Educational Reference
Tax on Trading in India for FY26 (Cash Equity, F&O, Crypto, ETF, Mutual Funds)
Trading taxation in India was substantially restructured in Budget 2024 (effective from July 23, 2024 onwards) and remains the FY26 baseline. The five-instrument tax framework — cash equity, F&O, crypto, ETFs, mutual funds — has materially different treatments. This page is a practical reference for active retail traders, with the standard caveat: this is educational; consult a CA for your filing.
Cash equity capital gains
STCG (held <12 months): 20% (raised from 15% in Budget 2024). LTCG (held >12 months): 12.5% on gains beyond ₹1.25 lakh per financial year (raised from 10%; exemption raised from ₹1L). Cess and surcharge apply on top per slab. STT continues to apply at the transaction level. Practical implication: short-term active equity trading now has a ~20% effective tax drag on profits before any other costs; long-term holding under 12 months has the same treatment.
F&O income — business income, not capital gains
F&O income (futures, options, both index and stock) is treated as business income under Section 43(5) — non-speculative business. Taxed at slab rate (10/20/30% depending on total income). Losses can be set off against other heads in the same year and carried forward 8 years. Audit requirements: turnover >₹10 crore mandates audit; turnover ₹2-10 crore mandates audit if profit <8% of turnover. Most retail F&O traders fall into the audit-required band even at modest absolute profits.
Crypto taxation (the strict regime)
Capital gains from VDA (Virtual Digital Assets including crypto): 30% flat tax, no slab benefit, no expense deduction. Losses from crypto cannot be set off against any other head and cannot be carried forward. TDS at 1% on every crypto transaction above ₹50,000 (₹10,000 for some categories). The strictness of this regime makes active crypto trading materially less attractive than equity F&O for the same gross returns.
ETF and mutual fund treatment
Equity ETFs / equity-oriented mutual funds: same as cash equity (20% STCG, 12.5% LTCG with ₹1.25L exemption). Debt mutual funds (purchased after April 2023): always taxed at slab rate regardless of holding period (effectively no LTCG benefit). Hybrid funds: depends on equity allocation; >65% equity gets equity treatment, <65% gets debt treatment. The fund category matters more than the fund itself.
Practical implications for active retail traders
1) The tax drag on cash-equity short-term trading at 20% is meaningful — at 60% win rate with average 1.5R wins and 0.9R losses, the post-tax expectancy drops by ~25% versus pre-tax. Position sizing should adjust. 2) F&O business-income treatment with audit requirement makes trading at moderate-but-not-tiny scale operationally heavier — most successful F&O traders engage a CA familiar with trader filings (₹15-30K/year typical fee). 3) Crypto active trading is structurally tax-disadvantaged; most Indian retail crypto participants are better off long-term holding than active trading. 4) NRIs trading Indian markets have additional layers (TDS on transactions, DTAA implications) — covered separately in our NRI article.
FAQ
Frequently asked questions
Are the Budget 2024 changes permanent?
Subject to the usual caveat that any future Finance Bill could change them, yes. The 20% STCG / 12.5% LTCG framework is the FY26 baseline.
How is Long-Term Capital Loss treated?
LTCL on cash equity can be set off only against LTCG (not STCG), can be carried forward 8 years. Below ₹1.25L of total LTCG in a year, no tax means no loss to claim either.
Do I need an audit for F&O trading?
Audit triggered if F&O turnover >₹10 crore unconditionally, or if turnover ₹2-10 crore and profit <8% of turnover. Note F&O turnover is computed peculiarly — sum of absolute profits and losses per trade, not gross transaction value. Most active retail F&O traders cross ₹2 crore in this measure even with small absolute capital.
Can I claim broker fees as deduction?
For F&O business income: yes, all costs (brokerage, STT-like charges, taxes, exchange fees, software subscriptions, internet) are deductible. For cash-equity capital gains: only STT-eligible costs and brokerage are deductible from the sale price.
Is intraday equity treated differently from delivery?
Yes — intraday equity is speculative business income (not capital gains and not F&O business). Slab rate. Losses can be set off only against speculative gains. Most active retail intraday-equity traders find this category disadvantageous and migrate to either delivery-based equity (capital gains) or F&O (non-speculative business).
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