Categories: Income tax Return

Complete Understanding of ITR Filing For F&O Traders

Complete Understanding of ITR Filing For F&O (Futures And Options)Traders 

  • While trading in futures and options on stocks, currencies, and commodities is taxed, many small traders fail to declare their losses from F&O trading during ITR filing due to a lack of awareness and understanding.
  • Let’s look at the most important things to keep in mind when it comes to the tax consequences of futures and option trading.

Futures And Options (F&O) Gains and Losses Reporting

  • Taxpayers frequently make the error of failing to record their profits or losses from F&O trading. Gains from such trading, however, will be counted as income from other sources, and if they are not disclosed, the Income Tax Department may issue a notice for non-compliance.
  • While it is Compulsory to report gains, you can also enjoy some tax benefits by declaring losses.

How Should F&O Trades Be Reported?

  • Trading in futures and options must be declared as a company when filing your returns unless you only made a small number of deals throughout the fiscal year, let’s say 2-3. This will still apply to you even if you have a formal business incorporation because business income can originate from both individuals and salaried employees.
  • To report this business income, an ITR-3 would need to be filed; however, as there are yearly modifications to the eligibility requirements, make sure you examine your eligibility carefully. You are now able to deduct expenses from the profits of your firm as you are reporting future and option trading as a business.

Expenses You May Claim in case of F&O

  • One of the best features of filing income tax returns as a business is being able to deduct expenses incurred for business purposes.
  • Brokerage, broker’s commission, subscription costs, telephone costs, interest expenditures, consulting expenses, employee salaries, and other costs are a few examples of expenses.
  • When calculating taxable income, one may deduct these expenses.
  • But it’s important to keep accurate records of your expenditures and bills. Additionally, generally speaking, no expenses above INR 10,000 in cash may be claimed.

How to Income Computation F&O Gains and Losses ?

  • The tax treatment of each activity will vary for someone who participates in a variety of stock market activities, such as intraday trading or buying shares for the short- or long-term.
  • If you trade intraday, for instance, you must record the profits (or losses) as company income. Similar to this, high volume short-term equity share trading will likewise be considered a business.
  • On the other hand, if you have sold long-held stock shares or have had fewer short-term equity share transactions, you may also earn capital gains income.
  • Therefore, the computation of income will vary according to the type of transactions, volume, and duration.

Accounting Requirements of F&O Gains and Losses

  • F&O trades are intended to be reported as a business, thus you would need to comply with some statutory tax compliance requirements in this regard.
  • Let’s say you are a HUF or an individual leading the company. You must keep accurate books of accounts if your income in any of the three years prior, or the first year of operation if your business is new, exceeded Rs. 2.5 lakh or your gross receipts in any of those years exceeded Rs. 25 lakh.
  • But the income and gross receipts limits for taxpayers operating a business other than a HUF or an Individual are Rs. 1.2 lakh and Rs. 10 lakh, respectively.
  • As a result, make sure to keep your trading statements, bank statements, and expense receipts close at hand.

Auditing and Income tax filing returns of F&O Gains and Losses

  • The deadline for filing income tax returns for the majority of taxpayers is July 31st of each year for the prior fiscal year. However, the deadline is September 30 for businesses for which an audit is required.
  • A business must conduct an audit in accordance with the legislation if its annual revenue exceeds Rs. 1 crore. Therefore, if you belong to the section, you must select an impartial chartered accountant for auditing purposes.
  • The assessee must submit the audit report along with the tax return when submitting returns. Additionally, the department will fine you if your books of accounts are not kept properly.

Losses may be carried forward and set off for taxation.

  • To be able to recover losses suffered is one of the most crucial reasons why consumers should register with future and option trading.
  • If the business experiences a loss, you can always make up the difference with any profits that may occur from other heads, such as rental revenue, interest income, and the like, excluding any income from salaries.
  • Unadjusted losses may be carried forward for a total of 8 years. Future adjustments can only be made from non-speculative income, as intraday stock trading losses are regarded as speculative and F&O trading losses as non-speculative.
  • Furthermore, the total taxable income is higher than the basic exemption threshold of Rs 2.5 lakhs at Rs 24 lakhs. This makes a tax audit necessary in this situation, as well as the filing of a balance sheet and profit and loss statement in the income tax return.

FAQ on F&O or Intraday trading income

Query : 

  • I am salaried person and invest some amount in shares market through delivery no interday no f&o. We don’t have business income.income from salary and some Capital Gain. But I did one intraday Transcation purchase price Rs. 430/- sale price Rs.404/- loss Rs 26/- so can I avoid ITR3 and file ITR2. Show all Transcation include intraday in ITR2 schlude 111A.

Response : 

  • Intraday trading is considered as speculative business income. As per the Income Tax provisions, any loss on intraday trading can be set off only with intraday (speculative) gains. and as per my understanding ITR-2 form is for individuals and HUF receiving income other than income from ‘Profits and Gains from Business or Profession’. Since intraday trading is considered a business income, you must file ITR-3 and prepare financial statements.


  • To prevent fines and Notices from the IT department, make sure to declare all of your earnings and losses when you file your income tax returns if you are an intraday trader.
  • Consult a professional Chartered Accountant for your needs if you’re having trouble estimating your tax liability.
Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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