How are profits on forex trading taxed | Motilal Oswal

How are Profits on Forex Trading Taxed

When you invest your wealth in any instruments, if your assets yield a profit, those are taxed under the law in India. Hence, the implications of tax play a primary role when you earn profits out of any investments. As an investor, you should have a detailed understanding of what exactly incurs tax, what does not incur any tax, and how much tax is charged to you, either in a tax slab or as a percentage of your profits. In the current age, forex trading is gaining steam as we speak, with more and more investors dealing in such trades to make substantial profits. Therefore, what is taxable on your trading profit becomes pertinent to your personal financial picture. 

In India, you are banned from trading directly in the forex markets. However, under the Foreign Exchange Management Act or FEMA, you can engage in currency trading via stock exchanges. Still, there are restrictions, such as the base currency in a traded pair being mandated as the Indian Rupee only. 

Forex Trading Profits and Taxation

Investors are often confused about how they will be taxed if they earn profits through currency trading. This is due to the fact that the structure of tax levied on such gains is not fixed. However, there are certain tax norms that come into play when you trade in currencies and these should be known to all forex traders who earn profits. There are essentially two kinds of taxes that are levied on gains that arise from forex trading. These are direct and indirect taxes. An indirect tax takes the form of GST (Goods and Services Tax), Stamp Duty, or the Securities Transaction Tax. Taxes may be levied under a range of categories, so it is imperative to find out under which you are going to be taxed. 

Taxation on Profits from Forex Trading

Some investors who trade in forex make it their business and livelihood. Hence, if you indulge in forex trading as a business, you will be taxed as a business person is taxed,and the income or gains earned will fall into particular tax slabs. Typically, in India, taxation on forex trading is undertaken with the income from profits representing a business income. Forex trading can be done online, but you don’t have to open a Demat account online to trade in currencies, as these profits would go directly to your bank account (as they are currencies bought/sold). Most currency trades get settled in the form of cash, so no real delivery of currencies are undertaken. 

GST and Forex Trading

For all the forex transactions you make, the GST is levied as a tax for separate income slabs, considered as your income earned as profits from forex trading. The GST amount is typically 5% to 18% of your earned profits, which is the tax that is levied for all income earned from business transactions. Depending on whether your income falls under a particular amount, you will be charged the appropriate percentage on the profits. 

Earn Through Currency Pairs

Currency trading, if done with care, can prove quite an earner for many investors. However, you have to pay your tax dues to the government on any and all profits that arise out of such incomes you earn, just like you must pay tax levied on income from selling other securities like stocks. You can explore Motilal Oswal for currency trading or trading in other securities and learn as you earn.To trade in stocks, you need to open a Demat account and Motilal Oswal has you covered for all your investment needs. 

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