Income Tax on Intraday Trading: ITR-3 and Tax Audit Rules

Short answer: Income from intraday equity trading is considered 'speculative business income', not capital gains, under the Income-tax Act, 1961. It is added to your total income and taxed at your applicable slab rate. You must report this income by filing ITR-3. Losses from intraday trading can only be set off against speculative gains and can be carried forward for up to four assessment years. A tax audit may be required depending on your turnover.

How is income from intraday trading taxed?

Income from intraday trading is treated as speculative business income and taxed at your normal slab rate. Unlike delivery-based trading, where you hold shares for more than a day, intraday trades are squared off within the same day without taking delivery. The Income-tax Act categorises this activity as a speculative business under Section 43(5). This means the profit is added to your other income (like salary, interest, etc.), and the total is taxed as per the income tax slabs for AY 2026-27. This treatment is fundamentally different from capital gains, which have special tax rates.

Which ITR form should I file for intraday trading?

You must file ITR-3 to report income or loss from intraday trading. Since intraday trading is classified as business income, you cannot use simpler forms like ITR-1 (for salary, one house property, and other income) or ITR-2 (for salary and capital gains). ITR-3 is designed for individuals and HUFs having income from 'Profits and Gains of Business or Profession'. Filing the wrong ITR form will lead to a defective return notice from the Income Tax Department. See our guide on ITR-1 vs ITR-2 vs ITR-3 for more details.

How do I calculate turnover for intraday trading?

Turnover is calculated as the sum of absolute profits and losses from all your trades, not the total value of your transactions. For tax purposes, each transaction's outcome (profit or loss) is considered without netting them off first. This is called the absolute turnover. For example, if you made a profit of ₹50,000 on one trade and a loss of ₹30,000 on another, your turnover for tax audit purposes is ₹50,000 + ₹30,000 = ₹80,000. This figure is crucial for determining if you need a tax audit under Section 44AB.

When is a tax audit required for intraday traders?

A tax audit under Section 44AB becomes mandatory for an intraday trader in the following situations:

1. If turnover exceeds the threshold: If your total sales, turnover, or gross receipts from the business exceed ₹1 crore in a financial year. This limit is increased to ₹10 crore if at least 95% of your total receipts and payments are through digital modes.
2. If declaring lower profits under presumptive taxation (inapplicable here): The presumptive scheme of Section 44AD is not applicable to speculative businesses. However, if you have another non-speculative business and opt out of the scheme, audit rules can apply.
3. In case of losses: If you have incurred a loss from speculative business and your total income is above the basic exemption limit, a tax audit might be necessary to carry forward these losses, even if your turnover is below the threshold. It's best to consult a Chartered Accountant in this scenario.

Condition	Tax Audit Required?	Section	Notes
Turnover > ₹10 crore (95% digital)	Yes	44AB(a)	Most stock market transactions are digital.
Turnover > ₹1 crore (mixed/cash)	Yes	44AB(a)	Applies if digital transactions are less than 95%.
Declaring a loss from trading	Consult a CA	44AB(a)	May be required to carry forward the loss if your other income exceeds the basic exemption limit.

Can I set off and carry forward intraday trading losses?

Yes, but with strict rules governed by Section 73 of the Income-tax Act. A loss from a speculative business (intraday trading) can only be set off against income from another speculative business. It cannot be set off against salary, interest income, rental income, or any capital gains. If you cannot set off the entire loss in the same year, you can carry it forward for up to four consecutive assessment years. The carried-forward loss can only be set off against future speculative business income.

What expenses can I claim against intraday trading income?

You can deduct all expenses incurred directly in connection with your intraday trading activity. These are deducted from your gross profit to arrive at your net taxable income. Common deductible expenses include:

• Brokerage Charges: Fees paid to your stockbroker for executing trades.
• Securities Transaction Tax (STT): Unlike in capital gains where STT is not a deductible expense, for business income, it is fully deductible.
• Transaction Charges: Fees charged by exchanges like NSE or BSE.
• Internet and Phone Bills: A reasonable portion of these bills if used for trading.
• Depreciation on Computer/Laptop: If the device is used for trading purposes.
• Salary of staff: If you employ someone to assist with your trading.
• Professional fees: Fees paid to a CA for tax filing and advice.

Worked example

Let's consider Mr. Arjun, a software engineer in Bengaluru, for the Financial Year 2025-26 (Assessment Year 2026-27). He opts for the new tax regime, which is the default.

• Salary Income: ₹20,00,000
• Intraday Trading Profits: ₹1,50,000
• Intraday Trading Losses: ₹90,000
• Brokerage & STT paid: ₹25,000

Step 1: Calculate Net Speculative Business Income

• Gross Profit from trading: ₹1,50,000 - ₹90,000 = ₹60,000
• Net Speculative Income = Gross Profit - Expenses
• Net Speculative Income = ₹60,000 - ₹25,000 = ₹35,000

Step 2: Calculate Taxable Salary Income

• Gross Salary: ₹20,00,000
• Standard Deduction (New Regime): ₹75,000
• Taxable Salary = ₹20,00,000 - ₹75,000 = ₹19,25,000

Step 3: Calculate Gross Total Income (GTI)

• GTI = Taxable Salary + Net Speculative Income
• GTI = ₹19,25,000 + ₹35,000 = ₹19,60,000

Step 4: Calculate Income Tax Liability (New Regime)

• Arjun's income is above ₹12 lakhs, so no rebate under Section 87A is available.
• Up to ₹3,00,000: Nil
• ₹3,00,001 to ₹6,00,000 (on ₹3L): 5% = ₹15,000
• ₹6,00,001 to ₹9,00,000 (on ₹3L): 10% = ₹30,000
• ₹9,00,001 to ₹12,00,000 (on ₹3L): 15% = ₹45,000
• ₹12,00,001 to ₹15,00,000 (on ₹3L): 20% = ₹60,000
• Above ₹15,00,000 (on ₹19,60,000 - ₹15,00,000 = ₹4,60,000): 30% = ₹1,38,000
• Total Tax: ₹15,000 + ₹30,000 + ₹45,000 + ₹60,000 + ₹1,38,000 = ₹2,88,000

Step 5: Add Health and Education Cess

• Cess @ 4% on Total Tax: 4% of ₹2,88,000 = ₹11,520
• Total Tax Payable: ₹2,88,000 + ₹11,520 = ₹2,99,520

Arjun must file ITR-3 to report both his salary and his speculative business income.

Common mistakes

1. Misclassifying Income: The most common error is treating intraday profits as short-term capital gains instead of business income. This leads to incorrect tax calculation and using the wrong ITR form.
2. Filing the Wrong ITR Form: Filing ITR-1 or ITR-2 with trading income will result in a defective return notice. ITR-3 is mandatory.
3. Incorrect Turnover Calculation: Many traders simply use their net profit as turnover. The correct method is to sum the absolute value of all profitable and losing trades.
4. Ignoring Loss Carry-Forward Rules: Attempting to set off intraday losses against salary or capital gains is not allowed. These losses can only be set off against speculative profits.
5. Forgetting to Claim Expenses: Traders often forget to deduct legitimate expenses like STT, brokerage, and data charges, which results in paying higher tax.

How SP & SC helps

Navigating the complexities of business income, especially from speculative activities like intraday trading, can be daunting. At SP & SC, our team of Chartered Accountants specialises in tax compliance for traders and professionals. We help you accurately calculate your trading turnover and profit/loss, prepare the necessary financial statements (P&L and Balance Sheet) for ITR-3 filing, determine if a tax audit is applicable, and ensure all eligible expenses are claimed. We handle the entire process of income tax filing to ensure you are compliant and tax-efficient.

Frequently asked questions

Can I use the presumptive tax scheme under Section 44AD for intraday trading?

No, you cannot. Section 44AD of the Income-tax Act, which allows small businesses to declare profits at a presumed rate (6% or 8% of turnover), specifically excludes income from a speculative business. Therefore, intraday traders must maintain books of account and declare their actual profit or loss.

Is STT deductible for intraday trading?

Yes. For intraday trading treated as business income, the Securities Transaction Tax (STT) paid is allowed as a deductible business expense under Section 36 of the Income-tax Act. This is a key difference from delivery-based trades (capital gains), where STT is not deductible from the gain itself.

What happens if I have an intraday loss but overall profit from salary?

Your intraday trading loss cannot be set off against your salary income. The loss is a 'speculative loss' and can only be set off against 'speculative gains'. If you have no speculative gains in the current year, the entire loss must be carried forward for up to 4 years to be set off against future speculative gains.

Do I need to maintain books of accounts for intraday trading?

Yes. Since intraday trading is treated as a business, you are required to maintain books of account under Section 44AA of the Income-tax Act. This helps in the correct computation of profits, losses, turnover, and expenses, and is mandatory if your income or turnover exceeds certain limits or if a tax audit applies.

Get a fixed-fee quote

Accurately reporting trading income and ensuring compliance can be complex. Share your trading statements and financial documents with us for a confidential review. We will provide a written, fixed-fee quote for preparing and filing your ITR-3, including handling tax audit requirements if necessary. We manage the entire process end-to-end, giving you peace of mind. Contact SP & SC via our form or on WhatsApp at +91 90356 74566.