India’s retail investors are stumbling into tax traps—many learning the hard way that profits under ₹12 lakh don’t guarantee tax exemption. Sujit Bangar, founder of TaxBuddy.com, says it’s not the income size but its classification that triggers the taxman.
Bangar broke down a recent case involving a full-time investor who assumed ₹7 lakh in net market profits meant a zero-tax liability. Instead, he got hit with a tax bill of ₹74,375. “Don’t confuse low income with low tax,” Bangar warned in a detailed LinkedIn post. “Understand how each income is classified—and taxed.”
The investor’s ₹7 lakh gain included ₹3 lakh in intraday losses, ₹2.5 lakh in futures & options gains, ₹3.5 lakh in short-term capital gains (STCG), and ₹4 lakh in long-term capital gains (LTCG). He thought the total, being under ₹12 lakh, would fall below the threshold for taxation. It didn’t.
Here’s why: each income type is treated differently under tax law.
Intraday trades are classified as speculative business income, taxed at slab rates and only set off against speculative profits, with a 4-year carry forward.
F&O trades fall under non-speculative business income, also taxed at slab rates but with broader set-off options and an 8-year carry forward.
STCG from equity is taxed at a flat 20% under Section 111A. Losses here can offset both short- and long-term gains.
LTCG, however, only gets a ₹1.25 lakh exemption under Section 112A. Gains beyond that are taxed at 12.5%, without indexation or Section 87A rebate.
Bangar emphasized that common investor mistakes stem from treating all market income as one pool. “What got him in trouble wasn’t profit—it was classification.”
His warning comes amid a surge in retail investing, with millions of Indians trading stocks and derivatives on mobile apps—often without understanding tax consequences.
“Tag someone who trades but thinks ₹12L = ‘tax-free zone,’” Bangar wrote. The message is clear: market success means nothing if it ends in a tax shock.
