The Accidental Intra-day trade

Accidentally made Intra-day trades? This can happen. Here's how to deal with it from a tax perspective. Super short blog post coming up below.

First up, why does this happen?

You might think your stock broking app will just sell your old shares. This happens most times. But if you purchase and sell the same scrip on the same day, it will be treated as an intra day transaction.

What's the tax treatment?

Intra day transactions are treated as speculative business for tax purposes. Tax treatment is NOT the same as capital gains.

How is a speculative business taxed?

- Loss from speculative business can be set off only against gains from speculative business.

- Speculative gains are taxed at slab rates.

The 44AD problem

This is where it gets interesting. If your profits from intra-day trades are less than 6% of turnover*, you will need a tax audit. Note that less than 6% also includes a loss.

*Turnover is the absolute (positive) values of gains/ losses of all intra day transactions.

I made one intra-day transaction. Tax audit seems like an overkill.

That's true. There's 2 potential ways of dealing with this

Potential solutions

a. Show 6% of your turnover as profit and call it a day.

No need for a tax audit in this case. This is the easiest solution. And you would be on the correct side of the law if you do this.

b. This is a slightly more controversial solution.

You could also show the 1-2 transactions as Short term capital gains. Note: This is not 100% correct. Check with your professional advisor before you do this.