Any income or loss that arises from the trading of Futures and Options is to be treated and considered as business income or business loss.

As such transactions in the F&O Market would be treated as Non-Speculative Transactions as per Section 43(5), they would be taxed just like any other business income. The expenses incurred for the purpose of Business would also be allowed to be claimed in the income tax return. The tax arising on sale of F&O Transactions would be levied as per the applicable income tax slab rates.

Tax Audit in case of Income from trading in Futures & Options

Since the Income from F&O Trading is considered as a normal business income, normal provisions of the Income Tax Act will apply in this case. Tax will be calculated as per normal tax slabs as applicable to the Assesses.

  • In the case of profit from derivative transactions, tax audit will be applicable if the turnover from such trading exceeds Rs. 1 crore*.
  • Tax audit u/s 44AB read with section 44AD will also be applicable, if the net profit from such transactions is less than 8% (6%, if all trades are digital) of the turnover from such transactions.

*However, the Tax Audit Limit from AY 2021-22 have been increased to 5 crore from 1 crore provided more than 95% of the business transactions should be done through banking channels.

Computation of Turnover in case of F&O Transactions for Tax Audit purposes

  • Profits from the trade
  • Loss from the trade
  • Premium received from sale of Options
  • In case of Reverse Trade, difference should also be added

Treatment of Loss arising in F&O Transactions

The loss arising out of F&O Transactions would be allowed to be set off against all other incomes except Salary Income. If the Loss is not set off against the incomes of the same financial year, then such loss can be carried forward and set off against future incomes. However, for the loss to be carried forward and set off, the loss should be disclosed in the Income Tax Return and the ITR should be filed before the due date of filing of income

Author Bio

Qualification: CA in Practice
Company: Oswal & Heda Chartered Accountants
Location: Pune, Maharashtra, India
Member Since: 27 Mar 2021 | Total Posts: 2
Anubhav has over 2 years of post-qualification professional experience in handling Audit & Assurance of various entities, Direct & Indirect Tax Advisory services, Project financing, Litigation Services, RERA, Preparation and Finalization of Income Tax returns, Monthly Compliance which includ View Full Profile

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