Intraday Trading and Share LTCG Require ITR-3, Separate Tax Treatment
An individual who has both intraday share trading and long-term capital gains from delivery-based shares cannot report them as a single "share market income". The two are taxed under different heads, and the combination decides the return form. For a common case, say a taxpayer with Rs 12 lakh in total from intraday trading and long-term gains on shares, the answer is ITR-3, with the intraday result shown as speculation business income and the investment gain shown separately as long-term capital gain.
Why ITR-3 and not ITR-2 or ITR-4
According to the Income Tax Department's ITR-3 help page, ITR-3 applies to individuals and HUFs having income under the heads Salary or Pension, House Property, Profits or Gains of Business or Profession, Capital Gains or Income from Other Sources, and is used by those not eligible for ITR-1, ITR-2 or ITR-4. ITR-2 covers capital gains but not business income. Once intraday trading is treated as a business, ITR-2 is ruled out. ITR-4 is a presumptive-income return and does not provide the reporting needed for long-term capital gains of this kind, and ITR-1 cannot be used where long-term capital gain on listed equity exceeds Rs 1.25 lakh. Both income streams go in the same ITR-3, in their respective schedules.
Intraday trading: speculation business
Equity shares bought and sold on the same day without taking delivery are speculative transactions, so the net result is income or loss from a speculation business, not a capital gain. This classification affects the return form, the profit and loss statement, the treatment of directly connected expenses such as brokerage, and how any loss can be used.
From Tax Year 2026-27, the loss rules are in section 113 of the Income-tax Act, 2025, which corresponds to section 73 of the Income-tax Act, 1961. Section 113(1) provides that a loss computed in respect of a speculation business can be set off only against profits and gains of another speculation business. Under section 113(3), such a loss cannot be carried forward for more than four tax years immediately succeeding the tax year in which it was first computed. An intraday loss therefore cannot reduce salary, capital gains or ordinary business profit. To carry the loss forward, the return must be filed within the due date.
The taxable figure is the trading result computed from contract notes and the broker ledger, not the gross purchase or sale value shown by the broker. Turnover for intraday trades is worked out separately, and it is relevant for deciding whether books of account or a tax audit are required. Income, profit and turnover are different measures, so the Rs 12 lakh total cannot answer that question.
Delivery-based shares: long-term capital gains
Shares taken into the demat account and held as investments are assessed separately. Doing intraday trades does not by itself turn every investment into stock-in-trade; the treatment in the taxpayer's records, the holding period and the nature of the transactions decide it.
From Tax Year 2026-27, gains on long-term listed equity shares are taxed under section 198 of the Income-tax Act, 2025, titled "Tax on long-term capital gains in certain cases". It applies to long-term gains on equity shares where securities transaction tax (STT) under Chapter VII of the Finance (No. 2) Act, 2004 has been paid on both acquisition and transfer, and to units of equity-oriented funds and business trusts where STT is paid on transfer. Under section 198(2), tax is charged at 12.5% on such long-term capital gains exceeding Rs 1,25,000, and the rest of the income is taxed as if these gains were not part of it. Section 198(4) carves out certain transfers on a recognised stock exchange in an International Financial Services Centre where consideration is paid in foreign currency.
Why Rs 12 lakh does not mean zero tax
A common mistake is to compare the combined figure with a headline tax-free threshold and conclude that no tax is payable. The special-rate capital gain under section 198 is computed separately from the income taxed at slab rates, so any rebate or threshold relief must be tested on each component under the law for that year. The computation should start by separating the speculation result from the long-term gain, and then take in other income, deductions, brought-forward speculation losses, surcharge and cess.
Old law and new law
| Point | Income-tax Act, 1961 (up to FY 2025-26) | Income-tax Act, 2025 (from Tax Year 2026-27) |
|---|---|---|
| Speculation loss set-off and carry forward | Section 73 | Section 113 |
| Long-term gains on STT-paid listed equity | Section 112A | Section 198 |
Returns for FY 2025-26 (AY 2026-27) are filed under the 1961 Act, while trades from 1 April 2026 fall in Tax Year 2026-27 under the 2025 Act. Taxpayers should use the return form notified for the relevant year.
Records to keep
- Intraday: broker-wise trade statements, contract notes, ledger extracts and proof of directly related expenses, with turnover computed on the accepted method.
- Investments: demat statements showing acquisition and sale dates, quantity and cost, and STT paid.
- Reconciliation of capital gains and trading figures with the Annual Information Statement before filing.
- Advance tax working, since share market income can create interest exposure if tax is paid late.
Updated on 27 September 2026: refreshed for Tax Year 2026-27 under the Income-tax Act, 2025 with sections 113 and 198 and their 1961 Act equivalents, added the 12.5% rate, Rs 1,25,000 threshold, STT conditions, four-year carry-forward limit and links to official sources.
