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.