Is F&O Profit Covered by Presumptive Taxation – and What Exactly Is “Turnover” for F&O?

Is F&O Profit Covered by Presumptive Taxation – and What Exactly Is “Turnover” for F&O?

Summary: The supplied material addresses whether F&O trading qualifies for presumptive taxation and how F&O turnover is computed. It states that F&O trading on a recognised stock exchange is non-speculative business income and can qualify for the presumptive scheme subject to eligibility conditions. For digital F&O settlements, the presumptive rate discussed is 6% of turnover or actual profit, whichever is higher. The material states that F&O turnover is computed by adding the absolute values of favourable and unfavourable differences from futures and options trades. It further states that, under the ICAI Guidance Note revised in 2022, option-sale premiums are not added separately where already reflected in the trade-wise result, and contract or notional values are not treated as turnover. The material discusses eligibility restrictions for LLPs, companies, non-residents, commission or brokerage income, agency businesses and speculative trading. It also highlights that presumptive taxation may result in higher taxable income where actual F&O profit is below 6% of turnover, while losses cannot be declared under the presumptive scheme. A five-year restriction on re-entry after opting out is also discussed, along with books and audit consequences where profits below the presumptive rate are declared.

“I have questions — 1. Are F&O profits covered under Section 44AD and liable to presumptive net profit of 6%? 2. What is the turnover for the purpose of 44AD in an F&O business?” — reader comment on TaxGuru.in

Two short questions that sit at the heart of almost every F&O filing dispute I see. Let me answer both directly, then show the arithmetic — because the second question is where the real money is lost, and where a great many traders are still using a method the ICAI withdrew four years ago.

The short answers

One. Yes — F&O trading is a non-speculative business, and it can go into the presumptive scheme, subject to eligibility conditions. But the rate is 6% only because F&O settles digitally, and 6% is a floor, not a ceiling: you must declare 6% of turnover or your actual profit, whichever is higher. For a great many traders the actual profit is lower than 6% of turnover, which makes presumptive taxation more expensive, not cheaper.

Two. Turnover for F&O is the sum of the absolute values of profit and loss on each trade — favourable and unfavourable differences added together, ignoring the minus signs. It is not the contract value, not the notional value, and since the ICAI’s 2022 revision, the premium received on the sale of options is no longer added separately where it is already reflected in the trade-wise result.

Which section applies to you right now

Worth pinning down, because we are in a transition year. For your FY 2025-26 return, the income was governed by the Income-tax Act, 1961 and the provision is Section 44AD. From 1 April 2026 the Income-tax Act, 2025 is in force, and for Tax Year 2026-27 onwards the scheme sits in Section 58 — which merges the old 44AD, 44ADA and 44AE into one framework. Books of account are Section 62 (old 44AA); tax audit is Section 63 (old 44AB). The substance carries forward, so the answers below hold for both years. Only the section number you cite changes.

Question 1: Is F&O actually eligible?

Trading in derivatives on a recognised stock exchange is expressly carved out of the definition of a speculative transaction. So F&O profit is ordinary, non-speculative business income — not capital gains, not speculation. That matters, because the presumptive scheme is available for an “eligible business”, and a non-speculative business qualifies.

Intraday equity trading is the opposite: delivery-free, and therefore speculative. The settled practice — and the view I follow — is that a speculative business cannot go into the presumptive scheme. If you do both, they are two separate businesses and must be kept apart in your computation. Then come the eligibility filters, which knock out more people than expect it:

Who can and cannot use the presumptive scheme for F&O

The “6% or actual, whichever is higher” point

The rate is 8% for cash receipts and 6% for banking-channel or electronic receipts. Every rupee of F&O settlement moves through your broker and your bank, so 6% is the applicable rate — that part of the reader’s question is right. But 6% is a minimum, not a cap. If your real profit is 25% of turnover, you declare 25%. The scheme only helps when your actual profit exceeds 6% and you would rather not keep books to prove the exact figure.

And here is the counter-intuitive bit that F&O traders keep missing. Because F&O turnover is measured on gross swings — every winning trade and every losing trade added together — while your profit is the net of those swings, your profit as a percentage of that turnover is usually small. A trader who wins INR 28 lakh and loses INR 26 lakh has turnover of INR 54 lakh and a profit of INR 2 lakh: that is 3.7%. Presumptive taxation would deem his income at INR 3.24 lakh. He would be taxed on 62% more than he made.

Question 2: How F&O turnover is computed

The Income-tax Act does not define turnover for derivatives. The accepted basis is the ICAI’s Guidance Note on Tax Audit, and the current edition — revised in 2022 and carried into later editions — states the position as follows:

• For futures: the total of favourable and unfavourable differences, taken as absolute values.
• For options: the same treatment — the absolute value of the profit or loss on each trade.
• Premium received on sale of options is not to be added again where it has already been taken into account in computing the trade-wise net result. This was the major change in the 2022 revision; earlier editions required the sale premium to be added separately.
• Differences on reverse trades are likewise not added separately under the current guidance.
• Contract value, notional value and total settlement value are not turnover, and never were.

A caution: this is guidance, not statute. It is what the department accepts in practice and what your broker’s tax P&L will generally follow — but if your figures are inconsistent year to year, expect to explain the change.

What that does to the numbers

Take Rahul, a resident individual, salaried, who also trades F&O. Tax Year 2026-27. His trade book for the year:

Step 1 — computing F&O turnover

The same trade book produces INR 54 lakh or INR 3.39 crore depending on which edition of the Guidance Note you use. On the old basis Rahul would breach the INR 3 crore ceiling and be shut out of the scheme entirely. On the correct current basis he is comfortably inside it.

That single line is why this question matters. I have seen traders pay for a tax audit they never needed, purely because an old spreadsheet template was still adding option sale premium to turnover.

Now the second step. Rahul’s salary income is INR 16,00,000, and his net F&O profit after brokerage, STT, exchange charges and subscriptions is INR 1,40,000.

Step 2 — presumptive versus normal computation, Tax Year 2026-27

Illustrative, computed on new-regime slabs under Section 202 for Tax Year 2026-27 and ignoring surcharge and other deductions.

The gap is about INR 38,000 of extra tax under the presumptive route, against INR 15,000–INR 25,000 of compliance cost under the normal route. On these numbers it is close to a wash — which is the honest answer, and not the answer most articles give. Change the profit margin and the conclusion flips completely.

The three traps to check before you tick the presumptive box

Losses. Most F&O traders lose money in at least some years. Under the presumptive scheme you declare a deemed profit — you cannot declare a loss, so you cannot carry it forward against future business income. Giving up an INR 8 lakh carried-forward loss to save an audit fee is a bad trade.

The five-year lock-in. Opt in, then opt out in a later year, and you are barred from re-entering for five tax years. Traders whose results swing between profit and loss should think hard before entering at all — the exit is expensive.

The books-and-audit consequence of declaring less. Where you declare profits below the presumptive rate and your total income exceeds the basic exemption limit, you must maintain books under Section 62 and obtain an audit under Section 63. Professional views differ on whether this bites a trader who never opted in at all — the better view, which I follow, is that a trader who has always been under normal provisions is governed only by the Section 63 turnover thresholds. But once you have opted in and later step out, the consequence clearly follows. Document the reasoning in your file before you file, not after the notice.

What I would tell this reader to do

• Pull your broker’s tax P&L and confirm it computes turnover as the sum of absolute profits and losses, without adding option sale premium separately.
• Separate F&O from intraday. The presumptive scheme covers only the first.
• Compute your actual net profit as a percentage of that turnover. Above 6%, presumptive is worth costing out. Below 6%, it is usually a tax increase dressed up as a simplification.
• If you have a loss, do not use the scheme. File under normal provisions and carry the loss forward.
• Check the eligibility filters — LLP status, non-residence, or any commission or brokerage income shuts the door regardless of turnover.

The presumptive scheme was designed for a small trader who does not want to keep books. It was not designed for a derivatives book where turnover is measured on gross swings and margins are thin. It can still be the right answer — but only after you have done those two calculations, in that order.

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About the Author: Sonia Dawar is a Chartered Accountant and the founder of Dawar & Co., where she advises traders, proprietors and professional firms on income-tax planning, tax audits, GST and departmental representation. She handles a steady stream of F&O and intraday cases every filing season — most of them arriving after a turnover figure was computed the wrong way. She writes on practical tax issues at TaxGuru.in and can be reached at [email protected] or through dawarandco.com.