Taxation of Futures and Options

Taxation of Futures and Options for Individuals

Let's break down the basics of reporting Futures and Options (F&O) trading as business income under the Income Tax Act, 1961. Here's what you need to know:

Nature of Income:
Non-Speculative Business Income: Income from F&O trading is considered non-speculative business income and considered as equal to any other business income.

Tax Calculation:
Tax Slab Rates: Tax will be calculated based on the old or new tax slab rates, whichever is more beneficial to the taxpayer.

Filing Requirements:
a. Books of Accounts: Maintenance of proper books of accounts as F&O trading is treated as a business subject to some limits. (Will explain the limits later in detail)

b. Tax Audit: If your turnover exceeds the prescribed limit, a tax audit by a Chartered Accountant is required. (Will explain the limits later in detail)

c. Applicable Income tax returns (only ITR-3).

Losses and Carry Forward:
a. Business Losses: Losses from F&O trading can be set off against any other incomes except salary and speculative income.
b. Carry Forward: Unabsorbed losses can be carried forward for up to 8 years.

Advance Tax:
If your tax liability exceeds ₹10,000 in a financial year, you are required to pay advance tax in quarterly installments.