When it comes to intra-day trading (buying and selling shares on the same day), the Income Tax Act does not treat the profits as capital gains. Instead, such trading is classified as speculative business income. This means the traditional capital gains computation method doesn’t apply.

Key Points

• Not Capital Gains:
  Intra-day transactions are considered speculative because the shares are not actually delivered; they are bought and sold within the same day. Thus, the profits or losses from these transactions are treated as business income.

• Calculation as Speculative Business Income:
  To compute your net income from intra-day trading, follow these steps:

  1. Calculate Turnover:
     Sum up the sale consideration of all intra-day trades (i.e., the total amount received from selling shares).

  2. Deduct Purchase Cost:
     Subtract the total purchase cost of those trades (i.e., the total amount paid to buy the shares).

  3. Deduct Direct Trading Expenses:
     Also deduct any brokerage fees, transaction charges, and other direct expenses incurred while trading.

  4. Net Speculative Business Income:
     The resulting amount is your net profit (or loss) from intra-day trading, which will be taxed as business income according to your applicable slab rates.

Example Calculation

Additional Considerations

• Set-Off & Carry Forward of Losses:
  Losses from speculative transactions can only be set off against speculative income and can be carried forward for one year.

• Record-Keeping:
  It’s important to maintain detailed records (trade confirmations, brokerage statements, etc.) for each transaction to substantiate your calculations.

Read: How to calculate capital gain on future and options trading?