How are profits from intraday and F&O trading taxed?

Good Morning ,

I have stopped FNO, intraday trading activities due to risk and additional tasks w.r.t tax i.e
tax audit , preparing balance sheet etc

Interested in Swing trading , Have salary income , Please clarify below query’s

1.Is Swing trading(only in Shares,ETF’s) considered as business income or it’s considered as capital gains
2.Any relation w.r.t number of trades executed, the amount involved in trades (i.e say turnover) due to which Swing trading will be considered as business income.
3. Please share points that should be considered so that Swing trading will not be considered as Business income.

Few authors suggest if swing trading frequency is more then it has to be considered as Business income.


Hi @sridharan_K

Here are answers to your questions.

  1. This depends upon your intention to trade. It can be considered as business income if it is your only source of income, or else it can be treated as capital gains.
  2. No, there are no such criterias for considering it as a business income.
  3. It solely depends upon intention.

Hope this helps.

@Shrutika_Shah Mam,

Thank you for the response, requesting a few minutes of your time regarding the point [It solely depends upon intention]

Assuming am a salaried person, for example, in a 1 year per month I make around 10 trades(5 buy 5 sell) (Swing trade will make sure that I initiate sell only after delivery of stock)

Effectively around 120 trades in a year, Say have an absolute profit of 5 lacs with a turnover(considering absolute value) of buying,selling is around 1 crore.

As per my understanding even in above case only 15% of STCG on 5 lacs needs to be paid, and the above trading activity/income will not considered as Business income or speculation trading.
And in loss I can carry forward the same

When we upload tax pnl reports to Quicko during filing , If Quicko suggests only CG tax and selects appropriate ITR, any additional review(Tax, CA team) is required?

Please validate.


Just a follow-up question to the one asked by Sridharan above. Since I am trading full-time this year, I have disclosed short-term trades (STCG) as business income. Next year I am planning to take up a job. Hence the frequency of trading reduces and intention also changes. So next year, can I declare STCG as STCG and pay 15% tax? Or should I compulsorily declare it as business income from now on even if circumstances change? Thank You!

Hi @sridharan_K

Yes, your understanding seems to be correct.

Hi @M_Sridhar

Yes, you can declare STCG when your intention changes in the next year.

@Shrutika_Shah mam, Thank you for the time and valuable response.

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I’m a salaried individual and a swing trader. I have a few questions:

  1. Can I claim business expenses for swing trading profits?
  2. Should I form a sole proprietorship for trading, and does it need a separate name?
  3. Is preserving vouchers and bookkeeping necessary?
    Seeking concise advice. Thanks!

Hey @abhijeetkharat9,

Income from Swing trading is generally considered as short-term capital gains and in case of short-term capital gains, you’ll not be able to claim business expenses.

Alternatively, reporting of swing trading as Business income depends on the intention of trading. If you are a full-time trader, you can also report your Income from swing trading as Business income while filing the ITR. In this case, you’ll be able to claim all business-related expenses. Moreover, you’ll have to maintain the proof of expenses that you are claiming and also maintain books of account and file ITR 3.
Forming a separate sole proprietorship does not achieve anything. Taxes will be applicable at the same rate and expenses can be claimed even without forming a separate entity by just disclosing swing trading as your Business Income.
There can be various other aspects too before determining whether a separate entity is required or not.

For detailed understanding on the same, you can book a MEET using the below link, where one of our tax experts can connect with you and provide assistance.

Ask an Expert

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Hi team,

I have an annual income of ₹50 lakhs from my salary. Recently, I started algo trading, and my profits are increasing (approximately ₹7 lakhs, with a capital of around ₹12 lakhs, if it matters), which is raising my taxable income since I use my personal account for trading.

I’m considering whether I need to open a corporate entity to save on taxes. If so, at what income level from trading should I create a corporate entity to justify the associated costs? Additionally, which type of entity should I open?

P.S.: The algorithm does intraday and swing trading, but it doesn’t involve F&O. I am the sole individual in this business process, with no partners.

Hey @grand_devish,

Yes, I understand that when your taxable income goes above 50 Lakhs, a surcharge would be applicable that can often bring the tax rate to about 42% whereas if you incorporate a company, you’d be liable to pay tax at a flat rate of 25%.

If you are looking to incorporate a company you’ll require an NFBC licence from RBI. An NFBC licence is required when a company generates more than 50% of revenue from its financial assets, which will be the case if the company is incorporated for trading purposes. This licence has many regulations and conditions attached to it.

Incorporating a company may seem beneficial as it allows you to claim expenses, but that could also be done if you are trading in your individual name using ITR-3. Intraday and F/O trading is considered as “Business income”. Hence, you can always claim the expenses related to the business i.e. trading in your case, while filing the ITR.

You can read the below blog to know in detail!

If you wish to know further and in detail about taxes on trading income and the type of entities that you can form, you can book a MEET using the below link:

Thanks for the reply @Surbhi_Pal !

As per the page mentioned by you

When a company files for incorporation with the ROC for a Pvt Ltd company with the purpose of business as ‘Derivative trading’ anywhere in the AOA, ROC will ask for the Reserve Bank’s NOC for NBFC

However, I don’t do FnO and the intraday trades are <10% of my entire trade. Most of my trades are carried over to next day. In such a case, is NBFC licence required?

Hello @grand_devish,
Initially, when you incorporate a company, you need to mention the Main object and subsidiary object of the company.
I understand only Intraday and F&O would be treated as trading income and not delivery based investments. Doing full time trades in delivery segment would also be treated as business income since you are full time involved in that activity. Thus, it would become difficult to convince AO that income from investment done by a company is to be taxed under capital gains and not Business & Profession.
To conclude, there is no requirement of NBFC License in case you mention the object as Investment and not trading.

Hope this helps!

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Having profit from intraday stcg and ltcg and dividend. Can we file Itr3 no account case and disclose intraday profit under presumptive income

Hey @Vikash689,

Yes, ITR 3 needs to be filed as intraday profits needs to be reported as business income. Moreover, presumptive taxation scheme is for individuals with small businesses who are unable to maintain books of accounts. However, in case of trading income, books of accounts can be easily maintained, and hence, we do not recommend reporting the same under presumptive income.

What are expenses can be claimed for speculation business income. Can we claim rent telephone expenses stationary etc. And can we treat stcg and ltcg as business income as tax payee dont have any other business

Hey @Vikash689,

Yes, all expenses that were incurred with respect to the business, i.e trading in this case, can be claimed.
Moreover, the reporting of trading income depends on the intent of the trader. Hence, if you do full-time trading, you can show the long-term and short-term gains as business income.

Hope this helps!

But in previous year i disclosed income as stcg can i disclose it as business income in this year

Hello @Vikash689

There is no restriction on changing the reporting treatment of Capital Gains in ITR. You can report it based on the intention like if in a particular financial year, if you were doing trading full time and number of trades are much more than usual, then you can treat it as Business Income for that particular financial year.

It does not matter whether you showed the same under Capital Gains or Business Income in the previous year.

Thank you.

Ok sir
Than in this case can i file Itr4 or if i file Itr3 how to disclose dividend income in itr will it be disclosed. Kindly reply