While trading in equities does not directly help you to save taxes, there are certain techniques you can use to reduce your tax outgo. I am outlining a few such methods where you can legitimately pay lower taxes.

The best way of saving tax through trading is through showing your trading income as business income rather than as capital gains. This is the practice that must be followed by frequent traders and those who go beyond a threshold in volumes. There are two distinct advantages here. Firstly, you can write off certain trading related expenses like software expenses, expenditure on books and journals, administrative expenses, proportionate rent, etc as admissible expenses. To that extent, it reduces your tax liability. Secondly, you can write off STT as an admissible expense by showing trading income as business income. If you show as capital gains then STT cannot be claimed as a tax benefit.

You can use your trading activity for tax farming. Tax farming is an interesting concept wherein you can book losses on stocks rather than holding on to such stocks with MTM losses in your books. When you write off your losses, it reduces your income to that extent and thus reduces your tax payable. You can then buy back the same stock in the next financial year so that your holdings are not impacted.

Any loss arising out of trading (either short term capital gains, long term capital gains or business loss) can be written off against the profits of that year. The advantage of showing as business income is that you don’t need to restrict yourself only to write off such losses against specific capital gains.

When you book losses, you can also carry forward the losses for a period of 8 years in the case of business loss, STCG or LTCG. Such losses can be carried forward and written off over a period of 8 years from the assessment year following the year in which the loss arose. Here there is a point to remember that this does not apply to speculative losses. Such losses can only be written off against speculative gains and can be carried forward only for a period of 4 years and not 8 years. An important point is that returns must be filed on time otherwise the loss of that year cannot be adjusted against future year profits.