Tax Treatment of Intraday & F&O Trades Taxpayers who trade in shares and derivatives often face a dilemma when filing Income Tax Returns (ITR). Under Indian tax law, Section 43 of the Income Tax Act applies until FY 2025‑26, while Section 66(31) takes effect from FY 2026‑27. Both sections classify any transaction that is squared off without actual delivery—such as intraday trading and Futures & Options (F&O)—as a speculative transaction. Consequently, the profits or losses from these trades must be reported under the head *Profits and Gains of Business or Profession*, not *Capital Gains*.
Delivery‑Based Trades & Capital Gains Delivery‑based equity trades are, on the face of it, taxable under *Capital Gains*. However, whether they are treated as business income depends on several facts: the volume of trades, the source of money used for investment, the average holding period, and the taxpayer’s intent. If these factors indicate a business‑like activity, the gains may be re‑classified as business income. In such cases, the taxpayer can claim deductions and expenses that are otherwise unavailable under the capital gains head.
Practical Implications & STT If you have previously reported intraday or F&O profits as capital gains, it is not too late to correct the mistake. You can amend past ITRs to reflect the correct head, though the tax liability may change. Securities Transaction Tax (STT) is not allowed as an addition to the cost of shares nor a deduction from the sale price when computing capital gains. However, STT can be claimed as a business expenditure for trades that are treated as business income. For delivery‑based trades reported as capital gains, STT cannot be deducted.
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