trading is speculative or non speculative business income
also what is difference between speculative or non speculative business income
Currency trading is speculative as there is no STT unless you are using it to hedge. I will have it changed. For equity derivatives, it is considered non-speculative.
Hi Nithin,
You said that it is recommended to declare the losses one occurs,
Sorry but i was unable to understand why should one declare his losses?
If you trade and don’t declare, you can get questioned. Hence either profits or losses, best to declare.
Hey Nithin,
Sorry but I didn’t understand why did you tell to consider ‘frequent buying/selling’ as ‘non speculative business income’
rather than Short term Capital Gains?
hmmm.. I have explained in the post above.
Hey Nithin,
I was looking at the budget coverage today and some people were saying that 80C should be increased from 1.5 lks to 3lks, what is 80C?
Thanks for the brilliant material published here.
But the data in here is not updated, as with respect to “LTCG tax” has been brought into consideration last year so please make the changes.
Hmm.. which bit isn’t updated? The 10% above Rs1lks? It is right..
I am a central govt employee. I am not allowed to do speculation or business activity meaning future trade. But can my wife do future trade with her name on demat account? Can I give gift or donation for doing that? If yes, then the bank account should be her personal or joint account is allowed? Plz answer my question sir.
I am active client of zerodha.. thanks for your best service
Happy to note that, Akash!
Yeah, I don’t think there is any issues with your wife doing it. You can gift money to her, but best to do it to her personal account than a joint account.
Thanks a lot sir 👍
My is husband is govt employee,can I have speculative earnings in share market.
Yeah, I don’t think it is an issue.
Dear Nitin,
Could you please look at my data given down below and let me know :
Realized Profit Breakdown
Total realized profit 49044.20
Short-term profit 15199.75
Intra-day/Speculative profit 33844.45
Long-term profit 0.00
Turnover Breakdown (Scripwise)
Intra-day/speculative turnover 37204.45
Other Debits/Credits including Service Tax
Total Charges 17197.48
Total Other Charges -341.61
Q1. I have income from interest on FDs and savings besides the above trading profits, so I will need to file ITR 3 only ( i also have LTCG from another brokerage of 20000/- this year ) ?
Q2. Besides the above intraday/speculative turnover, my short-term sell side turn over is 41,51,990/-, so do i need to be audited?
Q3. What documents do I need to keep on record for trading activities in case IT dept calls me in the future, cuz your website states that contract notes are available only for past 3 months?
Q3. What is the last date for 2018-2019 filing, is it 31st of July 2019 or Sept?
Zerodha provides all the support and help like no other brokerage and I am very happy to be your client.
Thanks a million,
Kadar
1. Yes
2. Short term sell side turnover is only if you are showing that as business income and not as capital gains. If you are showing it as STCG, you don’t have to consider it as turnover.
3. Contract notes are sent on email to you, it can be downloaded from console anytime (no time restrictions). Other than that bank statements and trading ledger and P&L.
4. You don’t have audit, so 31st July.
Cheers,
Dear Nithin,
Also am I eligible for a rebate from any of the service taxes that have been paid like STT since my total income is below 2 lakhs ?
Thanks
Kadar
No.
Hello sir,
I am an employee of state electricity distribution co. (State Govt. Enterprise)
My company’ Employee’s Service Regulation says,
” No employee of the Company shall speculate either himself or through any benamdar, nor shall he permit his spouse to do so.
In case an employee invests in shares, securities and debentures or mutual funds scheme etc., he shall submit by 30th April of each year, a complete return of the investments to the Director (HR) of the Company as they stood on the 1st January preceding (apart from his declaration of assets) in following cases:
a) ClassI and ClassII employees If the total transactions in shares, debentures, securities or mutual funds scheme etc. exceeds Rs.1,00,000/- during the calendar year.
b) Class III and Class IV employees If the total transactions in shares, securities, debentures or mutual funds scheme etc. exceeds Rs.50,000/during the calendar year.
Explanation: The following shall be treated as speculation:
a) Habitual purchase and sale of stock or securities of notoriously fluctuating value ;
b) Speculative dealings with the Stock Exchange ;
c) Regular participation in any kind of gambling including horse racing.”
I have some confusion regarding this –
1. Am I allowed to invest in stock market / shares for long term ?
2. Am I allowed to invest in ETF stocks for long terms ?
I guess you can, just don’t trade (buy/sell) frequently.
Thanks Nithin Sir.
Another question sir,
If I buy same ETF stock in delivery position for each month , will it be considered as a speculative deal or as an investment ?
Investment.
hi nitin, i have made profits of around 2.36 lks in f&o and incurred losses of 2.97lks in my equity delivery trades both for the year FY18-19.Can these two be netted with each other to reach a figure of cumulative loss of 0.59lk which i can carry forward to the next year
You can if you show your equity delivery as a non-speculative business. Do go through all chapters.
Sir, I am a Salary person. I do 5-6 Short term trading in different stocks every month.. so, what am I showing my profit as capital gain or business?
which ITR i can fill?
IF this is not the only thing you do, you can show it as capital gains. ITR2.
First of all infinite thanks to GOD that you’re blessed with such a great way of expressing things in such a simple way and so compassionately and humbly even though possessing such a deep and great understanding. and greatest of all that you are really blessed to possess a desire to use all your abilities for working selflessly for in best interest of the people at large and without a greed to earn by sharing your knowledge and service.
you are really breaking all the barriers that you may have faced as an trader and my prayers with you to make this world a better place to live in and may indians gather more faith in discount brokers especially Zerodha, also God may guide you that you do not change your mind and not do something untoward (or evil) against the faith of million clients as your client base grows exponentially.
If i have a LTCG exceeding 1 lac but (say) my income is less than Rs. 2.5 lac, then do i have to pay Flat 10% on LTCG ??
is it like that if anyone who has a total income below 2.5lacs then he do not have to pay any income tax whatsoever it may be, if he wishes then he can file a NIL return??
(especially in view of earnings from equity market)
Yep, correct.
Not needed.
Hello,
In the example of LTCG it is written that if you buy at 1,00,000 and after sell it at 1,00,00,000 after 10 years, you don’t have to pay any taxes on 99,00,000. My question is 1,00,000 is investment and not a gain/profit and tax rate is on gain/profit which is staggering 99,00,000 then how can one has not to pay any tax on that profit?
THANKS
Until last year, LTCG was tax-free in India. From last FY it is taxed at 10% above Rs 1lk of LTCG per year.
Hi Team,
If doing Intraday F&O , will it come under Speculative (As it is Intraday) or Non Speculative (As it is F&O). Tried to find the same in above comments, but unable to conclude. Thanks.
Non-speculative. No concept of intraday or delivery for F&O.
Dear Sir,
Is the new P&L bifurcating expenses of STCG and speculative business launched by Zerodha to use for filing ITR before 31-07-2019 for FY 2018-2019 ?
No, this is available from FY 19/20 onwards.
Sir,
If my income is taxable and i made a gain which is less than 1lakh on selling stock aftet 1 year.. will that gain be taxed?
No
And also if have taxable income and i made gain less than 1 lakh by:
1. short term selling(less than 1 year)
or 2. intraday trading
or 3.option trading
or 4. combining above all three
Will I be taxed in any of the above cases?
If your total income is less than 2.5lks, there is no tax to pay, any of the points.
Sir I said I have taxable income. It’s greater than 2.5lks.
Sir,
First of all, Thanks a lot for putting all the contents in a structured and descriptive way through these modules. Now it seems that stock markets and derivatives are more like a combination of complex science, human psychology and random entropic events, rather than its perception of being a gamble. W.r.t. to taxation, I would like to ask some questions. Pardon me if my questions sound naive or silly, still learning.
So, I have purchased certain shares of a bank for long term but when I was reading about intra-day trading, to have a practical experience, I did short the the scrip in the day trading. Now, w.r.t. taxation, if I classify myself both as a trader and an investor, can I pay taxes accordingly, like LTCG on delivery trades and taxes as per business income on the intra-day.
yes, you can.
Thanks for your prompt reply, Sir. Just to clarify on what I asked earlier, I have invested (long-term) and traded (intra-day) in the same share. As per taxation laws, there is no rule which says that trading and investing cannot be done for the same share, right?
No, as long as you can bifurcate and show that both portfolios (trading and investing) are separate, it should be okay.
Hi ,
Thanks a lot for such a valuable content and is very much helpful for beginners like me .
I am a regular salaried person and I do both short term trades ( holding period of 30 – 90 days ) as well as intraday trades .
As per your content and some of the previous comments , I understand that can show short term trades as short term capital gains and intraday trades as speculative business income . The CA whom I have consulted however does not agree to show intraday trades as speculative business income and says that only someone who is not salaried and the one who has a proper business entity can show intraday trades as speculative business income .
Could you please clarify on this ? Am I eligible to mark myself as investor as well as trader ?
Hmm.. if you do intraday equity trades, they have to be shown as a speculative business, even if you have a salary. You can speak to https://zerodha.quicko.com/.
sir,
My MAJOR KNOWLEDGE ON TAXATION ( REGARDING SHARE TRADING ) comes from ZERODHA VARSITY.
I am Thankful for that.
I have currently THREE “SMALL” BUSINESSES
1) INTERIOR DECORATION
2) ACOUSTIC CONSULTANCY
3) SHARE TRADING ( CONSTANT BUY and SELL of SHARES for SMALL PROFITS.)
( I SELL AS SOON AS I SEE SOME PROFITS ON MY BUY PRICE )
( MOST TRADES BECOMES INTRA – DAY, IF SPURT IN PRICES )
NOW, a few months back I got a BRAIN STROKE & LEFT HAND PARALYSIS ( I am 60 + ) ( HAVE RECOVERED NOW )
Hence, due to HEALTH reasons I intend to TOTALLY STOP my first TWO BUSINESSES.
and continue with a SINGLE BUSINESS.
1) ONLY SHARE TRADING ( FULL TIME ) ( FULL INVOLVEMENT )
I have been filing my ITR 3 ( BUSINESS ), on my OWN, with HELP ONLY FROM VARSITY.
I show my INCOME as BUSINESS INCOME ( PROFITS ON SALE OF SECURITIES where STT is paid.)
( CAPITAL GAINS PAGE IS LEFT EMPTY )
so, sir,
my Question is
AS A PERSON doing only…….. SHARE TRADING ( SINGLE BUSINESS )
can I still continue showing my INCOME as a “”BUSINESS INCOME””……..??????
N: B :- ( I got some INFO from somewhere…that if YOUR “”ONLY BUSINESS”” is….. “”SHARE TRADING””……
Then, …..You have to…… “” COMPULSORILY “” ……PAY 15 % TAX…… on your SHORT TERM profits from SALE OF SECURITIES )
EVEN THOUGH your INCOME MAY be BELOW TAXABLE LIMITS…. ( RS 3,00,000 in my case SENIOR CITIZEN )
( I HOPE THIS IS WRONG INFO )
NOW, ….with a CLARITY from you i intend to do FULL SHARE TRADING without worrying about ANY COMPULSORY TAX PAYING.
THANKING YOU,
TUSHAR MODY
Yes, you can continue showing trading as a full-time business income. No issues with this.
Hi,
I am a salaried person and I have made profit in stcg and in intraday trades ..Can I show intraday profit as stcg or do I have to show it as business income.
I actually do lot of short term and intraday trades..so can I mention 0 as buy price and profit as sell price while showing stcg.
Please advice
Intraday as speculative business income. For actual tax filing help, best to consult a CA.
Hi Nithin and team,
Can I show things like subscription charges for applications (like autotrader by stocksdeveloper) and APIs, that I use to semi-automate my trading, against the business expenses for my trading?
Yes, you can.
Hi Nithin,
I have been trading in F&O segment on intra-day basis. And have incurred loss in that .Recently i went to my CA for IT return fillings.Now I have another business and got profit in that.So i asked my CA to declare F&O trading as non-speculative and set off losses against profit from business. But he is telling me that F&O trade can only be declared as non-speculative if it was done with the intention of delivery.That was not the case in my situation. So i have to declare it as speculative loss. can you clarify whether it is non-speculative or speculative?
THANKS
It is non-speculative.
In ITR can I show loss due to auction of equity due to my ignorance of knowledge?. If yes then under which head i.e. short term or intraday or any other head?
If it is a short intraday that you didn’t cover, then as intraday. If it was an auction due to which you didn’t get shares for what you bought for delivery, then short term.
Under 3.1 – Speculative Business income – it is said the currency derivative is also speculative business. However I find that at below links, it is argued that it is non-speculative business. Please clarify – which is correct ?
1. https://www.taxmann.com/topstories/101010000000178926/loss-arising-on-trading-in-currency-derivatives-isn%E2%80%99t-speculative-loss-to-be-set-off-against-business-income.aspx
2. https://taxguru.in/income-tax/profit-loss-from-trading-in-currency-derivatives-cannot-be-treated-as-speculative.html
BRgds,
S. Kumar
I found one more link to validate the argument that currency derivative is not a speculative transaction.
https://taxguru.in/income-tax/cbdt-instruction-to-its-staff-regarding-allowing-losses-on-account-of-forex-derivatives.html
BRgds,
S. kumar
Please throw light on taxation for the below scenario –
1. Listed shares –
a. STT paid – LTCG and STCG
b. STT not paid – LTCG and STCG
2. Unlisted shares – LTCG and STCG
BRgds,
S. Kumar
Check this chapter https://zerodha.com/varsity/chapter/taxation-for-investors/, explained here.
I sold 100 shares of STFC on delivery basis without having actual share in my demat account . So it gone to auction buy after the stipulated time and caused loss, so will it under short term or intraday ?
It is a grey area, theoretically, it is intraday, but many show these as delivery.
Sir, I am a psu bank employee.. Which type of trading I can do…
Best to find out from your employer. Usually you can do all types of trading as long as you don’t trade on info which isn’t publicly available.
Sir, the article was really helpful.
I’m a doctor and I have just started trading and investing both in the free time I get.
If I intra day daily, will I be taxed for the total turnover or only on the profit from intra day? (considering that I will fall into 30% taxable income due to high frequency of trading)
Eg – if I buy 10,000 shares of 100 RS of a company and intra day with selling 10,000 shares at 105 rs.
Profit Gained is 5×10,000 = 50,000 intra day.
But total turnover would be = 10,00,000 + 10,50,000 = 20,50,000
So the tax payable would be 30% of –
a) 20,50,000 = 6,15,000
or
b) 50,000 = 15,000
Please solve this doubt sir.
Thank you
You pay taxes only on profits and as per the tax slab. It will be 30% of 50k, or 15000. Do go through all the chapters in this module.
Yes Surely.
Many thanks once again.
The articles are really informative.
Hello sir,
I am a student and currently no source of income. But I get pocket money of around 20000 from my parents and I invest around 10-15000 per month in mostly equity mutual funds for long term perspective and some amount in debt funds . Very much little stock delivery . I have STCG in debt funds of RS 5500. Do I have to fire ITR 2 ?
Yeah, best to file ITR2, you don’t have to pay taxes though.
Sir, first of thanks for all the literacy through zerodha varsity, i have passed my nism exam after reading your derivatives module.
Sir i think i have a complicated question which C.A and broker also will find tough to Answer, I think I found the right place to get my query resolved.
I currently do
1. Delivery based equity investing (long term purpose)
2. Monthly SIP in mutual funds
3. Few gold purchase for investment purposes ( ₹600 Cost price, stored in digital wallet)
4. As I have cleared nism exam, I started a job where I got a trading I’d issued on my nism certificate and pan card. I got monthly salary and I do f&O trading (margin and other limit is provided by company) and monthly profit if any above 50,000 is shared in proportion. So how I will have to declare my income?
What else I have to report except my salary?
Please help.
Can you go through all the chapters in this module, it is explained in detail.
I ended up making 1 intra day trade where my Stop loss got triggered and i purchased back the sold share on the same day. I have no other intra day trades records. Have I become a trader just for this one trade ? I have beein filint ITR2. Do i need to file ITR3 or audit for just this one trade ? I do not do any F&O either.
3/4/2020 HDFCBANK NSE EQ buy 9 1165
3/4/2020 HDFCBANK NSE EQ sell 16 1145
3/4/2020 HDFCBANK NSE EQ buy 16 1140
Hmmm.. maybe not. Show it as Short term trade. Do speak to your CA.
Sir, it was really helpful article. Investing/trading on the markets is my only source of income. I started doing intraday from last August 2019.
I do only in equity.
Intraday trades in CNC(never leverage),+swing for days, weeks and months+investment portfolio(not done with intent to dividend but for price appreciation) too for greater than 1 year.
How to pay taxes on it Sir? Can I put everything according to tax slabs(Speculative Business income) as I don’t do FnO?
I am a noobie. Sorry for silly questions.
I have to book my profit and transfer to bank account before paying tax, right?
Please help Nithin Sir!
Shubham, I have explained everything in the chapters on this module. Do go through that. There is no one-line answer to your question.
SIR, I mostly trade on F&O, so my non-speculative gross profit is Rs. 13.16K with turnover around 6.76Lk, so the profit is less than 6%, do I need and audit as the above mentioned chapter?
I also have Speculative Loss of Rs. -4.63K & STCG loss=-13.49K & my Salary Income doesn’t come under IT slabs.
Please guide me What I have to do? Do I have to file ITR?
Best to file your ITR. You can check out https://zerodha.quicko.com/ for help.
Hi, Could you please update the article with respect to the present latest tax laws, since both LTT gains have started to be taxed at 10% and the income tax slabs have also changed. A follow up article to this will be great. And whether to choose type 1 or type 2 taxation can be addressed
LTCG is at 10% only above Rs 1lks of LTCG. Choose type 1 or type 2, will put up something.
Chapter 3.1
Under the head Speculative business income, total tax should be 12,500/- @ 5% instead of 25,000/-.
Why is this modules content not appearing on the app .
It will very soon.
Hi Sir,
I am a salaried employee and own only company stocks(and not selling them). I received the dividend this year. do I need to file ITR1 or ITR3?
ITR2
Dear Sir,
I had posted below on 22.09.2019 – but so far no answer from your side.
Please throw light on my below query.
Below is another link – where the ruling is that Currency trading is non-speculative.
https://indiankanoon.org/doc/164958681/
Appreciate your time and efforts.
BRgds,
S. Kumar
———————————————————————————————————————————————————————————————
S. Kumar says:
September 22, 2019 at 6:55 pm
Under 3.1 – Speculative Business income – it is said the currency derivative is also speculative business. However I find that at below links, it is argued that it is non-speculative business. Please clarify – which is correct ?
1. https://www.taxmann.com/topstories/101010000000178926/loss-arising-on-trading-in-currency-derivatives-isn%E2%80%99t-speculative-loss-to-be-set-off-against-business-income.aspx
2. https://taxguru.in/income-tax/profit-loss-from-trading-in-currency-derivatives-cannot-be-treated-as-speculative.html
BRgds,
S. Kumar
Hi Kumar, our opinion is that it is speculative. Only importers or exporters using currency derivatives as hedge can claim this as a business. But yeah, do consult a CA for this.
I have profits from
a) a number of short term delivery-based equity trades &
b) a few short-term equity mutual fund trades
I understand that a) has to be non-speculative business income.
Does b) too have to be declared as non-speculative business income or can i show it under STCG?
You can show b as STCG.
Hi,
I have been filing all my returns ON TIME BEFORE DUE DATE from last 3 years in ITR-2. And for the same years, i have been trading in shares and F&O where i am incurring loss in F&O for all 3 years. But i haven’t reported the same. Since I have filed all my ITR’s on time, Can i revise them, and Change the ITR form to ITR-3 to show the losses so that this year, where i made a profit in F&O, i can set-off the same. PLEASE GUIDE.
Also, for the past years of F&O losses, is there any compliance of getting the accounts audit or should i simply revise the return to ITR-3 and show the losses and set-off the same during CY.
Hey Sachin, the FY 18/19 returns, you can revise by July 31st 2020. Nothing you can do about the years before. You will have to check with a CA on the audit angle to this. Maybe reach out to https://zerodha.quicko.com/
Hi Nithin,
Quoting one of the statements in the lesson above ” If you are buying and selling stocks frequently (yes it is an open statement, but there is no rule which quantifies ‘frequent’) for shorter terms, it is best to declare that as non-speculative business income instead of STCG.”
My questions is ‘I am involved in Delivery based Equity Trading but I do not keep the shares more than 12 months with me. So, should I declare my gains as Non-speculative or STCG?’
Thanks,
Aditya
STCG.
Hi Nitin
I am a NRI who has not filled income tax till date as I had no income in india. I am now going to do F&O trades. So if I make profits in the F&O trade under which head should I file my profits from F&O – under personal income or business income
Would appreciate if we get the Excel sheet to compute Long term / Short Term Capital Gains from Tradebook entries.. Can you pls suggest / share any Link to download such Excel Sheet.
You can download the Tax P&L, has all details you need: https://console.zerodha.com/reports/taxpnl
Sir, just one question if i am a businessman,
And i continue for intra day, short term and long term trades. The gains on my short term trades will be classified as STCG and long term will be classified as LTGC. The gains on intra day will be added to my income and the tax will be paid on that total income.
If i don’t classify trading as my business income.
Hi Mohit Jain,
Yes, Gains will be classified as STCG,LTCG and Speculative Gains(Intraday) and taxes will be paid accordingly.
Hi Nithin,
Question 1
If I choose to classify myself as an investor rather than a trader And because of trading volume IT department chooses to classify me as a trader ( later during scrutiny ) , does this mean all my income from stocks ( LTCG , STCG AND even DIVIDENDS ) will get classified as business income and get taxed as per tax slab?
Currently ( FY 19-20 ) dividend income is free Till 10 lacs so this would mean a huge loss.
QUESTION 2
For calculating capitals gains we have to use FIFO but does this FIFO Apply to each individual demat account our collectively across all demat accounts ?
If it’s collectively across all demat accounts then P&L statement from brokers won’t offer much help if I have same shares in different accounts and sell some from all these different accounts at different times of the year.
Kindly clarify.
Thanks for Sharing all this valuable information.
Hi Suraj Gidwani,
Question 1
If I choose to classify myself as an investor rather than a trader And because of trading volume IT department chooses to classify me as a trader ( later during scrutiny ) , does this mean all my income from stocks ( LTCG , STCG AND even DIVIDENDS ) will get classified as business income and get taxed as per tax slab?
LTCG and STCG wil be treated as Business Income. Dividend upto 10 Lacs will be exempt.
QUESTION 2
For calculating capitals gains we have to use FIFO but does this FIFO Apply to each individual demat account our collectively across all demat accounts ?
FIFO is applicable to each individual demat account and not collectively across all demat accounts.
I had a doubt(wondering if this a calculation/printing mistake) if u see the tax slab sections in the article above :
For Non speculative income, the 2.5 lakh – 5 lakh tax slab/bracket is 5 % tax , while for speculative business income the same bracket is 10% tax
Wondering if this is correct ?
Hi Arpan,
I had a doubt(wondering if this a calculation/printing mistake) if u see the tax slab sections in the article above :
For Non speculative income, the 2.5 lakh – 5 lakh tax slab/bracket is 5 % tax , while for speculative business income the same bracket is 10% tax
Wondering if this is correct ?
It is printing mistake;for both speculative as well as non-speculative business income – it is 5% for 2.5Lcs to 5Lcs tax slab.
Sir,
One thing i want to know that ,if i am a trader and i have consider all My F&O(net) And Intraday sell value in my turnover calculation wether i should consider sale value of long term capital gain in turnover or i should show that in Capital gain?
Hi Hitesh,
If i am a trader and i have consider all my F&O(net) and Intraday sell value in my turnover calculation. Whether I should consider sale value of long term capital gain in turnover or I should show that in Capital gain?
You should not consider sale value of long term capital gain in turnover.
You need to declare the same as Capital Gains.
I have long term investment/s in shares which has grown to Rs. 15,00,000/- in the last 15 years or so. Now I am a retired pensioner. Filing IT Returns regularly ONLY For the Salaries / Pension + Interests on FDs received . Not disclosed investments or dividends which I thought were negligible.
But, Now the amount of investment is growing due to upbeat in Stocks.
How to show in ITR? What’s the Recourse? How to deal with it?
PL. give suggestion/s .
Thanks in advance.
R M VEL
Hi R M Vel Sir,
You need to mandatorily declare your investments only if your taxable income crosses Rs 50Lacs.
However you can voluntarily declare the details of Investments and other assets & liabilities under Schedule AL going forward.
Furthermore, declare your Dividend Income under Schedule EI – Details of Exempt Income.
For earlier years where you have already filed the return without declaring the Dividend Income.
You can file rectification return.
dear sir, i am a short term & long term delivery trader / investor (Confused), and intraday trader along with salaried employee. please suggest which ITR suitable to me. I got loss on intraday and minimum profits on delivery trading (<25000/-).
Hi Gandhi,
I am a short term & long term delivery trader / investor (Confused), and intraday trader along with salaried employee. please suggest which ITR suitable to me. I got loss on intraday and minimum profits on delivery trading (<25000/-).
Use ITR-3.
Declare Intraday under Schedule PL and Capital Gains under Schedule 112A and CG as applicable.
Dear Sir,
I’m doing equity delivery based trading only & frequently every month and I have been doing it since May 2020. My other sources of income are rent & bank interests amounting to around 1-2 lakhs. My trading falls under FY20-21. I wish to proceed BOTH as a trader with non speculative business income and an investor with LTCG. I would require ITR-3 when I do my Tax returns thus stating that trading(/investing) is my main source of income. My total income is currently in the slab 2.5-5 lakhs. Thus I realize that I have to maintain a Balance sheet (Assets – Liabilities = Net worth), P&L statement (Revenue – Expenses = Profit/Loss) and a Book of Accounts (One from Bank & the other from Broker). I’ve read your entire Module 7 and all chapters, and I couldn’t find answers to these questions directly on Google. Sorry for the long rant.
1 (Basic set of Questions): So do I pay tax for FY21 in this FY itself? Then what do we do during AY21? And for the Advanced Tax is it ok if I pay 75% of it directly by March 15th 2021 (& 100% consequently by March 31st 2021) TO AVOID THE PENALTY? Or can I pay it in 3 parts? Or must I pay it in the actual 4 parts? (coz I’ve missed the June and September payment dates & might miss December as well !)
2. Turnover & Audit Related doubts: [This doubt came from Module 7, Chapter 6, Key Takeaways:].
My turnover wouldn’t reach the 5 Crore mark ever and so let that be the case in the following scenarios. I realize that if my total income from all sources < 2.5 lakhs I don’t have to pay any tax & don’t need any Audit. My profit is currently MORE than 6% of turnover. So I still would not need any audit. I would like to ask my doubts in this manner:
[ALL CASES TURNOVER< 5 CRORES]
Is Audit required if:
i) Profit < 6% & Total Income < basic exemption limit 2.5 lakhs (No ?)
ii) Profit basic exemption limit 2.5 lakhs (Yes?)
iii) Profit > 6% & Total Income 6% & Total Income > basic exemption limit 2.5 lakhs (No ?)
The last one being my most important question. It would be a relief if the answer is NO. And also confusing as to why there wouldn’t be any auditing required if total income is more than basic exemption limits. So traders who don’t make enough profits (6%) don’t require an audit.
3. Tax Slab Doubts: [This doubt came from Module 7, Chapter 3, Pros & Cons of declaring Trading as Business income:]
I have to pay low tax of 0%/5% if my total income is upto 2.5 lakhs/5 lakhs respectively (and can also get the 12,500 rebate in case of the latter). But let’s say I choose to declare all my trading as STCG only:
i) If my TOTAL income is < 2.5 lakhs, do I still have to pay the flat 15% on STCG (No ?)
ii) If my TOTAL income is 2 lakhs from other sources & 2.5 lakhs from trading then how does it work? Which 2.5 lakhs gets exempted? How do I pay 15% on the 2.5 lakhs ?
iii)The same question for higher slabs… 4 lakhs from other sources & 4.5 lakhs from trading … in the new regime slabs preferably.
4. Going back to questions 2., why is it that some places mention it as 8% and not as 6%. Old regime 8% and new regime 6% ?
Hi Anish Christo,
(Basic set of Questions):
AA] So do I pay tax for FY21 in this FY itself? – Tax can be paid either in the form of Advance Tax or Self-Assessment Tax.
Advance Tax is in FY itself over four quarters. Self-Assessment Tax is paid at the time of return filing i.e after closure of FY.
BB] Then what do we do during AY21? – As said above, we usually pay self-assessment tax.
CC] For the Advanced Tax is it ok if I pay 75% of it directly by March 15th 2021 (& 100% consequently by March 31st 2021) TO AVOID THE PENALTY? Or can I pay it in 3 parts? Or must I pay it in the actual 4 parts? (because I’ve missed the June and September payment dates & might miss December as well !)
You need to pay in 4 installments to avoid INTEREST. Missing of each installments attract INTEREST, if applicable.
Also please note that Advance Tax is applicable only if your tax liability is more than Rs 10000/-.
Hi Anish Christo,
Turnover & Audit Related doubts: [This doubt came from Module 7, Chapter 6, Key Takeaways:].
My turnover wouldn’t reach the 5 Crore mark ever and so let that be the case in the following scenarios. I realize that if my total income from all sources < 2.5 lakhs I don’t have to pay any tax & don’t need any Audit. My profit is currently MORE than 6% of turnover. So I still would not need any audit. I would like to ask my doubts in this manner:
[ALL CASES TURNOVER< 5 CRORES]
Is Audit required if:
AA] Profit < 6% & Total Income 6% & Total Income 6% & Total Income > basic exemption limit 2.5 lakhs (No ?) – No Audit is required.
The last one being my most important question. It would be a relief if the answer is NO. And also confusing as to why there wouldn’t be any auditing required if total income is more than basic exemption limits. So traders who don’t make enough profits (6%) don’t require an audit.
Traders who don’t make enough profits require Audit only if turnover crosses the threshold limit of Rs 5 Crore.
Eg: Turnover is Rs 6 Crore; Profit is Rs 25Lacs(5%) – then Audit is applicable.
Audit is required if your profit is less than 6% in the below scenario:
Suppose, if you had FNO or Business Income for any previous years and you were declaring under presumptive scheme under section 44AD; (meaning currently you are in presumptive scheme upto FY 2019-20)
AND now if you are opting OUT of presumptive scheme in FY 2020-21 and your FNO or Business Income is less than 6%(meaning either in loss or in profits less than 6%) but total income is greater than basic exemption limit; then you have maintain books of accounts and Tax Audit is applicable
Ok sir, I got it. So a 4 Crore turnover with 28 lakhs profit (7%) would not require an audit. Thank you 🙂
Hi Anish Christo,
Tax Slab Doubts: [This doubt came from Module 7, Chapter 3, Pros & Cons of declaring Trading as Business income:]
I have to pay low tax of 0% or 5% if my total income is upto 2.5 lakhs/5 lakhs respectively (and can also get the 12,500 rebate in case of the latter). But let’s say I choose to declare all my trading as STCG only:
AA] If my TOTAL income is < 2.5 lakhs, do I still have to pay the flat 15% on STCG (No?) = No need to pay tax as total incomes is below the threshold limit.
BB] If my TOTAL income is 2 lakhs from other sources & 2.5 lakhs from trading then how does it work? Which 2.5 lakhs gets exempted? How do I pay 15% on the 2.5 lakhs? = 2Lacs of other sources and 50K of STCG gets exempted. Further, you need to pay 15% on balance 2Lacs of STCG.
CC] The same question for higher slabs… 4 lakhs from other sources & 4.5 lakhs from trading … in the new regime slabs preferably – Since tax rate is 5% upto Rs 5Lacs; 2.5Lacsof other sources gets exemption benefit. On remaining Rs 1.5 Lacs – 5% tax is payable.
AND on Rs 4.5Lacs of STCG – 15% flat tax is payable.
Hi Anish Christo,
Going back to questions 2., why is it that some places mention it as 8% and not as 6%. Old regime 8% and new regime 6%?
6% presumptive income is for 100% digital transactions.
8% presumptive income is for any mode other than digital or electronic transactions. Eg: Cash
Hi Anish Christo,
4 Crore turnover with 28 lakhs profit (7%) would not require an audit – Yes no audit is required as turnover is less than 5 Crores.
In context of taxation,
1) How will the dividend income classified after 1st April 2020, is it going to be non-speculative business income?
2) Can the dividend income be offset against Short term capital loss (if i classify this loss as non-speculative business income/loss)
Hi Kshitij Goel,
AA] How will the dividend income classified after 1st April 2020, is it going to be non-speculative business income? – No, it will be treated as “Income from Other Sources”
BB] Can the dividend income be offset against Short term capital loss (if i classify this loss as non-speculative business income/loss) – No, Dividend cannot be set off against Short Term Capital Loss. It can be set off against current year Loss from House Property and current year business loss.
Hi
A very useful module .. Few doubts –
1) You said that a person has to decide for himself whether he is trader or investor and then continue the same for subsequent yrs. Does that mean he can not change his status ? For e.g if one is new to the field of share market , he may start with Long term trades but slowly as he matures , he may go into intra day . So how can that be managed ?
2) Does Zerodha give any indication to the customers from console on which category of ITR they should be considering after seeing the entire trading activity for a given FY.
Hi Himanshu,
AA] You said that a person has to decide for himself whether he is trader or investor and then continue the same for subsequent yrs. Does that mean he can not change his status ? For e.g if one is new to the field of share market , he may start with Long term trades but slowly as he matures , he may go into intra day . So how can that be managed ?
All intraday transactions comes under Speculative Category, which falls mandatorily under the Business (Income)Head itself.
This will be for Long Term and Short Term trades…Please go through this circular…https://www.incometaxindia.gov.in/communications/circular/910110000000000316.htm
BB] Does Zerodha give any indication to the customers from console on which category of ITR they should be considering after seeing the entire trading activity for a given FY – No.
1lk means 10 crores?
Hi Chirag,
1lk means 10 crores?
It means 1 Lacs (Rs 1,00,000/-).
Does it hold true in 2020 too … I wanted my CA to file STCG as a business income(first time trading) but he seems confused… Is it not a norm any longer .. Since I am a NRI with frequent and BTSTs generally so my STCG is huge and I have to pay 15%TDS with no exemption
Hi Rahul,
Does it hold true in 2020 too … I wanted my CA to file STCG as a business income(first time trading) but he seems confused… Is it not a norm any longer .. Since I am a NRI with frequent and BTSTs generally so my STCG is huge and I have to pay 15%TDS with no exemption.
There are both schools of thought, one which considers it to be speculative because no delivery was taken and other considers it as non-speculative/STCG as the exchange itself charges the security transaction tax (STT) for BTST trades similar to regular delivery based trades. A factor to consider is if such BTST trades are done just a few times in the year show it as STCG, but if done frequently it is best to show it as speculative business income.
If you show it as Business Income – you need to continue the same for future years also.
Please go through this circular..http://www.incometaxindia.gov.in/communications/circular/910110000000000316.htm.
Also https://www.incometaxindia.gov.in/communications/circular/circular-no-6.pdf
Hi Rahul,
Does it hold true in 2020 too … I wanted my CA to file STCG as a business income(first time trading) but he seems confused… Is it not a norm any longer .. Since I am a NRI with frequent and BTSTs generally so my STCG is huge and I have to pay 15%TDS with no exemption
With regards to BTST, there are both schools of thought; one which considers it to be speculative because no delivery was taken and the second school considers it as non-speculative/STCG as the exchange itself charges the security transaction tax (STT) for BTST trades similar to regular delivery based trades.
A factor to consider is if such BTST trades are done just a few times in the year show it as STCG, but if done frequently it is best to show it as speculative business income.
If you are showing STCG as business income, you need to continue the same in subsequent years as well.
Please go through these circulars for better understanding…https://www.incometaxindia.gov.in/communications/circular/910110000000000316.htm
https://www.incometaxindia.gov.in/communications/circular/circular-no-6.pdf
My doubt is related to the choice between two tax regime.
As per my knowledge one can choose anyone tax regime as per his comfort unless who have income from business and profession(ges only one chance to change).
so If a salaried person declares himself as trader and declares the profit under speculative business income then will he got the option to choose the tax regime every year or not.
Sir,
What will be the turnover considered for futures currency and equity? Margin amount or Full Value?
E.g. USD INR futures is of 1000 (₹71000/-)USD but margin is lower of ₹1834/- around.
Hi Venketesh Patro,
As per my knowledge one can choose anyone tax regime as per his comfort unless who have income from business and profession(gets only one chance to change). So If a salaried person declares himself as trader and declares the profit under speculative business income then will he got the option to choose the tax regime every year or not.
Yes, Individuals having business income are not eligible to choose between the existing tax regime and new tax regime every year. This would mean that Individuals would be eligible to switch between new tax regime and old tax regime as per their convenience every year provided they don’t have business income.
Sir,
Iam a salaried person. Recently I started trading in share maket, mainly in short term equity and F&O segment. Turnover slightly high.
Please guide which IT FORM is suitable for me?
Hi Sudhir Gangwal,
Iam a salaried person. Recently I started trading in share maket, mainly in short term equity and F&O segment. Turnover slightly high.
Please guide which IT FORM is suitable for me?
ITR-3 is applicable for you. Declare Salary Income under Schedule S, Capital Gains under Schedule CG and 112A as applicable and F&O Income under Schedule PL.
Hello nitin sir,
just one query, what if i trade on my companies account?
is there any tax exemptions?
Hi Manish Brahma,
What if I trade on my companies account?
Is there any tax exemptions?
There are no tax exemptions. However a company has an option to pay tax @ 22% plus 10% surcharge on tax and 4% cess – (effective rate being 25.17%) on business income.
Hi sir , my income is now 5 Lakh per annum and the 2.5 lakh taxable income was exempted by my LIC policies , heath insurance etc. so i pay 0 tax now. Recently, I have traded in Futures and Options and I am in losses. Please clarify my queries .
1) Since I am in losses , my taxable income slab rate will be same as for 5Lakh per annum right ?
2) If I make any profits in F&O ( Speculative business income ) , my income slab rate is changed to 5L – 10 L and I have to pay 20% of my income ( salary + profits ) right ? ( Since any profit added to my 5 lakh salary comes under 5 – 10 Lakh category )
Hi Yash,
My income is now 5 Lakh per annum and the 2.5 lakh taxable income was exempted by my LIC policies , heath insurance etc. so I pay 0 tax now. Recently, I have traded in Futures and Options and I am in losses. Please clarify my queries .
AA] Since I am in losses, my taxable income slab rate will be same as for 5 Lakh per annum right? = FNO losses can be set off all incomes except Salary Income. Your tax slab depends upon the taxable income.
BB] If I make any profits in F&O ( Speculative business income ) , my income slab rate is changed to 5L – 10 L and I have to pay 20% of my income ( salary + profits ) right ? ( Since any profit added to my 5 lakh salary comes under 5 – 10 Lakh category)
FNO Income is regular business income; it is not speculative business income. Both speculative gains and FNO income are taxed as per normal slab rates. If salary income and FNO income falls between 5L and 10L; you need to pay tax @ 20% for incomes exceeding 5L.
Q1. Suppose someone is sarlaried(income more than 5,00,000 rs) and person is trading. So any profits from trading will be taxed at atleast 20%(income tax slab) if the person classifies it as business income. Isn’t it better to classify it as stcg as it will be taxed at 15%?
HI Divyanshu Shekhar,
Suppose someone is salaried(income more than 5,00,000 rs) and person is trading. So any profits from trading will be taxed at atleast 20%(income tax slab) if the person classifies it as business income. Isn’t it better to classify it as stcg as it will be taxed at 15%?
Assume you are trading in delivery based trades, you can classify it as STCG.
Once classified as STCG, you need to continue the same in subsequent years as well.
Hi, always had a doubt on LTCG, let’s say I have invested 20lac over the period of 20 years in equity mf and I received 60 lac after that, so how will LTCG will be calculated? Is it like 60l-20l= 40l so average would be 2 lac per year and since 1lac is exempted so effective would be 10k on 1l per year. Is that correct, that sounds so simple.
Hi Dheeraj,
Let’s say I have invested 20lac over the period of 20 years in equity mf and I received 60 lac after that, so how will LTCG will be calculated? Is it like 60l-20l= 40l so average would be 2 lac per year and since 1lac is exempted so effective would be 10k on 1l per year. Is that correct, that sounds so simple?
LTCG will be applicable in the year of sale i.e on realized gains and not on accrual basis.
LTCG will be calculated as follows: 60Lacs – 20 Lacs = 40 Lacs LTCG.
You need to pay 10% tax on 39 Lacs. You cannot claim 1 Lac exemption every year over the period of holding.
Hi Nitin,
About the claiming expenses- if i bought a yearly subscription of business magazines, stock reports+ etc are these kind of expense can be used as a deduction and how much is the limit of it.
let me know if I’m right -apart from the STT , charges like DP and transaction charges can be claimed in ITR
Thank You
Hi Vibhor,
About the claiming expenses- if I bought a yearly subscription of business magazines, stock reports+ etc are these kind of expense can be used as a deduction and how much is the limit of it – Yes, you can claim all the expenses attributable to sale; There is no such limit prescribed in income tax. You can claim if it is attributable to sale.
let me know if I’m right -apart from
the STT , charges like DP and transaction charges can be claimed in ITR? – Yes, you can claim DP charges and transaction charges.
If you can claim STT as well; if you are treating the gains as business income.
Thanks Buddy…(Sans)
Appreciate your help….. 🙂
I purchased Sovereign gold bonds and Tata Capital bomds and sold them . How will the tax be payable on capital gains in both cases.
You have mentioned that equity derivatives are cash settled in India. This is changed wrt October 2019 expiry derivates, they are now physically settled.
Hi
> Thankfully one thing that the circular clarified was that you can be a trader and investor both at the same time. So you can have stocks meant as an investment for the long term, and stocks meant for shorter-term trades.
> But stay consistent with the way you classify yourself, don’t keep switching between being an investor or trader to declare your equity short term trades
These 2 statements sound contradicting to me. If I can be both at same time, why do I need to worry about switching? What will happen if I keep switching. It’s not illegal or something?
2nd question. Since I am using 44AD, if my STCG are 1.5 Lakh, does it mean, my tax will be 30% of (6% of 1.5 Lakh) = 2700 Only? It seems much less than 15% (22,500)?
Hi Sir,
Excellent explanation.
1)I am a salaried person and I do trading, both intraday and delivery based. How should I declare myself. As a trader or an Investor?
2)I trade equity – delivery based and intraday. Trade in Currencies as well as F&O. Which form should I use to file my ITR?
Hey Nitin, I have done trades like buying and selling stocks after few days. So Where would that income count, STCG or non-speculative business Income. Do I separately have to file a return if my net income this year is less than 2.5Lakh including all sources?
Hi Harsh,
I have done trades like buying and selling stocks after few days. So Where would that income count, STCG or non-speculative business Income. Do I separately have to file a return if my net income this year is less than 2.5Lakh including all sources?
If you have sold shares after few days – it will come under STCG.
It is optional if your overall income is less than 2.5 Lacs.
Very good effort, nice information which is very useful and ease to understand.
the first thing i went through zerodha varsity was on taxation .thankyou verry much for a detailed article.
can i switch my zerodha account on my wifes pan and name as she is unemployed.
at the most i might receive very little income from my long term cap gain investments ,and so why unneccesarily go thru the cumbersome it return process,,if i can switch trading account on her name.please reply.
G karthikeyan
Hi G Karthikeyan,
Can i switch my zerodha account on my wifes pan and name as she is unemployed.
at the most i might receive very little income from my long term cap gain investments ,and so why unneccesarily go thru the cumbersome it return process,,if i can switch trading account on her name.
You can open a Zerodha account in your spouse’s name and transfer all the shares via DIS (Delivery Instruction Slip) or you can gift it to her.
Post transfer or gifting – you can close your demat.
More about DIS…https://support.zerodha.com/category/your-zerodha-account/transfer-of-shares-and-conversion-of-shares/articles/how-to-transfer-shares-from-my-zerodha-demat-account-to-another-demat-account…
More about Gifting…https://support.zerodha.com/category/your-zerodha-account/transfer-of-shares-and-conversion-of-shares/articles/gift-shares
If one incurs any non-speculative F&O trading loss, this can be set-off against any income other than salary. For example, if I incur Rs 5,00,000 loss in trading F&O and my other income (like rent & interest, excluding salary) is Rs 10,00,000, I will have to pay tax only on Rs 5,00,000
1. Over here can my other income be a short or a long term capital gain?
2. If my other income in say 2,00,000 and the loss incurred in F&O is 3,00,000 , then do i pay tax or no?
Hi Nikhil Sandesh Dugad,
AA] If one incurs any non-speculative F&O trading loss, this can be set-off against any income other than salary. For example, if I incur Rs 5,00,000 loss in trading F&O and my other income (like rent & interest, excluding salary) is Rs 10,00,000, I will have to pay tax only on Rs 5,00,000.
Yes, current year FNO trading loss can be set off against all incomes except Salary. Going by your example – you need to pay on ₹5Lacs.
BB] If my other income in say 2,00,000 and the loss incurred in F&O is 3,00,000 , then do i pay tax or no?
No need to tax pay and you can carry forward of ₹ 1 Lacs.
Hi sir,
in paragraph 3.3 you said, “it is best to declare that as non-speculative business income instead of STCG.”
& you also said that ‘non-speculative’ income is what comes from Trading futures & options’
My question is if i bought equity & sold it within year , technically it will become STCG. Then how can i declare it as ‘non-speculative buisness income’. Because as you said, simply it doesnt fall under trading futures & options category.confused.
Sir i am a new intraday & f&O trader.I started trading last year.I have made losses as well as profits but my overall return is positive which is less than 1 lakh for that financial year.My overall trading turnover is above 2 cr but my profit is less than 1 lakh.
Sir so my question to you is,do i need to go for an audit and tax filling ?
P.S.:I am a student and i don’t have any other source of income.
Sir i am a new intraday & f&O trader.I started trading last year.I have made losses as well as profits but my overall return is positive which is less than 1 lakh for that financial year.My overall trading turnover is above 2 cr but my profit is less than 1 lakh.
Sir so my question to you is,do i need to go for an audit and tax filling
P.S.:I am a student and i don’t have any other source of income.
Hi Ashish,
I am a new intraday & f&O trader. I started trading last year. I have made losses as well as profits but my overall return is positive which is less than 1 lakh for that financial year. My overall trading turnover is above 2 cr but my profit is less than 1 lakh.
Sir so my question to you is, do i need to go for an audit and tax filling.
Audit is not applicable as your turnover is less than the threshold limit.
Namaste Sir,
Assume I am am an investor.
1)
Lets say I buy 100 shares of HDFC bank on Jan 1 2021 and again 100 shares of HDFC bank June 1 2021.
Now on Decemeber 1 I decide to sell 100 shares and carry forward 100 shares of HDFC.
a)Which shares would get sold?
b)I would like my 100 shares that I bought in June to get sold so that I could get Long term status on the Jan shares in a few months??
c)Is there a way to do this?
2) Lets say I have a salary of 50 Lakh a year which put me in the 30% slab. I also gain 20 lakh a year from Selling Long term shares and short term shares.
a) After I pay STCG of 15% or LTCG of 10 % over 1 lakh, do I need to pay additional tax of 30% on my Long Term/Short term gains??
b) If I have 10L gain of trading F/O. There is no LTCG/STCG for F/O correct? So this gets added to my salary income of 50L to make 60L overall income ?
Hi Peruit,
1] Lets say I buy 100 shares of HDFC bank on Jan 1 2021 and again 100 shares of HDFC bank June 1 2021.
Now on December 1 I decide to sell 100 shares and carry forward 100 shares of HDFC.
AA] Which shares would get sold? – Shares purchased on 1st Jan 2021 will be sold based on FIFO(First in First Out Basis)
BB] I would like my 100 shares that I bought in June to get sold so that I could get Long term status on the Jan shares in a few months?? – FIFO Method is followed; hence shares purchased on 1st Jan 2021 will be sold first.
CC] Is there a way to do this? – You need to have two different folios i.e two different demats.
2] Lets say I have a salary of 50 Lakh a year which put me in the 30% slab. I also gain 20 lakh a year from Selling Long term shares and short term shares.
AA] After I pay STCG of 15% or LTCG of 10 % over 1 lakh, do I need to pay additional tax of 30% on my Long Term/Short term gains?? – No need to pay additional tax of 30% on LTCG/STCG.
BB] If I have 10 Lacs gain of trading FNO. There is no LTCG/STCG for FNO correct? So this gets added to my salary income of 50L to make 60L overall income ? – Yes, there is no LTCG and STCG for FNO(derivatives) Income. FNO Income of 10 Lacs will be added to Salary Income of 50 Lacs and tax will be paid accordingly.
Hello Sir,
Lets say I have no additional source of income and my only income is from trading. I have a capital of 30 L.
Now I earn roughly 12L via short term trades and pay 15 % STCG and I earn 10L from LTCG. I pay 10% on 9 L for LTCG.
So is that my total taxation?? I don’t have to pay any other form income tax? After I pay STCG and LTCG??
Lets say I trade F/O and earn some money in that. Then I automatically get put in the 30% bracket for f/o cause my income is so high??
Why would it be better to classify my short term trades as a business income than STCG? There must be a limit to the expenses I can account for. But it is much cheaper to pay 15% than 30% tax based on the tax bracket correct?
Could you please assist me?
Hello sir,
Could someone please respond to my query?? Thank you
Let’s say I have no additional source of income and my only income is from trading. I have a capital of 30 L.
Now I earn roughly 12L via short term trades and pay 15 % STCG and I earn 10L from LTCG. I pay 10% on 9 L for LTCG.
So is that my total taxation?? I don’t have to pay any other form income tax? After I pay STCG and LTCG??
Lets say I trade F/O and earn some money in that. Then I automatically get put in the 30% bracket for f/o cause my income is so high??
Why would it be better to classify my short term trades as a business income than STCG? There must be a limit to the expenses I can account for. But it is much cheaper to pay 15% than 30% tax based on the tax bracket correct?
Hi K Mahajan,
AA] Lets say I have no additional source of income and my only income is from trading. I have a capital of 30 L.
Now I earn roughly 12L via short term trades and pay 15 % STCG and I earn 10L from LTCG. I pay 10% on 9 L for LTCG.
So is that my total taxation?? I don’t have to pay any other form income tax? After I pay STCG and LTCG??
Yes, no need to pay any tax after you pay tax on STCG and LTCG @ applicable rates.
BB] Lets say I trade F/O and earn some money in that. Then I automatically get put in the 30% bracket for f/o cause my income is so high??
FNO Income falls under the head Business Income; It is taxable as per the applicable slab rates. If you opt for old regime of taxation and your taxable income crosses 10 Lacs; income above 10 Lacs is taxed @ 30%.
CC] Why would it be better to classify my short term trades as a business income than STCG? There must be a limit to the expenses I can account for. But it is much cheaper to pay 15% than 30% tax based on the tax bracket correct?
It is one’s individual choice; if you classify short term trades as business income – you need to continue the same in future years as well.
Please refer this circular…https://www.incometaxindia.gov.in/communications/circular/circular-no-6.pdf
Hi..sir, I am a first time tax return filler, would be grateful if u would suggest me better options.
1. I have a salaried account and my salary slip is generated from last year only.
2. I started investing last year only and it’s been around 8 months till date.
3. l have 1 or 2 intraday trades
4. I have realised loss in some trades
5. I have unrealized profits too and have stocks in my holdings and one year is not completed yet.
Now suggest me if u can in filling returns 🙂🙂
Hi ,
I wanted a little clarity on the Non-Speculative Losses ( F & O ) Carried Forward since I am pretty new to the shares and of-course I have losses. 🙁
It is mentioned that the losses can be carried forward for 8 years but the losses in forwards years can be set off against gains from Non-Speculative Losses, or better yet it is represented that “Losses of F&O as a Trader” as ‘ No’ for subsequent years under the table.
However when trying to file with Quicko and even their learning module did mention that Non-Speculative losses can be set off against Speculative ( Equity Intra Day ) & Non – Speculative.
Can you kindly clarify on this particular part ? Also, Is there a specific reason to put ‘as a Trader’ in the table like that is applicable for trader declaring their losses under Capital Gains not Business Income ? But ‘Both’ can set off losses of Non-Speculative against Speculative & Non – Speculative.
Abhishek Pani,
Hi..sir, I am a first time tax return filler, would be grateful if u would suggest me better options.
1. I have a salaried account and my salary slip is generated from last year only.
2. I started investing last year only and it’s been around 8 months till date.
3. l have 1 or 2 intraday trades
4. I have realised loss in some trades
5. I have unrealized profits too and have stocks in my holdings and one year is not completed yet.
Now suggest me if u can in filling returns 🙂🙂
Applicable Income Tax form is ITR-3.
Declare Salary details under Schedule S, Intraday details under Schedule PL and Capital Gains(Realized Loss) under Schedule CG.
You can also check this..https://quicko.com/
Hi Vikram Singh,
A] It is mentioned that the losses can be carried forward for 8 years but the losses in forwards years can be set off against gains from Non-Speculative Losses, or better yet it is represented that “Losses of F&O as a Trader” as ‘ No’ for subsequent years under the table.
Yes, current year non-speculative losses/FNO loss/Business loss can be set off against all other heads of income except Salary. Carry forward non-speculative losses/FNO loss/Business loss can be set off against ONLY non-speculative income/FNO income/business income.
B] However when trying to file with Quicko and even their learning module did mention that Non-Speculative losses can be set off against Speculative ( Equity Intra Day ) & Non – Speculative. Can you kindly clarify on this particular part ?
As mentioned current year non-speculative loss can be set off against all heads of income except Salary. So, current year non-speculative can be set off against speculative/intraday gains.
C] Also, Is there a specific reason to put ‘as a Trader’ in the table like that is applicable for trader declaring their losses under Capital Gains not Business Income ? But ‘Both’ can set off losses of Non-Speculative against Speculative & Non – Speculative.
Here, non-speculative income refers to FNO Income or such capital gains being treated as Business Income.
Short Term Capital Loss can be set off STCG and LTCG. However Long Term Capital Loss can be set off against only LTCG.
Hi San,
Thank you for the kind clarification. However, I apologies that I didn’t provide clear context in ” B] However when trying to file with Quicko and even their learning module did mention that Non-Speculative losses can be set off against Speculative ( Equity Intra Day ) & Non – Speculative. Can you kindly clarify on this particular part ?
As mentioned current year non-speculative loss can be set off against all heads of income except Salary. So, current year non-speculative can be set off against speculative/intraday gains. ”
What I meant was that even in carry forward years in Quicko mentioned that the Non-Speculative Losses can be set off-against Speculative & Non Speculative . Please find the link of the time the particular scenario is mentioned : https://youtu.be/7Fak8Q96npk?t=334
I wanted to know if there is a discrepancy as that will help me determine preferred Tax Partner. 🙂
Secondly :
” A] It is mentioned that the losses can be carried forward for 8 years but the losses in forwards years can be set off against gains from Non-Speculative Losses, or better yet it is represented that “Losses of F&O as a Trader” as ‘ No’ for subsequent years under the table.
Yes, current year non-speculative losses/FNO loss/Business loss can be set off against all other heads of income except Salary. Carry forward non-speculative losses/FNO loss/Business loss can be set off against ONLY non-speculative income/FNO income/business income. ”
Also If we just say “Business Loss” / ” Business Income ” , Do you mean Both Speculative & Non-Speculative combined together, unless specified like ”non-speculative income/FNO income/business income” ? This might be a repetitive question depending on the previous question .
Thank you for bearing with me.
Hello!!
Can I declare gain or profit earned by investing in stocks holding for more than 1 day and selling them within 12 months from date of purchase (and doing it frequently) as non-speculative business income instead of STCG?
Hi Chirag,
yes, you can do declare as non-speculative business income; but you need to maintain consistency – you should declare the same in future years as well.
Hi Vikram Singh,
However, I apologies that I didn’t provide clear context in ” B] However when trying to file with Quicko and even their learning module did mention that Non-Speculative losses can be set off against Speculative ( Equity Intra Day ) & Non – Speculative. Can you kindly clarify on this particular part ?
What I meant was that even in carry forward years in Quicko mentioned that the Non-Speculative Losses can be set off-against Speculative & Non Speculative . Please find the link of the time the particular scenario is mentioned : https://youtu.be/7Fak8Q96npk?t=334
I wanted to know if there is a discrepancy as that will help me determine preferred Tax Partner. 🙂
The info mentioned in the link is correct. This will clear your doubts.
Current Business Loss can be set off against all incomes except salary. Carry forward business loss can be set off against only the head Profits and Gains from Business or Profession (PGBP).
PGBP head includes both non speculative income(FNO Income) as well speculative income(Intraday).
So, carry forward business loss/FNO loss can be set off against non speculative income(FNO Income) as well speculative income(Intraday).
I invest in short term, and sell/buy roughly 5-6 times a month, should I declare myself as investor or business? I’m a salaried individual in a 30% tax category.
Hi Prince,
I invest in short term, and sell/buy roughly 5-6 times a month, should I declare myself as investor or business? I’m a salaried individual in a 30% tax category.
As said above, there is no rule which quantifies ‘frequent’ for shorter terms, it is best to declare that business income instead of STCG.
Nithin,
I didn’t get this statement of yours that you’ve mentioned under “low tax”.
“and now even if less than Rs.500,000/- effectively one has to pay zero tax as you can avail a rebate if total income less than Rs 5lks.”
There’s a 5% tax on the amount that exceeds 2.5lks right ? So how can one avail a tax rebate ?
Thanks in advance and you guys are doing a fabulous job in building our nation.
Sir ,
I have been doing equity based delivery investment for some nonths . I want to clear my doubt — when I calculate short Term Capital Gain tax ; in expenses for the transfer of shares, should I deduct the brokerage cost at the time of purchasing the share or the cost of selling the share or adding both the cost of purchasing and selling the share ?
Can I get the deduction of STT in Short term Capital Gain Tax? Please answer.
Hi Harsha,
I didn’t get this statement of yours that you’ve mentioned under “low tax”.
“and now even if less than Rs.500,000/- effectively one has to pay zero tax as you can avail a rebate if total income less than Rs 5lks.”
There’s a 5% tax on the amount that exceeds 2.5lks right ? So how can one avail a tax rebate ?
Yes, there is 5% tax; for incomes between 2.5Lacs to 5 Lacs.
Rebate is automatically applied if your income is less than 5 Lacs and max rebate is allowed is ₹12.5K.
Not in every case, if your income is less than 5 Lacs – one has to pay to zero tax.
Suppose, you have STCG taxable @ 15% – you will get max rebate of ₹12.5K and you have to pay the balance tax.
Hi Partha Goswami,
I have been doing equity based delivery investment for some months .
I want to clear my doubt — when I calculate short Term Capital Gain tax ; in expenses for the transfer of shares, should I deduct the brokerage cost at the time of purchasing the share or the cost of selling the share or adding both the cost of purchasing and selling the share ?
Can I get the deduction of STT in Short term Capital Gain Tax?
In case of STCG – you can deduct all the expense relating to sale like brokerage, demat transaction charges, SEBI fees etc.., except STT.
How is the profit/loss from Margin trading (T+365 days) is considered for taxation? Can we treat this as STCG?
Can we offset loss from F&O against the salary income?
As per the article, during the next 8 years of carry forwarding F&O Losses, this loss can be set-off against any other business gain (non-speculative business income). But as per the summary table, it says “No” for set-off under any other head. Request you to advice. Is it a typo error or my understanding mistake?
Hi
I do swing trading and income from that is considered as Stcg
What will be the tax amount if my income from swing trading is 6 lakh and i dont have any other income sources?
Will it be flat 15% or will i get 2.5lakh exemption?
My wife is doing both trading and investment. But she doesn’t have any source of income. Can she file ITR or these incomes has to added to my income?
Excellent article. Many thanks!
Do we have to pay LTCG/STCG if we fall under 5 lakh tax slab ?
liked this topic and thanks have a couple of quick questions :
1 Not sure if Tax get deducted at source ?
B) When do we have to pay the tax on profits
C) what about the losses, I make a profit of Rs 1 Lakh and a loss of Rs 75000/- what amount of loss can be adjusted ?
2) Does Zerodha provide the MIS of profits/losses in a FY ? ie can a user get the amounts of profit , STCG , LTCG etc at any point in time in his login?
Tax on LTCG at 10% exceeding Rs 1 Lac
What about STCG ..?
What’s is it’s Tax liable exceeding amount ?!
It didn’t specified.
Hi Ravi VS
1] Not sure if Tax get deducted at source ?
The broker won’t deduct any TDS (Tax Deducted on Source) on the gains earned.
BB] When do we have to pay the tax on profits?
You need to pay tax on net profits earned during the financial year.
CC] what about the losses, I make a profit of Rs 1 Lakh and a loss of Rs 75000/- what amount of loss can be adjusted ?
That depends on the type of gain earned.
Long Term Capital Loss can be set off against only LTCG.
Short Term Capital Losses can be set off against both
LTCG n STCG.
Current year FNO Loss can be set off against STCG/LTCG and FNO Income.
2) Does Zerodha provide the MIS of profits/losses in a FY ? ie can a user get the amounts of profit , STCG , LTCG etc at any point in time in his login?
Yes, Zerodha provides the reports. Check in console.zerodha.com
Hi Rakeeb Haja,
Tax on LTCG at 10% exceeding Rs 1 Lac
What about STCG ..? What’s is it’s Tax liable exceeding amount ?!
For STCG, there is no such exemption limit – you have to pay even you if earn Re 1.
Hello sir ,I am 18 and I have just started trading with my savings and scholarship money ,so profits are my only taxable income right?
But if my net profit is not above 2.5 Lakhs ,am I eligible to taxation?
Can F&O losses be set off against LTCG or STCG or intraday gains?
Hi Pranav Dharmadhikari,
Hello sir ,I am 18 and I have just started trading with my savings and scholarship money ,so profits are my only taxable income right?
But if my net profit is not above 2.5 Lakhs ,am I eligible to taxation?
Yes, only the profits are taxed.
Income upto 2.5 Lacs is exempt. So no need to pay tax.
Hi Adit,
Can F&O losses be set off against LTCG or STCG or intraday gains?
Current year F&O losses/non speculative business loss can be set off against all incomes except salary.
Carry forward F&O losses/non speculative business loss can be set off against only F&O income/non speculative business income.
Lekin share market ka tax kaha pe jama krwana h kis office mai jakr tax pay kre
Effective FY21 and onwards, any dividend income from shares of an Indian company is taxable in India. If a shareholder qualifies as a ‘non-resident’ in India under the India income tax law, the dividend income is taxable at 20% plus applicable surcharge and 4% health and education cess on gross basis.
And it is deducted as TDS . Please guide us.
Sir , great article . I want to know if I gain 50 k in stock trading and 1 lakh loss in fno . Can I claim a loss of 50k and carry forward
Thx
Nitin
If one wants to aggregate all his trading income under business income – say for example income from short term trading in equity (excluding intra day ) and income from trading in derivatives, is that allowed. This is will help to set of the loss from F & O trading against any short term trading from shares
Now That Zerodha has launched Quicko ( Tax Filing app)?
will it help in ITR-3 filling for F&O as speculative business income, i guess that is a bit difficult to do by yourself
Hi
Thank you for the amazing article.
What about the intra-day trades in F&O. Will they be classified as non-speculative business income/loss or speculative business income/ loss. Had to ask the question as nothing is specifically mentioned on this aspect in the article.
I request more clarity regarding point 4 of Key takeaways from this chapter.
“4. Equity holdings between 1 day to 1 year with a low frequency of trades is considered Short term capital gain (STCG), else in case of a high frequency of trades it should be considered as non-speculative business income”
As I understand we have the choice/option to declare profits from equity holdings between 1 day to 1 year as either Non-speculative business income or either as STCG. Is this not correct even for the high frequency of such trades? How can “high frequency” be defined/quantified?
if my total income below 2.5 lakhs and i had short term capital gain 50k, in this case need i pay tax on 15% on 50k?
for delivery based trading BTST how will a salaried person be taxed. eg yearly salary 10Lacs and BTST trade with 20K profit (bought today sold after 10 days ) how will the taxation work in this scenario.
Hi Sanket,
For delivery based trading BTST how will a salaried person be taxed. Eg: yearly salary 10Lacs and BTST trade with 20K profit (bought today sold after 10 days ) how will the taxation work in this scenario.
As explained above, BTST can be taxed either as STCG or Business Income.
If the gains are treated as STCG – it will be taxed @ 15%.
If treated as Business Income – it will be taxed as per slab rates.
Thanks for this wonderful module. Now this module need to come in Hindi and other Indian languages. Also add tutorials for using coin and other Zerodha apps.
Hello Sir, I have one question, Kindly answer it.
I’m Student recently started investing in equity market. I don’t have any other source of income. i.e. I’m into income tax slab of 0-2.5lkh.
So If I do Short term trading and earn profit of say Rs10000. So am I suppose to pay 15% tax on it as STCG or I have option of declaring it as a non-speculative business income and have to pay 0 tax as I’m into the tax slab of 0-2.5lkh..???
In the circular mentioned in the article, as per the section 3, sub-section b, IT Department has given the freedom to show surplus as capital gains or business income only if the security was held for more than 12 months immediately before the transfer. And for this particular case, the circular mentions that the person has the right to choose any option but has to stick to it in future.
And in the sub-section a, they have mentioned that irrespective of the holding period, I can consider surplus as business income.
There is no section where they have mentioned that I can declare surplus as Short Term Capital Gains if I so wish. That freedom was granted only if the holding period was more than an year.
However, you have mentioned in this article that a person is free to declare his income as business income or capital gains for short-term capital gains as well.
Am I missing something here?
Sir,
Can I claim trade charges (by broking firm and exchanges) as expenses from intraday income and short term capital income?. Can I know separate trading charges for intraday and STCG.?
Can someone explain in simple terms what does speculative and non-speculative income means? What does speculation and non-speculation means?
Thankyou Zerodha team for the nice learning courses, all the courses nicely written and very easy to understand.
I have a query related to tax:-
If I am earning money from non speculative business and investing it to mutual fund, how should I pay the taxes; after the mutual fund maturity or need to pay tax 2 times after earning from trading as well as after maturity of mf.
What if the income from trading is my only income but I’m below the tax bracket?
“Equity holdings between 1 day to 1 year with a low frequency of trades is considered Short term capital gain (STCG), else in case of a high frequency of trades it should be considered as non-speculative business income”0.. is this rule or a perception?
Can i change my f&o activity in investing
from business
Hi Mr
Nithin Kamath
Can you answer please,
• I was a student when I started investing before 2 years ,
• I trade a lot min I trade 5 times/Day with 1 lakh.
• My father is a NRI, I save from my family expenses and invest the money in stock market.
• I was invested my father’s money and some money I take borrow from my relative how I categorized myself.
If my father send money in my mother’s account for home expenses but if she save & invest in stock. what is LTCG .
Thanks
Hi thanks for nice explanation.
Have one query for your point
“Equity holdings between 1 day to 1 year with a low frequency of trades is considered Short term capital gain (STCG), else in case of a high frequency of trades it should be considered as non-speculative business income”
1) Do we have any guideline like how much transaction or how much amount any threshold after that it is required to declare as business income ?
2) I do hold equities for more than 2 days but why it is to be declared as non- speculative business income. If I do so I would come under 30% slab and if not I have to give only 15% for STCG
my professional income is 56 lak . i audit n paytax for 28 lak (50%) .i have loss of 10 lakh in fno n loss of 15,000 in intraday. so 10,15,000 loss should i show as loss before auditing (56) or after auditing .sir
I am a salaried person. In Form26AS, dividend income shown as extra income. Being a dividend from long term investment > 1 year and amount less than < 1 L , should not it be tax free ?
Now if we earn more than 1lk then we have to pay 10%/15%.
Till 2018 the tax is zero on share?
And sir to invest money in stock market we have to convert cash in bank ac . So in bank ac also we have to pay tax as per government tax slab.
Ex: l want to invest 5lk rs in stock market and i have cash .
So now i convert in bank so on these i have to pay ITR or not.
Is it possible to claim for LTCG losses @Nithin
Hi GK,
Is it possible to claim for LTCG losses?
Yes, you can claim Long Term Capital Losses against Long Term Capital Gains.
I do many delivery based traded in equity.. My number of trades r arond 400 yearly. I also do fno trades which r in number high. Can i be considered as trader as well as invetser???
Hi Mehulpabani,
I do many delivery based traded in equity.. My number of trades r arond 400 yearly. I also do fno trades which r in number high. Can i be considered as trader as well as investor???
Yes you can do that, trader for (FNO) and Investor for (Equity).
Sir, in the example for LTCG, you’ve mentioned that if I’d purchased ITC shares for an amount of Rs 1,00,000, and after 10 years, if my LTCG is 99,00,000 (because after 10 years, it amounts to 1CR), I won’t have to pay any tax on that amount. I have a doubt regarding this. LTCG is the gain or profit on the investment, right? And in this example my profit would be Rs. 99,00,000 (which is more than 1,00,000), so why would it not be taxable?
Hi Radhika,
Sir, in the example for LTCG, you’ve mentioned that if I’d purchased ITC shares for an amount of Rs 1,00,000, and after 10 years, if my LTCG is 99,00,000 (because after 10 years, it amounts to 1CR), I won’t have to pay any tax on that amount – until FY 2017-18; this was exempt.
I have a doubt regarding this. LTCG is the gain or profit on the investment, right? And in this example my profit would be Rs. 99,00,000 (which is more than 1,00,000), so why would it not be taxable? – w.e.f FY 2018-19; capital gain exceeding Rs 1 Lacs is taxable. This is explained above.
Hi Nithin ,
This article packed a lot of information about taxation. Thank you sir.
My income from swing trading is less than 2.5lakh, do i still need to pay STCG and file tax return?
Hi Anshi,
My income from swing trading is less than 2.5lakh, do i still need to pay STCG and file tax return?
If overall income is less than 2.5 Lacs i.e basic exemption limit – then no need to pay tax and file the return.
Sir,
I started trading (Intraday & normal swing) & few investments from Feb,2022 and this would be the first IT file (AY 2023-2024) return after my association with markets. Now, my file is being managed by my CA. I have plans to trade derivatives in the future. Now, I would like to know that is there provision to declare myself as both trader & investor and continue with that for the subsequent years or can I only declare either as a trader/investor. In case, the latter is correct how can I declare my return for Speculative & non-speculative trading?
Request your kind help here.
Sir,
For Losses of F&O as a Trader, we know that it can be set off under other heads (unlike salary income) for the same year. Now, can it also be set off under other heads (unlike salary income) for the next 8 subsequent years too or for the subsequent years, it can only be set off under the same head?
Hi Anirban Basak
For Losses of F&O as a Trader, we know that it can be set off under other heads (unlike salary income) for the same year. Now, can it also be set off under other heads (unlike salary income) for the next 8 subsequent years too or for the subsequent years, it can only be set off under the same head?
Carry forward business loss can be set off against only Business Income.
If i do intraday trade, is it mandatory to declare as business income and file in ITR-3, can i file with ITR-1 as income is less than 3 lac / PA
2. If one do intra day & F&O is it mandatory to declare as business income and file in ITR-3..?? Can they file in ITR-1..??
Pls clarify..
How to get total buy and sell statement in zerodha of
1)long term
2)short term
3) speculation trading or indra day
Hi Pravin,
How to get total buy and sell statement in zerodha of
1)long term
2)short term
3) speculation trading or intra day
Login to https://console.zerodha.com/ and download Tax PL.
Hi Sir,
Can I offset F&O loss with Dividend Income?
Hi Krishna,
Can I offset F&O loss with Dividend Income? – Yes, current year FNO Loss can be set off against Dividend Income.
Thanks a lot for your detailed yet simple explanation which keeps all of us hunger for the knowledge you have shared.
Can you address 1 query or rather confirm it:
If I buy any F&O, then it is considered Non-speculative business activity.
If I do any intraday activity, it is considered Speculative business activity.
How do you classify this transaction?: F&O that are bought and sold same day (intraday)- should it be Speculative or Non-speculative?
or Simply will it still be called Non-Speculative activity as it involves F&O.
Hi Vasu,
Can you address 1 query or rather confirm it:
If I buy any F&O, then it is considered Non-speculative business activity.
If I do any intraday activity, it is considered Speculative business activity.
How do you classify this transaction?: F&O that are bought and sold same day (intraday)- should it be Speculative or Non-speculative?
or Simply will it still be called Non-Speculative activity as it involves F&O – Yes, it will be called as Non-Speculative Activity irrespective of whether you close the position on the same day or not.
is this updated module ? plz let me know about it.
I am a salaried employee falling in 30% slab. I started doing frequent (everyday three stocks) short term equity trades(holding period 1 day to 2 weeks ). Do I declare the profits from these trades as “capital gains” or “business
income”?
I would like to declare them as “capital gains” to avoid audits and 30% high tax rate if I chose as “business income”. Could I do this?
I have a short term capital gain of 190000 and no other income. Should I pay tax for that.stcg by selling some of the shares I gain.
Dear Sivaji,
STCG is taxed flat @ 15% as per sec 111A of the IT Act, 1961.
But also If your total income is less than 250000(like you have mentioned), you do not have to pay any tax(considering your age is less than 60 years).
Also if your total income is greater than 2.5 lakhs and have some amount of tax to be paid you can avail rebate u/s 87a till Rs.12500.
Hi Nitin,
I started investing in Zerodha since 1 year but starting getting a hang of trading on short term since this quarter. I have some long term and short term profits as shown on my account Tax P&L.
I’m a salaried person falling under 30% tax bracket.
I understand the long term profit will automatically get offset against 1L and above @10%
My question is,
1. the short term profits, should I declared as STCG @ flat 15%, or should I show that as business income?
(A little confused on the above because the above article at one point adviced to declare STCG for salaried ppl and another instance said declare business income)
2. I should declare myself as both investor & trader both? (since I will keep short term trading since I started enjoying it)
While I will follow your advice and consult a CA before filing, your guidance will help much.
Thanks in Advance.
Hi Nitin,
I started investing in Zerodha since 1 year in Equity but starting getting a hang of trading on short term since this quarter. I have some long term and short term profits as shown on my account Tax P&L.
I’m a salaried person falling under 30% tax bracket.
I understand the long term profit will automatically get offset against 1L and above @10%
My question is,
1. the short term profits, should I declared as STCG @ flat 15%, or should I show that as business income?
(A little confused on the above because the above article at one point adviced to declare STCG for salaried ppl and another instance said declare business income)
2. I should declare myself as both investor & trader both? (since I will keep short term trading since I started enjoying it)
While I will follow your advice and consult a CA before filing, your guidance will help much.
Thanks in Advance.
If i have only one income source (ie-stock market) then can i consider profit from Mutual funds also as business income (if i book more than 1L profit on MF).
Means, Say F&O, Short term profits on shares, long term profits on shares and long term profits on MF – All can be clubbed together under business income as i dont have any other income to save STCG and LTCG.
Dear Sir,
When classifying the trading income under business income,
Under what section will the audit follow for the following conditions:
a) Turnover less than 1 Cr
b) Turnover less than 5 Cr but more than 1 Cr
c) Turnover less than 10 Cr but more than 5 Cr
d) Turnover more than 10 Cr
Thank you,
Rishab
I read this article thoroughly, but it is still confusing. I have done intraday, short-term delivery, and long-term delivery. No F&O. I am salaried person, but salary is 4.5 lakh pa. I get dividends from shares. Also, I get some interest from SB and FD accounts. If LTCG is less than 1 lakh, should I add it to my total income? Or, is it completely exempt. I assume, if STCG is taxed at 15%, then no need to add it to my total income. Now, should I file ITR2, ITR3, or ITR4 ?
I have two income sources
1. Interest earned on FD and other such Investment (apx 3 lacs)
2. Income from trading of shares.(apx 5 lacs)
Sinch 1-4 – 2023 i have left the Business to my partner hence no business income this year.
I should treat the share income has capital gain or business income.
Thanks
Hi,
I want to know whether intraday options trading profit falls under “Speculative Business income” for taxation.
HI Deepak,
I want to know whether intraday options trading profit falls under “Speculative Business income” for taxation.
Profits from Trading in Options is always Business Income irrespective of intraday or not.
Hello Sir ,
My doubt here is that if I earn profits from option contracts (Delivery basis) , then will it come under STCG ?
Hi Prakram,
My doubt here is that if I earn profits from option contracts (Delivery basis) , then will it come under STCG ?
Profits from Option Contracts is always Business Income.
Hello! As I read this module and realize the thin line between filing a short term equity trade as an investment Or as a business income I would love a fresh view on this matter concerning the current times (FY 2023-24/ 2024-25). Is the IT department still skeptical about the frequency of trades, and issuing notices ? I am a salaried swing trader and I personally would want to declare my trade profits as stcg. Is it possible in current times ?
Hi Divyansh Mandhani,
Hello! As I read this module and realize the thin line between filing a short term equity trade as an investment Or as a business income I would love a fresh view on this matter concerning the current times (FY 2023-24/ 2024-25). Is the IT department still skeptical about the frequency of trades, and issuing notices ? – IT Department usually runs CASS – Computer Assisted Scrutiny System and picks up cases for scrutiny/issuing notices. Parameters set for selecting cases are not known. Reason for picking up is told only when the notice is issued.
I am a salaried swing trader and I personally would want to declare my trade profits as stcg. Is it possible in current times ? – Yes, you can do that; you can declare it as STCG.
Hi,
“If you are buying and selling stocks frequently (yes it is an open statement, but there is no rule which quantifies ‘frequent’) for shorter terms, it is best to declare that as non-speculative business income instead of STCG.”
I didn’t get this point, how can we declare frequent buying and selling stocks(which are delivery based) in business income and not STCG. From what i understood we can declare only f&o trading as non-speculative business income. And if somehow we can declare those under business income, why it is best to declare under non-speculative business income instead of STCG, as STCG tax is 15% as opposed to business income tax of 30%(for a person in 30% tax slab). So in my opinion it should be best to declare under STCG and pay only 15%.
Hello Nithin,
The PDFs seems to be missing the latest edits, can they be regenerated?
Hello!
Background:
I am having Zerodha from many years, but i was not at all active.
Now, I don’t have a salaried job and no regular source of income.
My only source of income is currently FD interest
I have earmarked a capital of about 40L for active investments.
I want to invest in ETF scripts like niftybees, itbees, etc.
ALL transactions will be in delivery mode, but the holding period may vary
from 1 to 365 days.
No MIS (intra day margin trades) or F/O
There can be intra-day DELIVERY based trades (ie, there can be buy and sell of a stock on the same day, both delivery mode)
There can be 5-10 trades every day.
In this scenario, i have the following questions:
1) Should I treat the gains coming out of this as STCG or business income
(I would like to take this in STCG route, primarily because of lower rate + lesser hassles)
Is this possible ?
2) is there any need for Audit if the turnover crosses 5 crores ? (since there will be multiple buy/sells the turnover can be significantly high).
Thanks!
Another thing to keep in mind is that if investing/trading on the markets is your only source of income, and even if your trading activity is moderate, it is best to classify income from all your equity trades as a business income instead of capital gains.
sir here equity trades means equity intraday or equity delivery {more than 1 days (swing trades)} .if equity intraday you are saying then it is a speculative income right .please explain clearly sir
and one more thing sir iam a full time trader no other source of income now. i have gain in equity delivery trades but in fno iam in loss but if i put together my euity delivery gain to fno loss it is total loss for me na sir? bcz my euity gain is nearly 20k and fno loss is 152k
I have a question, what if someone shows their short term gains under long term to get the tax rebate , because till one lakh it is free.or what if they show their intraday gains under F and O gains ? Can we do this?
Do they know it all?
Where I’m getting the profit from , mutual fund or shares..and they also know for how long duration I kept it before selling or redemption?
Sir, if I have other business income apart from salary(like rental income and so on), can I offset this with speculative business income(intraday trading)??
[If I declare those losses on time]
If I trading for short term (eg. for a month) in listed stocks.
Can I show it as a non- speculative business income ??
If you are buying and selling stocks frequently (yes it is an open statement, but there is no rule which quantifies ‘frequent’) for shorter terms, it is best to declare that as non-speculative business income instead of STCG.
On the other hand, if you are salaried or have some other business as your primary source of business, it becomes easier to show your equity trades as capital gains even if the frequency is slightly higher.
Could you pls help me understand these 2 statements. Seems like these 2 are contradicting each other.
if my earning is only through equity ,debt and fixed deposit interest and total income is below 7 lakh in a year, then will i have to pay any tax or not , remember i am not earning any salary and only earning by “buying and selling equity stocks and mutual funds “
Sir, Positional trading of stocks is what I do. Take delivery hold It for 3/4 months then sell it. I am filling for STCG till now, but can I file it in Bussiness income as this is my only profession.? So To claim rebeat & low tax? Do I need to hire a CA for audit?
Hi, first of all thank you so much Varsity team for guiding us regarding taxation. This article has been really helpful.
Coming to my doubt, lets say I dont have any income, I gained profit of 2.5L by selling shares. If I declare this profit as non speculative business income, then I don’t need to pay tax right. Or do I need to pay 20% on the profit as it STCG.
Regards,
Sudhanshu Chhajed
Hi..
Last year I declared my income as STCG from short term delivery based equity trading as I had just begun my trading journey making small profits and fewer trades.
But this current year the profits are significant with considerable short term delivery based equity trading activity and will have to pay more tax if I declare it as STCG.
Can I switch to business income from this year?
Last 2 years I filled my returns x55 with Short term Equity-Delivery gains as STCG. This year the frequency of it has increased with higher profits. Is it ok to now switch this to business income to save on taxes? This is my only source of income excludin the passive incomes