CA Pratik Anand

With the due date to file income tax return fast approaching, I have been asked this question by many people.

Question: How to file income tax return in case of profit/loss from F&O trading? Do we get our accounts audited in case of loss from F&O Trading?

I will try to answer all questions relating to F&O Trading through this article so that it can be of help to people in filing income tax returns.

Ques: What is the treatment of profit/loss from F&O Trading in the income Tax Return?

Ans: For the answer to the above question, We have to refer to Section 43(5) of the Income Tax Act’1961,the relevant extract of which is reproduced below:

 “speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:

Provided that for the purposes of this clause—

 (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; 76[or]

[(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association [, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]]

shall not be deemed to be a speculative transaction.

[Explanation 1].—For the purposes of [clause (d)], the expressions—

(i) “eligible transaction” means any transaction,—

(A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and

(B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;

(ii) “recognised stock exchange” means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose;

[Explanation 2.—For the purposes of clause (e), the expressions—

(i) “commodity derivative” shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013;

From the reading of the above it is clear that trading in derivatives including commodity derivatives on a recognised stock exchange will not be considered as a speculative transaction and hence not treated as speculative business.

Therefore since these are not considered as speculative business, therefore income from such transactions will be considered as normal business income and loss from such transactions will be considered as normal business loss.

Applicability of Tax Audit in case of derivative (F&O) Trading

Since income from derivative trading is considered as normal business income, therefore normal rules as applicable to tax audit as stated in section 44AB will be applicable in case of F&O trading also.

Therefore, the applicability of tax audit will be as follows in case of F&O Trading:

1) In case of Profit from transactions of F&O trading

  • 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 r/w section 44AD will also be applicable, if the net profit from such transactions is less than 8% of the turnover from such transactions.

2) In case of Loss from F&O Trading

In case of Loss from derivative trading, since profit (Loss in this case) is less than 8% of the turnover, therefore Tax Audit will be applicable u/s 44AB read with section 44AD.

Calculation of turnover in case of F&O Trading

Determination of turnover in case of F&O is one of the important factors for every individual for the income tax purpose. Turnover must be firstly calculated, in the manner explained below:

  1. The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
  2. Premium received on sale of options is to be included in turnover.
  3. In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.

Here, it makes no difference, whether the difference is positive or negative. All the differences, whether positive or negative are aggregated and the turnover is calculated.


Expenses such as postage, conveyance and telephone, incurred for carrying on the business can be claimed as business expenses. You can also claim depreciation on assets used for the business or profession.

Maintenance of Books of Accounts in case of F&O Trading

Since income from F&O Trading is considered as normal business income, therefore normal rules for the maintenance of Books of accounts as stated in section 44AA of the Income Tax Act’1961 are applicable. These rules can be summarised as follows:

1) If there is loss in F&O trading or the Net profit is less than 8% of the turnover or the turnover exceeds Rs. 1 crore, then provisions of Tax Audit are applicable and in order to get tax audit done, maintenance of books of account are mandatory.

2) if there is a profit in F&O and the profit is 8% or more of total turnover , then only the income has to be declared as business income and accordingly ITR has to be filed. There will be no need to maintain books of accounts.

Provisions relating to filing of Income Tax Return

Since income from F&O trading is to be treated as business income, therefore an individual filing return with F&O trading income has to file ITR in form ITR 4.

Depending on the requirement to get the accounts audited as per section 44AB & 44AD, the due date for filing the return of income will be as follows:

If Tax Audit is applicable: Due date will be 30th September of the Assessment Year (30.09.2015 for AY 2015-16).

If Tax Audit is not applicable: Due date will be 31st July of the Assessment Year (31st August for the current assessment year i.e 31.08.2015 for AY 2015-16).

Carry forward & and set off of Loss

The set-off and carry forward of loss from F&O transactions is also one of the most important questions asked by people. The provisions relating to set-off and carry forward of F&O Loss are as follows:

If there is a loss in F&O and you are claiming the same in the Income Tax return then:

You should file it before due date to carry forward the loss and set off from income in future.

However, there are case laws which prohibit the carry forward and set-off of loss from F&O transactions stating share derivative transactions carry the character of speculative transactions for section 73 and any loss arising therefrom will be characterised as loss from speculative business and same cannot be set-off against normal business income

As per court section 43(5) defining speculative transaction is only for the purpose defining terms used in section 28 to 41.Section 43(5) has no application over section 73.  (CIT v/s DLF Commercial Developers Ltd.)

(The author is a CA in practice at Delhi and can be contacted at: E-mail:, Mobile: +91-9953199493)

Author Bio

Qualification: CA in Practice
Company: Pratik & Associates
Location: New Delhi, New Delhi, IN
Member Since: 10 Jun 2017 | Total Posts: 53
Pratik Anand is the founder of, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. H View Full Profile

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69 responses to “Income tax return filing in case of Futures & Options (F&O) trading”

  1. S.C. says:

    Sir, I trade in stock market & I have other business too.
    In trading, my profit in F&O is Rs. 55,000 and total turnover is 12,00,000. (so my profit is less than my 8% of my turnover.)
    In my other business I have profit of 3,10,000 and total turnover is 28,00,000.
    so my total Income is 3,65,000 and total turnover is 40,00,000. (so my total profit is greater than 8% of my total turnover.)
    Now, I want to know if I have to Audit my account or not. I’m confused, Please Help..

  2. Yogendra Bhootra says:

    Please mention the code which we given our f & o income details

  3. Rajendra says:

    In my opinion Tax Audit will not be required in case of loss as per provisions of section 44AB(e).

  4. Chandrasekaran Ramadurai says:

    Section 2(ac) of SCRA does not cover Trading in Futures and Options. It is covered under Section 2(d) of SCRA.

    Section 43(5)(d) refers to S 2(ac) of SCRA to refer to a Derivative for exclusion from Speculative Business.

    It does not cover Sec 2(d) of SCRA

  5. S Kumar says:

    I am salaried person and have losses in F&O trading. Turnover, calculated as explained above by you, is less than Rs 1 Crore. Loss percent is 23% of turnover. Is it necessary to show loss of F&O trading if I do not want to set off loss?

  6. Hazel Dsouza says:

    Is a call/ put option not a capital asset so as to consider gain/ loss as capital gain/ loss?

  7. ANIL BHARDWAJ says:

    In year 2017~18 I have incurred huge losses in trading future stock. I got retired in End June’17 & invested majorly out of my PF & Gratuity. As salary was of 3 months only but huge Tax was deducted against Gratuity. Can some of this loss be adjusted against Tax paid by me against my Gratuity & of 3 month salary. Please advice.

  8. Sudha says:

    Business code of Derivatives income from F & O

  9. Sumit says:

    Last year while filing income tax return, i by mistake shown my loss from trading lower than my actual loss.
    What are the consequences of this negligence ?
    Further, is there any penalty chargeable against me for not showing loss ?
    Can i show that loss in the current year ITR.
    (My total income is less than the basic exemption limit)
    PLease help.

  10. Somasundaran P M says:

    I have a loss 9 lakhs in F & O trading
    I have profit of 3 lakhs in short term share trading .
    How to set off the loss

  11. Devpriya Sathe says:

    Sir/ Madam,
    I have f and o loss Rs.65000 and i am having salary income Rs.3.15 lac. After claiming deductions and setting off f and o loss my taxable income is less than basic exemption limit of Rs.2.5 lac.
    Is there requirement to do tax audit?

    • CA SWAPNIL says:

      As per section 44AB Tax audit is required if the total turnover of business exceeds Rs. 1 Crore or gross receipts from profession exceeds Rs. 50 Lakhs. But there is another clause added to section 44AB that assessee carrying on business claiming income to be lower than 8% has to get his books audited. So losses from F&O trading i.e losses from business is covered under this clause and tax audit would be applicable.

  12. ajay says:

    sir turnover of future & options include interest ,dividend amount received

  13. Urmi Sood says:

    My only income is from F&O Trading, intraday trading and delivery based trading. The income for the FY 2016-17 is 2 lacs. Since the total income is less than 2.5 lacs, do I require to file income tax return.

    The other querry is as regards to calculation of turnover in F&O. suppose I bought a call of a share for Rs. 2 and sold it at Rs. 3. Lot size is 6000. I earned Rs. 6000. What will be the turnover?

  14. b s raju says:

    i have made a loss of 9000 in long term capital loss in shares. can i carry farward to next.

  15. Namit says:

    Sir, I do intraday trading and do short term delivery trading apart from F&O trading. I have profit in F&O of 8 lakh but loss of 5 lakh in delivery and in intraday trading. So can I adjust my short term loss of 5 lakh with 8 lakh profit in F&O? Please advise. Regards

    • Amit says:

      Yes you can adjust if you routed your derivative trading though recognised stock exchange. It is one of required provision as per Sec 43(5).
      Short term capital loss can be adjusted against short term capital gain

  16. jose says:

    Sir, If I have a loss of 1.5 lakhs from f&o and I have remuneration of 5 lakhs from partnership firm can I set off the loss from the business income from the firm and become non-liable to audit

  17. Palanisamy J says:

    I have trading F& O in stock Market.
    I have get some profit how much I pay Tax, and How to calculate TurnOver. How to calculate tax % please help.
    Details below…
    Total Profit in Future Trading = Rs.1592922
    Total Loss in Future Trading = Rs. -554718.
    This is my Trading profit loss How to calculate please help sir…

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