Share trading profits aren't always reported as capital gains; check when they qualify as business income

If you have been trading in the stock market and think every profit you make should be reported as capital gains while filing income tax return (ITR), it may sooner or later lead to an income tax notice and other consequences.

In some cases, share trading profits are instead treated as business income for tax purposes, depending on the nature and frequency of your trades.

This distinction is particularly important because ITR filing deadline for business income is just a few days away. While capitals gains can be reported through ITR-1 or ITR-2, for which the deadline is July 31, taxpayers reporting business income through ITR-3 or ITR-4 have until August 31 to file their returns.

If you participate in intraday and futures & options ( F&O ) trading, then you must know that these transactions are treated differently from regular equity transactions in India. This rule applies even if you carried out just one trade during the financial year.

Intraday trading is deemed speculative business income, while F&O gains are classified as non-speculative business income.

Since both intraday and F&O trading are considered business income, a taxpayer must file ITR-3. However, taxpayers opting for the presumptive taxation scheme, subject to eligibility conditions, can file their returns using ITR-4 instead.

These transactions must be reported in the ITR under the head "Profit and Gain From Business or Profession," and taxed at the applicable slab rate of a person. This means the profits will be added to the rest of your other income and then taxed accordingly, depending your tax regime and slab rate.

The rules for setting off losses differ for intraday and F&O trading. Intraday trading losses, being speculative in nature, can be adjusted only against speculative business income . They can also be carried forward for up to four assessment years, provided the ITR is filed within the due date.

F&O losses, on the other hand, can be set off against any income except salary in the same financial year. Unadjusted losses can be carried forward for up to eight assessment years and set off against future non-speculative business income, but not against speculative business income.

Delivery-based share transactions are generally taxed as capital gains . However, the profits may be treated as business income depending on the facts and circumstances of the taxpayer.

Factors such as the volume and frequency of transactions, source of funds, average holding period, the taxpayer’s intention and the accounting treatment in the books are taken into consideration when determining whether the gains should be classified as business income or capital gains.

According to a report by stock brokerage firm Groww , frequent delivery trading is treated as business income and must be reported in ITR-3 within the stipulated deadline. For AY 2026-27, the due date is August 31, 2026.

Therefore, there is no single rule that applies to all delivery-based trades. The classification depends on the overall nature of the transactions.

Eshita Gain is a digital journalist at Mint, where she joined in May 2025.