Important tax rules for Futures & Options & Intraday Trading

Important tax rules for F&O (Futures & Options) and Intraday Trading

Why Must Gains or Losses from F&O Be Reported in ITR?

• Mandatory Compliance: Income tax authorities have full access to trading data through exchanges. Non-disclosure may trigger notices and penalties.
• Tax Optimization: Reporting losses allows you to set them off against other incomes and carry forward for future tax benefits.
• F&O income falls under non-speculative business income, per Section 43(5) of the Income Tax Act.

Which ITR Form to File for F&O Income?

Situation	Applicable ITR
Regular reporting (with books)	ITR-3
Opting for presumptive taxation (Sec 44AD)	ITR-4

 Tax Treatment in case of F&O (Futures & Options) and Intraday Trading

• F&O Trading: Treated as non-speculative business income.
• Intraday Trading: Treated as speculative business income.
• Taxed at applicable slab rates.
• Reported under “Profits and Gains from Business or Profession” in ITR-3. Use ITR-3 if you have F&O or Intraday income.

How to Report F&O (Futures & Options) and Intraday Trading in ITR?

Step 1: Calculate Turnover

• Turnover = Absolute Profit/Loss (sum of all positive & negative trade results).
• For options: Ignore premium for turnover post AY 2022-23 as per revised guidance.

Step 2: Claim Business Expenses (If not using presumptive)

• Brokerage, internet, advisory fees, trading software, rent, telephone, etc.
• Cash expenses > INR 10,000 are disallowed.
• Maintain receipts & digital proofs.

• Condition: Must be reasonable, well-documented, and exclusively related to trading.

Step 3: Set Off and Carry Forward Losses

Type of Loss	Set Off Against	Carry Forward Period
F&O Losses (Non-Speculative)	Any income except salary	8 years
Intraday Losses (Speculative)	Only against speculative income	4 years

Tax Audit Applicability for F&O Traders

Under Section 44AB:

Criteria	Audit Requirement
Turnover > INR 10 crore	Audit mandatory
Turnover between INR 1 crore – INR 10 crore and cash transactions >5%	Audit mandatory
Turnover ≤ INR 2 crore, profit <6%, opted out of 44AD in last 5 yrs, total income > exemption limit	Audit mandatory
Declaring ≥6% profit digitally under Sec 44AD	No audit required

Presumptive Tax Scheme (Section 44AD)in case F&O (Futures & Options) and Intraday Trading

• Declare 6% of turnover as income if mostly digital.
• No need to maintain books or audit.
• If opted out after using, can’t re-enter for 5 years (Sec 44AD(4)).

Advance Tax Liability in case of F&O (Futures & Options) and Intraday Trading :

Yes, F&O traders must pay advance tax if their total tax liability exceeds INR 10,000 in a financial year, in four installments (15 June, 15 Sept, 15 Dec, 15 Mar). Taxpayer required to maintain books of accounts. Consider auditing requirements (if turnover > INR 10 crores or profit < 6%/8%). Use Form 3CD + 3CB or 3CA if audit is applicable.

Books of Accounts (If not under 44AD) applicable in case of F&O (Futures & Options) and Intraday Trading

Maintain:

• Trading account statements
• P&L statement
• Expense vouchers
• Bank statements
• Broker contract notes

New vs Old Tax Regime for F&O Traders

Criteria	Old Regime	New Regime
Business expense deduction	Yes	No
80C/80D deductions	Yes	No
Reversal	Can revert anytime	Can switch back only once in lifetime (Form 10-IEA)

Budget 2024: STT on F&O Increased

• Futures STT: Now 0.02%
• Options STT: Now 0.1%

Frequently Asked Questions on F&O (Futures & Options) and Intraday Trading

Question	Answer
Do I have to file ITR for F&O even if in loss?	Yes, especially to carry forward losses
Is Tax Audit mandatory?	Depends on turnover, profit %, and mode of transactions
Can F&O losses be carried forward under new regime?	Yes, only if ITR is filed on time
Which business code to use?	Use Code 09001 – Trading in derivatives (F&O)
Can F&O traders use presumptive taxation?	Yes, if turnover ≤ INR 2 crore and opting for Sec 44AD