Taxation rules for Future and option Traders
Speculative business income – Income from intraday equity trading is considered as speculative business Income
Non-speculative business income- The income from Future and option trading should be treated as a non-speculative business income.
How to calculate the total turnover from Future and option trading?
Calculation of turnover for the Income tax purpose:
- The total of Profit/Loss shall be taken as turnover.
- Premium received on sale of options is also to be included in turnover. However, where the transactions are squared off, the same should not be separately included.
For example,
- Mr Aggarwal bought one lot of TCS ltd. at Rs 2 lakh and sold it for Rs 2.6 lakh (Profit = Rs 60,000).
- Mr Aggarwal bought one lot of Wipro ltd. at Rs 5.5 lakh and sold it for Rs 5 lakh (Loss = Rs 50,000)
The turnover shall be calculated as Rs 60,000 + Rs 50,000 = Rs. 1.10 lakh.
Claiming of expenses from Future and option business
When the income from Future and option trading is classified as business income, the provisions of maintenance of books of account and tax audit will become applicable.
You are allowed to take deductions for expenses incurred for carrying out F&O transactions, such as demat charges, electricity expenses, Internet Expenses, telephone expenses, Depreciation, Rent, Salary, Advisory Fees, Printing & Stationery, Newspapers, Subscriptions etc.
Carried forward business losses
If you file your income tax returns on time July 31st for non-audit case and Sept 30th for audit case, you can carry forward any business loss that is incurred.
Speculative losses can be carried forward for 4 years and can be set-off only against any speculative gains you make in that period.
Non-speculative losses can be set-off against any other business income except salary income the same year. So they can be set-off against bank interest income, rental income, capital gains, but only in the same year.
You carry forward non-speculative losses to the next 8 years; however, do remember carried forward non-speculative losses can be set-off only against any non-speculative gains made in that period.
Tax loss harvesting
End of a financial year, you might have realized profits and unrealized losses. If you let it be, you will pay taxes on realized profits and carry forward your unrealized losses to next year. This would mean a higher tax outgo immediately, and hence any interest that you could have earned on that capital goes away as taxes.
You can very easily postpone this tax outgo by booking the unrealized loss, and immediately getting back on the same trade. By booking the loss, the tax liability for the financial year would reduce.
Applicable ITR Form
ITR- 3 for individuals and HUFs having income from profits and gains of business or profession.
ITR-4 for Individuals, HUFs and Firms (other than LLP) who are eligible to opt ‘Presumptive taxation scheme’
How to file ITR Form
Profit Case:
Loss Case:
Speculative Activity
Future and Option traders Tax Audit
|
Case |
Opted for 44AD |
Declaring profit |
Remark |
|
1 |
Yes (Turnover is less than Rs. 2Cr.) |
According to 44AD |
Neither require to maintain books of accounts nor audit |
|
2 |
Yes (Turnover is less than Rs. 2Cr.) |
Less than 8% or 6% as the case may be or declaring loss |
Require to maintain books of accounts and audit. |
|
3 |
No (Turnover is less than limit given under 44AB) |
Profit or loss whatever is the case |
No audit, maintain books of accounts if limit of 44AA is crossed |
|
4 |
No (Turnover is more than limit given U/s 44AB) |
Profit or loss whatever is the case |
Audit and maintaining books of accounts is mandatory |
F&O traders ITR filing with computation just Rs. 1000/-.
For any clarifications/feedback on the topic, don’t hesitate to contact: 9711690276
