Intraday trades and derivatives

Intraday equity and exchange-traded derivatives are taxed as business income, not as capital gains. Inside business income they do not even share a bucket. This chapter separates the buckets and the records each one needs.

Intraday equity is speculative business income

When you buy and sell the same equity quantity on the same trading day, you never take delivery. The difference is speculative business income under Indian tax law. The practical sting is set-off. A loss in this bucket cannot be adjusted against your salary, against a capital gain, or against a non-speculative business profit. It can be set against speculative gains, and unused loss has a carry-forward period that exists only if you file the return within the time the law requires. A year of intraday losses that you forget to file properly is a year of losses that may not be there when you later have a speculative gain.

Futures and options are business income of the other kind

Index and stock futures, and options, are non-speculative business income. A loss here has a wider set-off than a speculative loss. It still is not a capital loss, and it still needs a return that declares it. The turnover figure used to decide whether an audit or a particular form applies is defined by the tax rules and by guidance that has been updated more than once. For options, turnover is not ‘premium times lot added up for fun’, and for futures it is not the total contract value. Use the current guidance. A wrong turnover can suggest you needed an audit when you did not, or the reverse, which is worse.

A day that contains all three

You deliver a share you have held for fourteen months, you square off a different share intraday, and you book a loss on a Nifty future. You have three labels before lunch. They do not net into one number called ‘trading’. On your sheet they sit in three columns: long-term capital gain, speculative business, non-speculative business. Charges follow the trade they belong to. The brokerage on the future does not reduce the capital gain. This is tedious and it is the whole job.

What to keep during the year

• Daily contract notes, not only the annual profit-and-loss PDF.
• A ledger that separates delivery, intraday equity, and derivatives.
• Evidence of charges, so each bucket is stated after the costs the law allows.
• The advance-tax dates, because business income does not wait politely for salary TDS to solve it.
• A note of any loss you might want to carry forward, and the filing date that keeps it alive.

What to remember

• Same-day equity is speculative business income. The loss is stuck inside that bucket.
• Futures and options are non-speculative business income. Turnover has a defined meaning you should look up for the year.
• Do not net the three labels into the app’s single green or red total.
• Carry-forward is a filing privilege, not an automatic memory of the tax department.
• A chartered accountant is cheaper than a wrong bucket.