Futures and Options taxation

  • Trading in Futures & Options, ITR has to be filed for trading incomes under the head Profits & Gains from Business & Profession as business receipts. 
  • The Sales Turnover for F&O is calculated as the sum total of the absolute profit or loss on all of the trades. 
  • As an example, if you made a loss of 75000 on one trade, and a profit of 25000 on another trade, your total sales turnover from F&O trading is 75,000 + 25,000 = 1,00,000. 
  • Audited has to be performed by a Chartered Accountant if the losses from F&O trading needs to be carried forward for future set off from business profits in the next 8 years, or if the total turnover exceeds Rs. 5 crores or Rs. 10 crores (based on other factors). 
  • Brokerage, Internet and Telephone expenses, charges of the exchange, etc., can be claimed as F&O business expenses.

How to compute Income from Futures & Option Trades?

Any profit or loss incurred from trading in future & options is considered as BUSINESS INCOME and is shown under the head “Income from business or profession” in the ITR. It is not necessary to open a separate company for dealing in F&O trades. Any individual can deal in F&O trades. Many salaried individuals, retired senior citizens often deal in F&O trades.

How to claim expenses: Futures and Options Trading 

Also reporting income under business head comes with multiple benefits. You can claim expenses related to trading.

How to claim expenses: Like any other business, while calculating the income from Futures and Options trades, you are allowed to deduct expenses which are directly related to earning this income, for e.g. rent of the premises used for the trading, mobile or telephone expenses, internet charges, broker’s commission, demat account charges, depreciation on laptop, consultancy charges in case you took advice from a professional etc. But you must maintain the receipts/bills of such expenses. Also, any expense exceeding Rs 10,000 in a single day should not be paid in cash to be deemed valid.

How to do Futures and Options taxation?

ITR Applicable:   ITR 3 is applicable for Business Income. Even if you have a salary income, income from house property or income from any other sources, you will be able to disclose the income along with the F&O income in the ITR 3. In case you are following a presumptive income scheme and declare profits at 6% of your turnover (8% in case of non-digital transactions and 6% in case of a digital transaction. Security traders can declare 6% of the turnover), then you will be required to file ITR 4. However, you will be required to file ITR-3 if you declare your Futures and Options taxation income as presumptive business with capital gains. When we declare F&O income as presumptive business and we have capital gains ITR-3 is applicable.

If you need to file tax return for your futures and options, contact Indefine.

To have an investment plan prepared for you, contact us today.

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