The Great BTST vs Intraday Loophole (And Why You May Be Filing Wrong)
At a Glance
You bought a stock today, sold it tomorrow, and made a cool ₹5,000. Congrats. But wait — is that short-term capital gain (STCG) or intraday speculative income? Welcome to the confusing grey zone of BTST trading, where even your CA may shrug and say “jo bhi tumko sahi lage.”
🎬 The Setup: BTST Bros Be Like…
- You place a market buy order today. Let’s say you bought 100 shares of HDFC Bank at ₹1,600.
- Next morning, the stock gaps up to ₹1,640. You sell it.
- 100 × ₹40 = ₹4,000 profit. Easy money. But what kind of income is this?
💣 Because you sold before receiving delivery, technically — you never owned it. It’s a “sale without settlement.”
Now income tax wants a word.
📚 Definitions Matter: Intraday vs Delivery vs BTST
| Trade Type | Holding Time | Tax Classification | Tax Rate |
|---|---|---|---|
| Intraday | Buy + Sell Same Day | Speculative Income | Slab Rate |
| Delivery | Held for >1 Day | STCG / LTCG | 15% / 10% |
| BTST | Buy Today, Sell Tomorrow | Confused? So is your CA | Depends! |
👉 BTST isn’t formally defined in Income Tax Act. But its treatment depends on your broker’s contract note, and your ITR filing style.
🤓 The Loophole: It Can Be Either, Based on How You Show It
Here’s the shady-but-legal logic some traders use:
- If your broker settles the trade as a “delivery sale” (i.e., you get contract notes showing delivery), you can classify it as short-term capital gain.
- If your broker settles it as an “intraday-like trade” (most discount brokers do), then it’s speculative income — taxed at slab rates.
Slab rate? If you’re in the 30% tax bracket, your ₹5,000 gain = ₹1,500 tax 😭
But if shown as STCG, you pay just ₹750 (15%).
🧠 Real Trick: Use ITR-3 + Books of Accounts
If you’re a regular trader:
- File as a business, not as a capital gains investor.
- Use ITR-3 to club BTST as part of your trading income.
- Claim expenses: laptop, broadband, electricity, tea biscuits — all legit.
- Reduce overall tax impact even further.
Some full-time traders reduce tax on ₹5L profit to under ₹40,000 using legit expense deductions.
SEBI is watching? Sure. But CBDT still runs on Windows XP.
📉 What Happens If You Misreport?
- If you show BTST gains as capital gains when broker treats them as speculative: 🟥 Red flag in scrutiny
- If you declare them as speculative but later claim LTCG status on same stock: 🚩 Mismatch in reporting
Also: many salaried traders who file ITR-1 or ITR-2 are automatically wrong — you can’t show BTST income there.
🧾 Broker Example: What Zerodha and Upstox Say
| Broker | BTST Treatment | Reported As |
|---|---|---|
| Zerodha | Treated like delivery | STCG (if settled) |
| Upstox | Treated as non-delivery | Speculative Income |
| Angel One | Grey area | Up to trader’s CA |
🔍 Check your contract note. If it says “DP – CDSL/NSDL Delivery Instruction”, you’re good. If not – speculative zone.
💡 Best Practices for BTST Traders
- ✅ Always download and store contract notes for tax season.
- ✅ Categorize BTST trades clearly in your spreadsheet.
- ✅ If you do this frequently, just file ITR-3 with presumptive taxation under 44AD (if profit is <6% of turnover).
- ✅ Keep brokerage, stamp duty, internet bills, etc. as expense records.
🧑⚖️ EduInvesting Verdict™
BTST is the tax loophole cousin of intraday – it wears delivery clothes but behaves like a trader.
💰 Done right:
- You can reduce tax liability by 50%
- Claim operating costs like a boss
- Build a smarter tax profile
😬 Done wrong:
- You may trigger audits, red flags
- Pay unnecessary 30% slab on what was a 15% gain
- Or worse — miss filing it altogether
⚠️ This ain’t illegal. It’s just the wild west of income heads in our tax code.
✍️ Written by Prashant | 📅 July 8, 2025
Tags: BTST tax, intraday loophole, stock trader tax India, income tax filing guide, short term capital gains, EduInvesting, ITR-3, tax hacks for traders
