You need to disclose the gains or losses you make through equity market trading under capital gains while filing your income tax return (ITR). However, the gains/losses are treated as capital gains only if your money remains in the equity market for at least a day. Gains/losses incurred on intraday trading is, however, not treated as capital gains, and needs to be disclosed in the ITR differently.
Intraday trading
Buying and selling of stocks within the same trading day is known as intraday trading. Typically, in such cases the intention of the investor is not to invest for the long term based on the growth prospects of a company, but making gains based on volatility of shares on a particular day.
Intraday trading can be done through a demat account. Traders or investors have to mention while buying a particular share whether she intends to invest for intraday or delivery (to hold the shares for more than one day).
Income tax head
As mentioned above, intraday trading is not done with the objective of making gains in the long term and, therefore, it is considered as speculation. Therefore, income from intraday trading is either speculation gain or loss, which comes under the business income category.
While capital gains from equity are taxed at concessional rates or are exempt from tax, gains from speculation in the equity market are taxed at normal slab rates.
Also, losses arising from intraday trading are allowed to be set off only against profit from any other speculative business. If you are unable to set off losses from speculative investments in the year of occurrence, you can carry forward it to the next four assessment years. To carry forward the losses, you must disclose them in your ITR.
Required ITR form
If you are a salaried individual and made gains or losses from intraday trading in financial year 2017-18, you must file your return in ITR form 3 for assessment year (AY) 2018-19.
While calculating net losses or gains from intraday trading, you can deduct security transaction tax (STT) paid on your transactions. Other expenses incurred solely for trading can also be claimed as deduction.
ITR forms for AY 2018-19 need more details compared to ITR forms for earlier AYs. Make sure you disclose all the required details.