Intraday Trading & ETF Trading
Intraday Trading
Intraday trading allows us to buy and sell stocks within the same day to maximize profits from small price movements.
Intraday ETF Trading
Intraday ETF trading enables us to trade diversified funds throughout the day, capturing short-term price changes while managing risk.
Pros and Cons
Pros
- Potential for Quick Profits
- No Overnight Risk
- Leverage Opportunities
- Flexibility
Cons
- High Risk
- Emotional Stress
- Requires Experience
- Transaction Costs
Taxation on ETFs in India
Tax Implications
| Holding Period | Tax Rate | |
|---|---|---|
| Up to 1 year | Equity ETFs | 20% for equity ETFs under section 111A (STCG) |
| More than 1 year | Equity ETFs | 12.5% without indexation benefits, effective from July 23, 2024, on gains above ₹1 lakh (LTCG) |
| Up to 3 years | Debt/ Gold ETFs | As per Slab rate (STCG) |
| More than 3 years | Debt/ Gold ETFs | 20% with indexation (LTCG) |
| Dividends | All ETFs | Taxed as per income slab (TDS of 10%) |
Overview of Tax Changes Post-Budget 2024
The rules for taxing short-term capital gains (STCG) on various asset types have been updated, which affects both holding periods and the applicable tax rates.
Summary of Key Changes
Equity Mutual Funds and Domestic Equity ETFs
- Before Budget 2024: STCG was taxed at 15% if held for up to 12 months.
- After Budget 2024: STCG is taxed at 20% for holdings of up to 12 months.
Debt Mutual Funds
- Purchased Before April 1, 2023:
- Holding Period: Up to 36 months taxed at slab rates.
- After Budget 2024: Up to 24 months still taxed at slab rates.
- Purchased After April 1, 2023: Always considered short-term and taxed at slab rates.
International Equity ETFs
- Listed in India:
- Before April 1, 2023: Up to 36 months taxed at slab rates.
- After Budget 2024: Up to 12 months taxed at slab rates.
- Listed Outside India:
- Before April 1, 2023: Up to 36 months taxed at slab rates.
- After Budget 2024: Up to 24 months taxed at slab rates.
Gold Mutual Funds and ETFs
- Before April 1, 2023: Up to 36 months taxed at slab rates.
- After Budget 2024: Gold mutual funds are always short-term; gold ETFs up to 12 months taxed at slab rates.
Fund of Funds
- Equity-oriented: STCG was taxed at 15% before and after Budget 2024 for holdings up to 12 months.
- Other funds with less than 65% in debt changed from up to 36 months to always short-term after April 1, 2023, taxed at slab rates.
Dynamic/Multi-Asset Allocation Funds
- Taxation for aggressive hybrid funds remains the same at 15% for holdings up to 12 months.
- Conservative hybrid funds purchased before April 1, 2023, change to always being short-term after Budget 2024.
Key Takeaways
- Increased Tax Rate: For certain equity and equity-related investments, the STCG tax rate has increased from 15% to 20% after Budget 2024.
- Short-Term Classification: Many funds purchased after April 1, 2023, are always classified as short-term, regardless of holding periods.
- Focus on Holding Periods: The holding periods have been shortened for tax benefits, impacting how investors may want to manage their portfolios.
That is the Situation
These changes can significantly affect investment strategies and tax planning for investors in India. Understanding these rules is crucial for maximizing returns and ensuring compliance with tax regulations. If needed, consulting with a tax advisor for personalized advice is always a good approach.
Speculative Business Income & Taxation for Intraday Trading (EFT/Stocks)
In India, intraday trading income is classified as speculative business income. Here’s what that means and how it’s taxed:
What is Speculative Business Income?
Speculative business income refers to profits from short-term transactions that don’t involve the actual delivery of goods or securities.
- Intraday Trading: Buying and selling of stocks on the same day without taking delivery is classified as speculative because you’re profiting from price fluctuations rather than holding an investment over time.
- High Risk: This type of income is inherently risky and volatile, which is why it’s treated differently from other types of income.
Taxation of Speculative Business Income in India (After July 2024)
As of the new tax rules introduced in July 2024, here’s how speculative business income is taxed:
- Tax Rate: Speculative income is added to your total taxable income and taxed according to your applicable income tax slab rate.
- Losses:
- Carry Forward: Speculative losses can be carried forward for up to four years and can only be set off against speculative gains in future years.
- Offsetting: Losses from speculative income cannot be used to offset other types of business income or capital gains. They can only offset speculative gains.
- Advance Tax: You may be required to pay advance tax on estimated earnings if your annual tax liability exceeds INR 10,000.
- Record-Keeping: Speculative trading activities must be reported as a separate business in your income tax return. Maintaining detailed records is essential.
Key Points for Intraday Traders
- Compliance: With stricter tax regulations, intraday traders need to be diligent in tracking and reporting all trades.
- Higher Taxes in Higher Income Brackets: Since speculative income is taxed at regular slab rates, those in higher income brackets may face increased tax burdens.
- Audit Requirements: If intraday trading forms a significant portion of your income and your turnover or profits exceed certain thresholds, your accounts may need to be audited.
This tax structure reflects the speculative nature of intraday trading and ensures that such income is appropriately tracked and taxed.
Taxation of Speculative Income
Old vs New Tax Regime (Post-July 2024)
Speculative business income, including profits from intraday trading, is taxed as per the individual income tax slab rates. Here’s how it works under both the old and new regimes.
Old Tax Regime
Under the old tax regime, taxpayers can continue to claim exemptions and deductions such as HRA, 80C deductions (up to INR 1.5 lakh), and others. The following slab rates apply:
Taxation of Speculative Income under Old Tax Regime (Post-July 2024)
Here’s how the slab rates work under the old tax regime for speculative income in India.
| Income Range | Tax Rate |
|---|---|
| Up to INR 2.5 lakh | No tax |
| INR 2.5 lakh - INR 5 lakh | 5% |
| INR 5 lakh - INR 10 lakh | 20% |
| Above INR 10 lakh | 30% |
Tax Exemptions & Example Calculations
Under the old tax regime, there are several exemptions that reduce taxable income, such as Section 80C (up to INR 1.5 lakh), HRA, and more. Here are two examples:
Example 1: No Tax Payable
If your total income is INR 2.4 lakh after exemptions, no tax is due, as the income falls within the INR 2.5 lakh exemption.
Example 2: Tax Calculation
For an income of INR 7 lakh after exemptions, here’s how the tax is calculated:
| First INR 2.5 lakh | No tax |
| INR 2.5 lakh - INR 5 lakh | 5% = INR 12,500 |
| INR 5 lakh - INR 7 lakh | 20% = INR 40,000 |
| Total Tax Payable | INR 52,500 |
Taxpayers with speculative income will fall into one of these slabs based on their total taxable income, including any exemptions they are eligible to claim.
New Tax Regime (Post-July 2024)
The new tax regime offers lower tax rates but without most deductions and exemptions. The revised slab rates after July 2024 are:
Income Tax Slabs (New Regime Post-July 2024)
Here's an overview of the income tax slabs for individuals under the new tax regime in India.
| Income Range | Tax Rate |
|---|---|
| Up to INR 3 lakh | No tax |
| INR 3 lakh - INR 6 lakh | 5% |
| INR 6 lakh - INR 9 lakh | 10% |
| INR 9 lakh - INR 12 lakh | 15% |
| INR 12 lakh - INR 15 lakh | 20% |
| Above INR 15 lakh | 30% |
Key Benefits
Standard Deduction:
- For Salaried Individuals and Pensioners: INR 50,000 is deductible from total income.
- For Family Pensioners: A deduction of INR 15,000 applies.
This deduction directly reduces taxable income, potentially bringing individuals into a lower tax bracket or making them eligible for other benefits, such as the Section 87A rebate.
Section 87A Rebate:
- Applicable only if taxable income after deductions is up to INR 7 lakh.
- Provides a rebate up to INR 25,000, effectively bringing the tax liability to zero for eligible individuals.
- This rebate does not apply if the income exceeds INR 7 lakh, regardless of how close it is to this threshold.
Example Calculations Incorporating Standard Deduction and Section 87A Rebate
Example 1: Income of INR 7.5 Lakh (Salaried Individual)
- Gross Income: INR 7.5 lakh
- Standard Deduction: INR 50,000
- Taxable Income After Deduction: INR 7 lakh
- Tax Calculation on Taxable Income of INR 7 lakh:
- First INR 3 lakh: No tax
- Next INR 3 lakh (INR 3 lakh - INR 6 lakh) at 5% = INR 15,000
- Remaining INR 1 lakh (INR 6 lakh - INR 7 lakh) at 10% = INR 10,000
- Total Tax Before Rebate = INR 25,000
- Section 87A Rebate: INR 25,000 (eligible since the taxable income is INR 7 lakh)
- Final Tax Payable = INR 0 (after applying the rebate)
Example 2: Income of INR 10 Lakh (Salaried Individual)
- Gross Income: INR 10 lakh
- Standard Deduction: INR 50,000
- Taxable Income After Deduction: INR 9.5 lakh
- Tax Calculation on Taxable Income of INR 9.5 lakh:
- First INR 3 lakh: No tax
- Next INR 3 lakh (INR 3 lakh - INR 6 lakh) at 5% = INR 15,000
- Next INR 3 lakh (INR 6 lakh - INR 9 lakh) at 10% = INR 30,000
- Remaining INR 0.5 lakh (INR 9 lakh - INR 9.5 lakh) at 15% = INR 7,500
- Total Tax Payable = INR 52,500
- In this case, because the taxable income exceeds INR 7 lakh, the taxpayer is not eligible for the Section 87A rebate and pays the full tax amount as per the slabs.
Summary of Key Points
Standard Deduction:
Reduces taxable income by INR 50,000 for salaried individuals and pensioners, potentially lowering tax liability.
Section 87A Rebate:
Allows for a rebate of up to INR 25,000, bringing the tax payable to zero if the taxable income does not exceed INR 7 lakh.
Higher Tax Slab Rates:
For incomes above INR 7 lakh, standard slabs apply without the benefit of the rebate.
These elements together in the new regime provide substantial tax relief for individuals with taxable incomes up to INR 7 lakh, aligning with the government’s aim to make the new tax regime more attractive and competitive with the old regime.
Speculative business income, when added to your other income, is taxed as per these slab rates under the new regime, which may be beneficial for individuals in certain income brackets.
Key Differences and Considerations
- Exemptions and Deductions: The old regime allows various deductions, which may benefit taxpayers with high deductions. The new regime has lower rates but restricts exemptions.
- Compliance Simplicity: The new regime is simpler as it avoids extensive documentation of deductions, making it potentially easier for speculative traders.
- Income Level Impact: Taxpayers with income primarily from speculation or other short-term sources may find the new regime beneficial due to lower tax rates in specific slabs.
Choosing the right regime depends on your income structure and the value of deductions available under the old regime.
You can check your Tax Calculations hereImportant Considerations for Your Intraday Trading
Tax as per your Income Slab ๐ฅ When you engage in intraday trading of Exchange-Traded Funds (ETFs), the tax implications will depend on your applicable income tax slab, which varies based on the tax regime you choose. If you opt for the old tax regime, you may be eligible for various deductions and exemptions that can affect your overall taxable income. Conversely, if you select the new tax regime, you'll benefit from lower tax rates but forfeit certain deductions.
Ultimately, the taxation on your profits from intraday trading will hinge on the regime you choose, making it essential to consider your income level and tax strategies when trading ETFs. You can save Tax by opening multiple trading accounts of family members.
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