Intraday trading is a dynamic segment of the stock market that involves buying and selling stocks within the same trading day. It enables traders to benefit from short-term price fluctuations. 

While profit generation is a key objective, it is equally important to understand the taxation on intraday trading and how profits are credited to your trading account. This article covers essential aspects including settlement timelines, account crediting, and tax implications.

What is Intraday Trading?

Intraday trading refers to the practice of buying and selling stocks on the same trading day, where all positions are squared off before market closure. 

It does not involve holding stocks overnight. Successful intraday trading generally requires an understanding of market trends, technical indicators, and appropriate risk management strategies.

How Intraday Profits are Calculated?

Intraday profits are calculated based on the net difference between the selling price and the buying price, after deducting all applicable charges such as brokerage, Securities Transaction Tax (STT), stamp duty, and other transaction fees.

Example:

• Purchase: 100 shares at ₹500 = ₹50,000
• Sale: 100 shares at ₹510 = ₹51,000
• Gross Profit: ₹1,000 (₹51,000 – ₹50,000)
• Charges (approximate): ₹100
• Net Profit: ₹900

When Does Intraday Profit Get Credited in Your Account?

Intraday profits are generally credited to your trading account on a T+1 basis (Trade Day + 1 working day). While the trade is executed on the same day, settlement occurs the next business day.

T Day: Intraday trade is executed.

T+1 Day: Profit is credited to your trading account after settlement.

Bank Withdrawal Timeline: Although the funds are visible in the trading account on T+1, actual withdrawal to your bank account may take additional time, depending on your broker’s process.

Understanding Demat Account and Intraday Trading:

A demat account is necessary for securities transactions. But in intraday trading, there is no transfer of shares to your demat account as a result of the buy-and-sell being closed in the same trading day. They stay in the broker’s system. The intraday profits and losses reflect in your trading account, which you may transfer to your bank account after settlement.

Taxation on Intraday Trading

Intraday trading taxation is different from that of an investor in capital gains, whether long-term or short-term gains or losses in stocks. Intraday trading is termed speculative business income under very specific tax implications.

How Intraday Profits are Taxed?

• Classified as Business Income: The intraday profit is treated as speculative business income as defined by the Income Tax Act.
• Deductions Allowed: Interest, depreciation, as well as brokerage, transaction charges, internet charges, etc., directly related to an intraday activity, can be deducted for arriving at taxable income.
• Taxable Under Slab Rates: They are added to the total income of an individual trader and taxed according to the slab rate applicable in each case.
• Audit Requirement: A higher turnover or a trading volume above INR 1 crore necessitates an audit by a Chartered Accountant as per Section 44AB Income Tax Act.

Example of Calculation for Intraday Tax

99000-10000-Indian Rupee expenses (Brokerage, internet, etc.)

Net Intraday Profit: INR 1,00,000

Taxable Income from Intraday Trading: INR 90,000

Applicable Tax (Assuming 30% Slab): INR 27,000

It is better for traders to maintain records for all their intraday transactions to ease their way through tax filing.

Key Aspects for Consideration as Intraday Traders

• Leverage Risks: Leverage has the potential to not only enhance the profit; it can also hyper-leverage any loss that occurs.
• Brokerage and Charges: Keep in mind that all brokerage on transactions is accounted for because it affects net profits.
• Tax Planning: Consultation with a tax practitioner for optimizing tax liability and knowing already deductions that can be claimed.
• Withdrawals and Liquidity: Profits are not available until settlement occurs (T+1 day), which in turn requires planning to make withdrawals.

Conclusion:

Intraday trading provides opportunities for short-term gains but requires informed decision-making, risk assessment, and understanding of settlement and taxation processes. Knowing when and how intraday profits are credited to your account—and their tax treatment—can help traders plan better and manage their finances more effectively.