Updated on July 18, 2023
The term “Forex Market” refers to the foreign exchange market where currencies are traded. The Forex Market involves the buying and selling of different currencies with the aim of making a profit from fluctuations in exchange rates.
Taxation of income from forex market
Income from forex markets has many tax implications as per the provisions of the Income Tax Act 1961. Some examples of these provisions are given below.
Income Tax on Forex Trading: For individuals engaged in Forex trading as a business or profession, the profits or gains derived from such trading activities are treated as taxable income. These profits are categorized as “Income from Business or Profession” and are subject to income tax under the applicable tax slab rates.
Taxation of Forex Trading for Speculative Income: If an individual engages in Forex trading with the intention of making speculative income, the gains or losses from such trading activities are treated as speculative income. Speculative income is subject to tax under the “Income from Other Sources” category, and the gains are added to the individual’s total income for the tax year.
Tax Deducted at Source (TDS): In certain cases, if an individual’s Forex trading activities generate income that exceeds specified thresholds, tax deducted at source (TDS) provisions may apply. The payer of such income may be required to deduct tax at the prescribed rates and remit it to the government on behalf of the recipient.
Reporting Requirements: Individuals engaged in Forex trading are required to maintain appropriate books of accounts and records of their transactions. These records should include details of receipts, payments, and other relevant information for accurate reporting of income and calculation of tax liability.