What is future and options?

A Future is a right and an obligation to buy or sell an underlying stock(Shares) at a predetermined price and deliverable at a predetermined time(on expiry).

An option is a right (not an obligation) to buy or sell (shares) at a predetermined price.

An option is just like the insurance of a stock.

You only pay the amount as the option premium to get the right to buy or sell the stock.

Taxability of Future and options income

Income or losses arises from F&O has to be treated as business income.

Treating of F&O income or losses in Income tax returns is a lot of confusing task among the taxpayers.

Expenses directly related to F&O business are deducted from the income, such as broker commission, office rent, telephone bills,internet expenses, etc.

Due to high number of transactions and large volume, the taxability of the transactions is treated differently by the income tax.

Any transactions that takes place during F&O is treating as non speculative business.

How to calculate turnover of future and options income?

It is the most confusing task among the taxpayers.

Calculation of Turnover for Future contracts- While calculating the turnover, the total of positive and negative differences are to be considered.

For example-

1. Reliance contract purchased for Rs.7,00,000 and sold for 8,00,000.

Then only 1,00,000 to be considered as turnover.

2. After that Reliance again purchased for 9,00,000 and sold it for 8,50,000.

Then in this case turnover would be 50,000.

Calculation of Turnover for Options contracts:

Premium received on sales of options has to be treated as turnover.

Applicability of Tax

Audit in case of F&O income or losses

Tax audit u/s 44AB is applicable when the turnover of the assessee exceeds Rs.1 crore or Rs.2 crore under presumptive scheme.

Tax audit is also applicable when the assessee claims the loss.

The biggest question is whether the assessee dealing in F&O has to get tax audited their balance sheet or not.

If you incurred the loss in trading then u can carry forward the business loss (Trading) only if your balance sheet is tax audited.

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Qualification: CA in Practice
Location: Meerut, Uttar Pradesh, India
Member Since: 10 Apr 2021 | Total Posts: 7
Practicing CA having knowledge of Income Tax, Gst, Corporate Laws and compliances related to firms. A Professional with strong academic background. View Full Profile

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May 2021