Tax rules for F&O, intraday, and stock trading—what you must know
Delivery-based trading involves holding stocks beyond a single trading day and may be classified as either capital gains or business income, based on the frequency.
Income from F&O and short-term delivery trades are treated as non-speculative business income, whereas intraday trades, where stocks are bought and sold within the same day, are considered speculative business income for taxation purposes.
You have to declare income from F&O or intraday trades in your income tax return (ITR) whether or not you make a profit, as per the tax laws. This holds true even if you have no other income and only made losses in equity trading.
Mint breaks down tax rules applicable to different trading incomes so you can smoothly report them in your ITR.
Business income: F&O and delivery trades
Since profits or losses from trading in F&O are treated as non-speculative business income, they must be declared in the ITR-3 form—or ITR-4 if you have opted for the presumptive taxation scheme.
F&O traders are mandated to maintain books of accounts or get an audit from a chartered accountant under different conditions. If your F&O turnover exceeded ₹25 lakh in 2024-25 or if your business income in any of the previous three financial years exceeded ₹2.5 lakh, you are required to maintain a book of accounts.
However, maintaining a book of accounts doesn't need a CA and can be derived from P&L statements provided by brokers. Turnover can be calculated by deducting losses from profits.
But you have to mandatorily engage a CA for audit if your turnover exceeds ₹10 crore in a financial year with at least 95% of transactions being digital; else, the turnover threshold is ₹2 crore.
The other condition for mandatory audit is if you prematurely exited the presumptive taxation scheme in the previous five financial years, irrespective of the turnover threshold.
Not complying with audit rules can attract a penalty of up to 0.5% of turnover, capped at ₹1.5 lakh. The tax filing deadline of audit cases is 30 September.
You can deduct expenses such as brokerage fees, securities transaction tax (STT), trading platform subscriptions, demat charges, depreciation on laptops or phones used, and educational tools such as paid courses that were incurred exclusively in connection with F&O trading.
In delivery trading, the tax treatment depends on the nature of trading.
As per experts, stock trading is to be treated as business income if it is an individual's primary work and income.
However, several salaried individuals have also taken to frequent stock buying and selling. Jigar Mansatta, a Jamnagar-based chartered accountant, said as per the guidelines of the Central Board of Direct Taxes it is up to the discretion of salaried individuals to declare their investments in shares and securities as business or capital assets.
'The important point to note is that the stance the salaried person takes cannot be changed in subsequent years," Mansatta said. 'For instance, you classify profit from stock trades as capital gains this year, but next year if you make losses (and) you want to classify them as business income to set off against other incomes, that is not allowed as per CBDT's circular."
This distinction has several implications:
Speculative business: intraday trading
intraday stock trading comes with more restrictions, though it's also filed under ITR-3 or ITR-4. This is because it's treated as speculative business.
Unlike F&O losses, losses from intraday trading can only be adjusted against other speculative income, such as gains from betting or horse racing.
The window to carry forward losses is also shorter at 4 years, instead of the 8 years allowed for delivery-based and F&O traders.
The criteria for accounting, turnover thresholds, and audit applicability remain the same as for F&O.
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