📊 Types of Trading & Their Tax Treatment
| Type of Trading | Nature as per Income Tax | Head of Income |
|---|---|---|
| Intraday Trading | Speculative Business | Business Income |
| F&O Trading | Non-Speculative Business | Business Income |
| Delivery-Based Trading | Capital Gains (if held) | Short/Long-term Capital Gains |
💡 Both F&O and Intraday are considered as business income, not capital gains.
📏 Turnover Calculation for F&O and Intraday
🔸 F&O Trading:
Turnover = Sum of absolute profit/loss on all trades.
Example:
- Trade 1: ₹10,000 profit
- Trade 2: ₹8,000 loss
- Trade 3: ₹5,000 profit
- Turnover = ₹10,000 + ₹8,000 + ₹5,000 = ₹23,000
🔸 Intraday Trading:
Turnover = Sum of absolute profit/loss
Note: For both types, premium received on options, and reversal trades are also considered in turnover.
🧾 When is Tax Audit Required?
As per Section 44AB and 44AD, tax audit is mandatory if:
A. F&O or Intraday Trading
- Turnover exceeds ₹10 crore (if at least 95% transactions are digital), or ₹1 crore (if not digital), AND profits are less than 6% of turnover (for presumptive eligibility).
B. Presumptive Scheme Not Opted (Sec 44AD)
- If the trader claims lower profit than 6%/8% and income exceeds basic exemption limit → Audit required.
📌 Important Update (Finance Act 2023):
For individuals opting out of presumptive income (Sec 44AD) and having income > basic exemption, tax audit is mandatory, regardless of turnover.
💰 Presumptive Taxation under Section 44AD
✅ Eligibility:
- Indian resident individuals, HUF, or partnership firm
- Turnover ≤ ₹2 crore (or ₹3 crore if digital payments ≥95%)
- Cannot be companies or LLPs
✅ Applicability to Traders:
- F&O and Intraday traders can opt for presumptive tax (6% of turnover if digital)
Example:
- F&O turnover: ₹5 lakhs
- Presumed income = ₹30,000 (6%)
- Tax is calculated as per slab
📌 Important: If you opt for presumptive, no need to maintain books or get audited, unless you opt out next year.
🧮 Tax Rates Applicable
| Income Slab (under new regime) | Tax Rate |
|---|---|
| Up to ₹3 lakh | Nil |
| ₹3 lakh – ₹6 lakh | 5% |
| ₹6 lakh – ₹9 lakh | 10% |
| ₹9 lakh – ₹12 lakh | 15% |
| ₹12 lakh – ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
⚠️ Traders not eligible for rebate u/s 87A if total income exceeds ₹7 lakh (under new regime).
🧾 Filing ITR for Traders
| Type of Trading | Applicable ITR |
|---|---|
| F&O/Intraday | ITR-3 |
| Presumptive (Sec 44AD) | ITR-4 |
Due Dates:
- Without audit: 31st July
- With audit: 31st October
⚠️ Common Mistakes by Traders
- Treating trading as capital gain instead of business income
- Ignoring turnover calculation
- Missing audit requirement
- Filing incorrect ITR (like ITR-1 or ITR-2)
- Not reporting all trades (especially losses)
📝 Can You Claim Trading Losses?
Yes, trading losses can be set off and carried forward:
| Type | Set-off | Carry Forward |
|---|---|---|
| F&O Loss | Against any business income | 8 years |
| Intraday Loss | Only against speculative income | 4 years |
You must file ITR before due date to carry forward losses.
✅ Best Practices for Trading Compliance
- Maintain books (ledger, contract notes, broker P&L)
- File correct ITR on time
- Choose presumptive if eligible and you're not maintaining books
- Consult a tax professional if turnover exceeds limits or audit is needed
📌 Conclusion
F&O and intraday trading taxation is business income, and needs careful planning. From calculating turnover to deciding on tax audit or presumptive scheme—every decision can impact your tax liability and compliance. Make sure you file the correct ITR and take advantage of eligible benefits.
📞 Need Help with Trading Tax Filing or Audit?
At Verotus Finlegal Solutions LLP, we assist traders across India with:
- F&O and Intraday Taxation
- ITR Filing & Audit Support
- Presumptive Tax Guidance
- Books Maintenance & Advisory
📍 Kolhapur, Maharashtra
🌐 Visit: www.verotusllp.com
📞 Call: +91-7066336680
