Income Tax on Trading in India: Intraday, F&O & Capital Gains

What is the tax treatment for different types of trading?

Trading activity in India falls into three distinct tax categories. Intraday equity trades—where shares are bought and sold on the same day—are classified as speculative business income under the Income-tax Act, 2025. Delivery-based equity trades result in capital gains: short-term if held twelve months or less, long-term beyond that. Futures and options, regardless of duration, are treated as non-speculative business income. Each category has unique tax rates, set-off rules and compliance requirements that traders must understand to file returns correctly.

How is intraday equity trading taxed?

Intraday equity profit is added to total income and taxed at the applicable slab rate. Because it is speculative business income, losses can only be set off against other speculative income in the same year. If a trader has no other speculative profit, the loss must be carried forward and can offset speculative gains in any of the next four years. Speculative losses cannot reduce salary, F&O profit or capital gains. Traders must maintain books of accounts if turnover exceeds the thresholds under the presumptive taxation scheme, and a tax audit may be required. Every intraday transaction incurs securities transaction tax at 0.025% on the sell side and stamp duty at 0.003% on the buy side, plus brokerage, exchange transaction charges, SEBI turnover fee of Rs 10 per crore and 18% GST on brokerage and charges.

What are the capital gains tax rates for equity delivery?

Equity shares held twelve months or less and sold on a recognised stock exchange with STT paid on both purchase and sale attract short-term capital gains tax at 20% plus applicable surcharge and cess. For holdings beyond twelve months, long-term capital gains are taxed at 12.5% on the amount exceeding Rs 1.25 lakh in a financial year, with no indexation benefit. These rates have been in effect since 23 July 2024. STT on equity delivery is 0.1% on both buy and sell transactions; stamp duty is 0.015% on the buy side only. Capital losses can be set off: short-term losses offset both short-term and long-term gains, while long-term losses offset only long-term gains. Unabsorbed capital losses carry forward for eight years.

How are futures and options taxed?

F&O profit is non-speculative business income taxed at slab rates. Turnover for F&O is calculated as the absolute sum of all profit and loss differences plus the total premium received on options sold during the year. Business expenses such as brokerage, STT, stamp duty, GST, internet charges and depreciation on hardware can be deducted. Non-speculative business losses can be set off against any business income or profession income in the same year but not against salary. Unabsorbed losses carry forward for eight years and can offset business or profession income in future years. Tax audit requirements apply if turnover exceeds specified limits or if losses are being carried forward; traders should consult a chartered accountant.

Worked example

Consider a trader who bought 100 shares of HDFCBANK on 15 October 2026 at the NSE daily closing price of Rs 726.85 and sold them on 22 October 2026 at the close of Rs 694.05. The holding period is seven days, so the transaction qualifies as a short-term capital gain. Purchase value is Rs 72,685; sale value is Rs 69,405; the loss is Rs 3,280 before costs. STT on purchase is Rs 72.69 (0.1% of Rs 72,685) and on sale Rs 69.41 (0.1% of Rs 69,405), totalling Rs 142.10. Stamp duty on purchase is Rs 10.90 (0.015% of Rs 72,685). Assume brokerage of Rs 20 per trade (Rs 40 total), exchange transaction charges of Rs 5 and SEBI fee of negligible amount; GST at 18% on Rs 65 (brokerage plus charges) is Rs 11.70. Total costs are Rs 204.70. Net short-term capital loss is Rs 3,484.70. This loss can be set off against any other short-term or long-term capital gains in the same year or carried forward for eight years.

What are securities transaction tax and stamp duty?

Securities transaction tax is levied by the central government on every trade. From 1 April 2026 equity delivery incurs 0.1% STT on both buy and sell, equity intraday 0.025% on sell side only, equity futures 0.05% on sell side (raised from 0.02%) and equity options 0.15% of premium on sell side (raised from 0.1%). When an option is exercised, the buyer pays 0.15% STT on the intrinsic value of the contract. Stamp duty is uniform nationwide under the Indian Stamp Act amendment of July 2020 and is collected on the buy side only: 0.015% for delivery, 0.003% for intraday, 0.002% for futures and 0.003% for options. Both STT and stamp duty are deductible expenses when computing taxable income for business income categories and acquisition cost for capital gains.

What is the tax audit requirement for traders?

The Income-tax Act, 2025 requires a tax audit if business turnover exceeds specified thresholds or if losses are being claimed and carried forward. For F&O, turnover is the sum of absolute profit and loss amounts plus premium on sold options; even a small number of trades can push turnover above the limit. The audit must be conducted by a chartered accountant, who will issue a report on the books of accounts, profit and loss statement and balance sheet. Traders should maintain detailed records of all trades, contract notes, bank statements and expense receipts. The presumptive taxation scheme offers simplified compliance for eligible businesses, but traders relying on it must still satisfy income declaration requirements.

Common mistakes

Many traders incorrectly attempt to set off F&O losses against salary income, which is not permitted. Speculative losses are often mistakenly carried forward beyond four years or set off against non-speculative income. Another error is failing to include STT and stamp duty as acquisition or sale expenses, which inflates taxable gains. Traders sometimes confuse the twelve-month holding period for equity LTCG, counting from trade date instead of settlement date. Ignoring the Rs 1.25 lakh exemption threshold for LTCG leads to overpayment. Finally, not maintaining proper records or missing the tax audit deadline results in penalties and disallowance of losses, so engaging a chartered accountant early in the financial year is advisable.