Stock trading involves the buying and selling of financial instruments like shares, mutual funds, commodities, currency, bonds, and debentures. Investors build portfolios, while traders seek quick profits through price fluctuations. Trading income, including equity (delivery, intraday, F&O), commodity, and currency trading, is categorized as capital gains for equity delivery and business income for other forms of trading for tax purposes.
Income from trading is treated as Business Income. As per the Income Tax Act, business income can be either Speculative Business Income or Non-Speculative Business Income.
As per the Income Tax Act, a contract in which the purchase or sale of any commodity including stocks and shares is settled without actual delivery is called a Speculative Transaction. Intraday Trading means trading in stock or security by squaring off the trade within the same trading day. Therefore, it is a Speculative Business Income.
The definition of Speculative Transaction specifically excludes derivative transactions. Thus, equity F&O, commodity trading, and currency trading are non-speculative. The trader enters into such transactions for hedging and thus such income is a Non-Speculative Income.
Any business income that’s not Speculative is a Non-Speculative Business Income. Hence, this income includes trades in equity F&O, commodity trading, and currency trading. Since F&O Trading is a hedge and there is the delivery of the underlying security, it is non-speculative. The definition of Speculative Transactions specifically excludes the intraday trading of Commodity and Currency. Thus, it is a Non-Speculative Business Income. Additionally, if the trader has significant trading activity in equity delivery and mutual funds, it is a Non-Speculative Business Income.
| Income Head | 1. Income from equity intraday trading is a speculative business income. 2. Income from F&O trading is a non-speculative business income. 3. The income from equity delivery trading may be treated as either capital gains or business income. |
| ITR Form | 1. If a trader has income from Capital gain then they should file ITR 2. 2. If a trader has Business Income then they should file ITR 3. 3. The trader who has opted for the Presumptive Taxation Scheme should file ITR-4. |
| Due Date | 31st July is the due date for traders to whom audit is not applicable & 31st October is the due date for traders to whom Tax Audit is applicable |