Reporting of Futures & Options in ITR

Futures & Options, or we say F&O, transactions are treated as a separate business activity.

It is a non-speculative business.

Classifying it as a non-speculative business means that all those provisions of Income Tax Act will apply to F&O business also which apply to normal business activities. But the point that stands apart is the reporting of turnover from F&O transactions.

Calculation of F&O turnover :-

There are two parts to it, namely

1. Futures turnover

2. Options turnover

Futures turnover :-

To calculate the turnover of futures transactions, the following are to be considered :

i). absolute value of realized profit per trade

ii). absolute value of realized loss per trade ignoring the negative sign

e.g. :- Mr. X bought one lot of Bank Nifty for rs. 10,000 and sold it for rs. 11,000. His realized profit is rs. 1,000.

He also bought one lot of Nifty for rs. 20,000 and sold it for rs. 15,000. His realized loss is rs. 5,000.

In this case, his total turnover is rs. 6,000 (taking into consideration the absolute values per trade, ignoring whether it was profit or loss).

Options turnover :-

To calculate the turnover of options transactions, the following are to be considered :

i). absolute value of realized profit per trade

ii). absolute value of realized loss per trade ignoring the negative sign

iii). gross sale value for all the trades

e.g. :- Mr. X bought one lot of Bank Nifty for rs. 20,000 and sold it for 25,000. His realized profit is rs. 5,000.

He also bought one lot of Nifty for rs. 20,000 and sold it for rs. 18,000. His realized loss is rs. 2,000.

In this case, his total turnover is rs. 50,000 (rs. 5,000 + rs. 2,000 + rs. 25,000 + rs. 18,000).

We have discussed the reporting of turnover, but how to report purchase against the turnover?

After calculating the turnover, the purchase value has to be determined by adjusting the turnover amount with the actual profit/loss.

Assume, Mr. X has total turnover of rs. 50,000 and his realized loss is rs. 10,000.

So, his purchase value has to be rs. 60,000 (50,000 + 10,000) so that his loss of 10,000 can be reported.

What about other direct & indirect expenses?

Direct expenses include STT charges, brokerage, folio charges and all the expenses directly related to trading.

And because F&O is treated as business, indirect expenses incurred in the business can be claimed as deduction such as internet & telephone expenses, staff salary, rental expenses etc.

What are the audit requirements?

As we know F&O business is treated as normal non-speculative business, the books of accounts will be audited if provisions u/s 44AB are attracted.

The loss occuring from F&O business can be set off from other non-speculative business also.