Ask three traders how their stock market income is taxed and you'll get three different answers — and all three could be correct, because "stock market income" isn't one tax category in India. Delivery-based investing, futures & options (F&O) trading, and intraday trading are each taxed under entirely different rules, at different rates, in different ITR forms. Filing the wrong one is one of the most common — and most avoidable — mistakes in Indian tax filing.
The four buckets, at a glance
| Activity | Tax treatment | ITR form | Loss carry-forward |
|---|---|---|---|
| Delivery, held <1 year | STCG (Sec 111A) — 20% | ITR-2* | 8 years |
| Delivery, held >1 year | LTCG (Sec 112A) — 12.5% above ₹1.25L | ITR-2* | 8 years |
| F&O trading | Non-speculative business income, slab rate | ITR-3 | 8 years |
| Intraday equity trading | Speculative business income (Sec 43(5)), slab rate | ITR-3 | 4 years |
*ITR-3 instead if you also have any F&O or intraday activity. Note on section numbers: this table uses the numbering that applies to the return you're filing right now for AY 2026-27, which covers income earned before 1 April 2026 — still governed by the Income-tax Act, 1961. Income earned from April 2026 onward falls under the new Income-tax Act, 2025 (see our explainer on what changes), which renumbers these provisions for the filing season after this one.
Delivery-based investing: STCG at 20%, LTCG at 12.5%
If you buy and hold shares or equity mutual fund units in your demat account before selling, you're in capital gains territory, not business income. Sell within 12 months and the gain is short-term, taxed flat at 20% under Section 111A. Hold beyond 12 months and it's long-term, taxed at 12.5% on gains above a ₹1.25 lakh annual exemption under Section 112A, with no indexation benefit. Neither of these rates changed in the two Budgets since the July 2024 rate revision, so they carry over unchanged for this filing season. One easy-to-miss detail: the Section 87A rebate does not apply to either 111A or 112A gains, even if your total income would otherwise qualify — so don't expect these gains to be wiped out by the rebate the way ordinary slab income can be.
Run your actual numbers through the capital gains tax calculator before you file — it separates STCG and LTCG automatically and applies the exemption correctly, which is easy to get wrong by hand across multiple transactions.
F&O trading: it's a business, not an investment, in the eyes of the law
Profit or loss from futures and options is classified as non-speculative business income, reported under "Profits and Gains from Business or Profession" — which forces you into ITR-3, never ITR-2, regardless of how small your F&O activity was. This matters because it also opens up business-style deductions (brokerage, internet, advisory fees) that pure capital gains don't allow.
Tax audit thresholds for F&O
Turnover for F&O is computed as the absolute sum of profits and losses across all trades (not net profit) — a trader who made ₹3 lakh on some trades and lost ₹2 lakh on others has a turnover of ₹5 lakh, not ₹1 lakh. Tax audit under Section 44AB becomes mandatory when:
- Turnover exceeds ₹10 crore, provided cash receipts and cash payments are each under 5% of the total (nearly all F&O trading qualifies, since it's electronic) — otherwise the threshold drops to ₹1 crore.
- Turnover is up to ₹2 crore but you declare profit below the presumptive threshold and your total income exceeds the basic exemption limit — in that case audit applies regardless of the turnover-based thresholds above.
F&O losses carry forward for 8 assessment years and can be set off against any future business income, not just future F&O profit.
Intraday trading: a separate speculative business, with stricter loss rules
Buying and selling the same stock within a single trading day without taking delivery is speculative business income under Section 43(5) — a completely separate computation from F&O, even though both end up on ITR-3. The distinction matters most when things go wrong: speculative losses can only be set off against speculative profits, not against your salary, capital gains, or even your F&O business income. They also carry forward for only 4 years, half the window F&O and capital losses get. A trader who mixes intraday losses with F&O profits in the same year needs to keep the two computations genuinely separate, not netted together, before the loss set-off rules are applied.
Which ITR form for your actual mix
| Your situation | Correct ITR form |
|---|---|
| Salary + delivery-based STCG/LTCG only | ITR-2 |
| Salary + delivery gains + any F&O, even one trade | ITR-3 |
| Salary + delivery gains + intraday only, no F&O | ITR-3 |
| Pure F&O or intraday trader, no salary | ITR-3 |
The pattern to remember: any F&O or intraday activity forces ITR-3 for your entire return, even if 95% of your income is simple salary and delivery-based capital gains that would otherwise sit comfortably in ITR-2. If you're a pure delivery investor with no trading business income at all, see our first-time ITR-2 filing guide instead.
Why your broker's tax P&L statement is doing half the work
Every number above — turnover for audit thresholds, scrip-wise LTCG detail, the speculative/non-speculative split — depends on a clean statement from your broker. Brokers with strong tax-reporting tools (Zerodha's Console and Dhan's tax P&L reports are commonly cited for exactly this) can export F&O turnover and capital gains in a format that maps directly onto ITR schedules, which matters more than the brokerage rate itself once you're filing a business-income return every year.
Dhan
account opening
AMC / year
delivery
intraday
Compare reporting quality alongside brokerage and account charges on our demat account comparison, or check exact per-trade costs with the brokerage calculator before you pick a primary trading account.
A quick worked example
Suppose in Tax Year 2025-26 you have: ₹80,000 STCG from delivery trades, ₹2,00,000 LTCG from delivery trades, a ₹40,000 loss from F&O, and ₹15,000 profit from intraday. Your STCG is taxed at 20% (₹16,000). Your LTCG, after the ₹1.25 lakh exemption, leaves ₹75,000 taxable at 12.5% (₹9,375). Your F&O loss of ₹40,000 is a non-speculative business loss, deductible against other business income or carried forward. Your ₹15,000 intraday profit is speculative business income, taxed at your slab rate and kept in a separate ledger from the F&O loss — the two cannot be netted against each other for set-off purposes. Because you have F&O and intraday activity, this entire return — including the STCG and LTCG — must be filed on ITR-3, not ITR-2.
Frequently Asked Questions
Do I need a CA if I trade F&O, even with a small turnover?
Not legally required below the tax audit threshold, but ITR-3 with business income schedules is considerably more complex than ITR-2 — most F&O traders find a CA's review worthwhile even when audit isn't mandatory.
Can I set off my F&O loss against my salary income?
No. Business losses (speculative or non-speculative) cannot be set off against salary income in the same year — only against other business income, or (for non-speculative losses) carried forward against future business income.
I only did one intraday trade all year — do I still need ITR-3?
Yes. There's no minimum-activity exemption; any intraday trade, however small, is speculative business income and requires ITR-3.
Is the ₹1.25 lakh LTCG exemption per stock or per year?
Per financial year, across all your listed equity and equity mutual fund LTCG combined — not per transaction or per stock.
What counts as "cash transactions" for the ₹10 crore F&O audit threshold?
Physical cash receipts and payments, not digital settlements. Since F&O trading settles electronically through your broker and exchange, almost all traders qualify for the higher ₹10 crore threshold rather than the ₹1 crore one.
Do dividends from my stocks get taxed the same way as capital gains?
No — dividends are taxed as "income from other sources" at your slab rate, reported in Schedule OS, entirely separate from the capital gains or business income rules covered here.