Trading Indian F&O and intraday as an NRI: it is business income

The first thing to unlearn is the capital-gains rate. Active trading, as opposed to holding shares as investments, is treated as a business, and the profit is business income taxed at your slab rates, not the 12.5% long-term or 20% short-term capital-gains rate, and with no ₹1.25 lakh exemption. Within that, the law splits your trading in two under Section 43(5). Intraday equity, bought and sold the same day without taking delivery, is speculative business. Futures and options traded on a recognised stock exchange are non-speculative business.

That split is not academic; it drives how your losses work. A speculative loss, from intraday, can only be set off against speculative gains, and it carries forward four years. A non-speculative loss, from F&O, is more useful: it can be set off against your other business income, and carried forward eight years. So the same bad year is treated very differently depending on whether the loss came from intraday or from F&O, and keeping them separate in your records matters.

Because it is a business, the compliance is different from investing. You report it on the business-income return, not the simple capital-gains one, and a tax audit under the audit provisions can be required once your trading turnover crosses the threshold, which for digital trading is a high figure but real for an active trader. Turnover here is computed the specific way the profession requires, the sum of your profits and losses, not the contract values, so it is worth having it worked out correctly. As a non-resident you cannot use the presumptive scheme that lets small businesses skip the audit, so the audit question rests purely on the turnover threshold.

Another practical point: your broker does not deduct TDS on your trading profits. Unlike a dividend or a property sale, there is no single payer withholding tax, so you have to pay it yourself through advance tax and settle it on the return. Missing that builds up interest. A practising CA sets up the business-income filing, keeps the speculative and F&O losses correct, checks whether an audit is due, and gets the advance tax right.

There is a genuinely open question for an NRI that is worth flagging honestly. Under Indian law the trading profit arises in India and is Indian income. But under most tax treaties, business profits are taxable in India only if you carry on the business through a permanent establishment here, a fixed place of business or a dependent agent. A non-resident trading from abroad through an Indian broker may argue there is no permanent establishment, so India cannot tax the business profit under the treaty.

That argument exists, but it is fact-dependent and not a clean rule, it turns on how and from where you trade, the role of the broker or any algorithm, and the frequency, so it should be taken as something to assess with advice, not assumed. Getting it wrong in either direction, wrongly claiming exemption or needlessly paying, is the risk. A practising CA works through the permanent-establishment position for your specific setup and files consistently with it.