The government imposes taxes on income earned from online stock trading. Are you aware of this?
If you are a passionate trader and trade more often than someone breathes, then you need to think about the taxes levied to you at the end of each year. Because there are various things to know about the tax payment on income earned from online stock trading.
Like you, I’m also one of the passionate trader and investor in the stock market. I have started my journey in 2006 and opened Trading cum Demat A/c with India Infoline Ltd. At the very beginning, many questions arise on my mind relevant to the tax payment for traders. But now I solved this all and furnished my income tax return each year.
As per income tax regulations, every trader is required to file their return in right manner and pay taxes on their trading profits. So it becomes a mandatory part for you to know about the taxation on income earned from online stock trading and can manage your activity accordingly.
Therefore I wanna let you know about the same so that you will get an idea to file your ITR – Income Tax Return easily. As a trader, you must know some of the facts like:
- Is the income earned from online stock trading taxable?
- What is the tax rate for online stock trading?
- How to calculate the tax amount?
- How to treat online stock trading losses?
- What is the due date for filing ITR?
Is the income earned from online stock trading taxable?
You might be thinking that trading is not taxable. Actually, I’m also one of them that’s why it’s the first question that sticks to my mind.
As per income tax department, if you purchase any share with the intention of earning a profit then it’s a business income. Therefore, it is a taxable income.
What is the tax rate for income from online stock trading?
Income earned by a trader is considered as business income as per IT rules. It is taxable under the head of income from business or profession according to the income tax slab. The good thing is that you would not be liable to pay taxes until and unless you cross the threshold limit set by the department. You can divide the business income into two parts either as speculative business income and non-speculative business income.
Speculative business income
When you buy and sell the shares on the same day it is called Day Trade or Intra-Day Trade. So your income from Intra-day or non-delivery equity trading is regarded as speculative business income. You need to add this income to your other income under the head income from business and profession and calculate your tax as per the income tax slab rate.
Non-speculative business income
Your income from trading Futures and Options (F&O) both (intra-day and overnight) on a recognized exchanges (commodity/currency/equity) is considered as non-speculative business income. Therefore, add your non-speculative income to your total income and taxed as per the income tax slab rate. You can also balance it with business expenses you incur to earn it like internet expense, consulting fees, software charges and more.
How to calculate the tax on income earned from online stock trading?
Sum up all of your speculative and non-speculative business income with your other incomes such as salary (if you are a salaried person), bank interest, business income, rental income and others. Then calculate the tax amount as per the latest income tax slab.
Let me elaborate with an example with the latest income tax slab rate for F.Y. 2017-2018:
- Salary of Mr.X – 6,00,000.00 (50,000.00 p.m.)
- Income from Intra-day equity trading – 1,00,000.00
- Income from F&O trading – 2,00,000.00
To calculate the tax, first of all, you need to calculate the total income earned during the year.
6,00,000.00(salary)+1,00,000.00(profit from Intra-day trading)+2,00,000.00(profit from F&O trading)=9,00,000.00
|Income Slab for F.Y. 17-18 Tax Rate
Income up to Rs 2,50,000* No tax
Surcharge: 10% of income tax, where the total income exceeds Rs.50 lakh up to Rs.1 crore.
Cess: 3% on total of income tax + surcharge.
Now, you have to pay tax on your total income i.e. 9,00.000.00
|Earning Bracket Tax Rate x Taxable Earnings = Tax Due
upto 2,50,000.00 0% x 2,50,000.00 = 0.00
= Sub total (based on 2017-18 income tax slabs): 92,500.00
Add : Cess 3% on 92,500.00 2,775.00
Total Tax Due= 95,275.00
The total tax liability of Mr. X is 95,275.00
Hope, the above example gives you a clear view on the calculation of tax on income earned by traders.
How to treat online stock trading losses?
As per income tax rules, you can set off and carry forward your speculative and non-speculative business losses. However, there are some rules you must know:
- Set off your speculative losses from speculative income only.
- You can’t be able to set off non-speculative business losses from speculative income. Just set off your losses from other sources of income such as salary, rental income or interest income etc.
- You can carry forward speculative losses for 4 years and further you can set-off only against any speculative gains you make in that period.
- F&O trades shall be considered as a non-speculative business. So, you will be able to carry forward the losses for eight years.
Due date of filing IT return on income from online stock trading?
Due date of filing Income Tax Return for the F.Y.2016-2017 (A.Y. 2017-2018) is 5th August 2017 for individuals and 30th September 2017 for businesses.
Income tax return for the financial year 2016-17 applicable for income earned by traders during that period.
So, do you file your Income tax return from online stock trading before the due date? If not then do it as early as possible. I hope this post will add value to you. I make changes in this post with the latest update related to stock market.
You can comments below to know more about it. Don’t forget to share and like this post with your loved ones and let them also know about the implication of Income tax due to online stock trading.
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Author: Ratan Kumar
Ratan Kumar, an enthusiast stock market trader & blogger. Forecasting stock market moves with the use of technical analysis since 2008. For the technical trader & investor, new or experienced, he provides legitimate and valuable advisory from day trading to long-term investment horizon and helped thousands of investors to make money out of stock market.