What is Speculative Income & what is the Tax Treatment?

Income from intra-day trading is considered as speculative income and taxed as per standard slab. Section 43(5) of the Income Tax Act, 1961, deals with speculative transaction. It states that a transaction of purchase or sale of a commodity including stocks and shares settled otherwise than by actual delivery or transfer of the commodity or scrip is a speculative transaction. In intra-day trading in shares, there is no actual delivery as the shares enter and exit from the trading account on the same date and it does not enter the demat account at all.

Many salaried who get stock options from their company sometime end up with doing a day trading even without knowing. For instance; an employee exercises his stock options on the date of vesting and without holding it, he sales at the same time. For him, it just a conversion of stock option into cash, but in actual he does both buy (i.e. exercise of options) and then sale those options on the same day. In this case not only he incurs tax as perquisite by exercising the options, but also gets into speculative income for which he will have to pay tax as per his tax slab. Hence, intraday trading in shares for a salaried employee will also be treated as speculative business.

However, if shares are purchased on a particular day and are sold the next day, it is not treated as a speculative business. The profit or loss on sale of such shares is taxed as short-term capital gain. Now you should know the different rules applicable to the time frame for holding periods for the stock listed in recognised stock exchange in India and stock not listed in India (both Forgien Company & Indian Company).

Also, Section 73 mentions that loss from speculative business can only be set off against profit from such kind of business.

• As per Section 43 of the Income Tax Act, it is a speculative business.
• The income will be computed normally & taxed as per standard rate slab.
• Any amount paid towards STT paid shall be allowed as deduction.
• Loss, if any can be set off only against another speculative business.
• Loss which is not set off can be carried forward for 4 Assessment Years and can be set off only against speculative business.