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ITR filling and Tax Audit for Income from Future & Option (F & O) Trading

As the volume & value of transactions is very high and amount of profit earned on these transactions is fairly small for traders dealing in F&O segment, the manner of computing turnover and filing of ITR is slightly different for such persons.

ITR to be filed in case of Income or Loss from F&O :

♦ ITR 4 would be applicable as the Income or Loss from trading in F&O will be treated as business income
♦ Section 43(5) excludes the transactions in F&O Market from speculation business
♦ As these transactions will be treated as Non Speculative, they would be taxed just like any other business      income and expenses  for the purpose of business would be allowed to be claimed and tax on balance will be as per applicable slab rates

Tax Audit  in case of Income from F&O:

♦ As trading in F&O is considered as normal business income, the provisions of Section 44A will apply
♦ If the turnover exceeds prescribed limit and profit disclosed is less than prescribed percentage then tax audit u/s 44AB would be required by practicing CA for each year where turnover exceeds such limit

Turnover for Tax Audit Purposes :

In case of F&O transactions, turnover will be determined as follows:

♦ Total of favorable and unfavorable trades
♦ Premium received on sale of options
♦ In respect of any reverse trade entered, the difference thereon The above stated should become the part of turnover.

Income in case of delivery based transactions :

If transactions on share market are entered for investment purpose, then gains arising would be treated as capital gains. However, if transactions are entered into as business transaction, the gains would be treated as income of business or profession. So, it needs to be considered.

Loss arising in F&O transactions :

As the transactions in F&O is treated as Non Speculative, the loss arising is allowed to set off against all incomes except salary income and other provisions will apply.

(Author is Mr. Prakash Pai)

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2 thoughts on “Income from Future & Option Trading

  1. Jay Mehta says:

    This was a very informative article on futures & options trading. Thanks for sharing such a great post.

  2. ram das says:

    Thank you for the information above article is good. Income from future & option Trading Futures and Options are derivatives products
    Derivatives are related to managing money legal documents that get their value from an underlying.The hidden under can be a stock issued by a company, a currency, Gold etc.

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