Sridhar, a software engineer by profession, has always had an interest in the stock markets. Due to lack of time, he had only been an investor in shares and mutual funds. During the lock down period, he decided to take a leap into trading stocks and shares. He got involved in doing both intraday trades and regular trades using tips from a popular discount brokerage firm. Although he suffered some losses in the intraday trades, he made some money in the regular trades. Sridhar is of the view that the loss from intraday trading can be set off against his gains from regular trades while filing his income tax returns. Is he right?

Work from home during the Corona lock down, helped a lot of the salaried group to spend quality time with family and also put an end to the long hours of boring travel time. After a couple of months a lot of people like Sridhar decided to use the additional time available in some productive way. And this resulted in a huge mass of salaried group taking up share trading and investments.

Before we get into the taxation part, let’s understand the key terms – intraday trade and regular trade.

(a) INTRADAY :  

Buying and selling stocks within the same day without taking delivery. All positions are squared off before the market closes for the day. 

(b) REGULAR TRADE: 

 It involves taking delivery and therefore change in ownership. The trade is settled over a span of few days (eg.:T+2). When you buy shares, it gets credited to your DEMAT account on settlement. Similarly, when you sell shares, your DEMAT account is debited on settlement. 

Intraday trades are speculative in nature. Therefore, any gain or loss from intraday MUST be declared as a speculative business income or loss respectively. This is taxed as per the slab rate of the assessee. 

Regular trades might result in short term or long term gain/loss depending on the holding period. (This can be declared as business income/loss as against capital gains – subject to a few conditions). While short term capital gain on transfer of listed equity shares is taxed at flat 15%, long term capital gains on transfer of listed equity shares is taxed at 10% (exemption limit : 1L) 

Sridhar has suffered a loss from speculative business (intraday) and this cannot be used to set off his gain from regular trades. Gains from regular trades shall be taxed at 15% if it is short term and at 10% if it is long term subject to the 1 lac exemption limit.

Expenses incurred for transfer of shares can be claimed as a deduction subject to certain conditions.

Share trading has become very user friendly due to the online trading facility. One must keep in mind to declare the gain or loss appropriately to avoid notice from the Tax department.

How can we help you?

Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.

Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com

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CA Chockalingam K
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