The Ultimate Guide To F&O Tax Applicability In India 2023

The income from trading in F&O on every recognized exchange like BSE, NSE, MCX, and others is considered non-speculative business income. F&O is regarded as a derivative product in the world stock market. 

You must know that F&O trade is reported under the head business in Income Tax Return or ITR. The information is usually provided per the frequency or volumes of the trades. In this guide, you will read about the F&O tax applicable in India.

Turnover in Derivatives

Turnover is calculated as the difference between the totally negative and positive values for the Futures segment. There is no difference in whether it is positive or negative; these values are aggregated, and then the turnover is calculated. Concerning the options, the premium is said to be included in Turnover. 

Some of the examples are as follows:

  • If a client bought and sold RIL one lot future contract and booked a profit of around Rs. 50,000.
  • If a client bought and sold RIL one lot future contract and booked a loss of around Rs. 25,000.
  • If a client purchased INFY 1700 CE one lot at a premium of around Rs. 12,000.
  • If a client sold ITC 230 PE one lot at a premium of more than Rs. 20,000. 

People who want to know the basics of the stock market must know this. The total turnover in derivatives can be calculated by adding up the positive and negative values for the futures segment and including the premiums for the options segment. For example, if a client made a profit of Rs. 50,000 from trading RIL futures and a loss of Rs. 25,000 from trading TCS futures, and they also purchased INFY 1700 CE at a premium of Rs. 12,000 and sold ITC 230 PE at a premium of Rs. 22,400, the total turnover would be calculated as follows: Rs. 50,000 (profit from RIL futures) + Rs. 25,000 (loss from TCS futures) + Rs. 12,000 (premium for INFY CE) + Rs. 22,400 (premium for sold ITC PE) = Rs. 1,09,400.

The Treatment of Losses in Derivatives

If there are any unadjusted losses in derivatives, they will be carried forward for eight years. But the losses can be adjusted against non-speculative income in future tax years. But if there is a loss in F&O, you must opt to file it before the due date to be able to carry forward the loss and set of income in the future. 

One of the essential reasons you file F&O trading is that you can benefit from the losses you have incurred. If your business has suffered a loss, you must report it in your tax return. It can easily be adjusted from the remaining heads’ income, like interest or rental income. You must remember that you cannot adjust it from your salary income. 

Why Do You Require a Derivative Tax Audit?

Tax audit in the case of F&O is applicable in two scenarios: 

  • The turnover must be more than Rs. 10 crores, and the threshold of that amount is applicable for F&O as around 95% of the transactions will be via digital mode.
  • A tax audit is required if the taxpayer has declared income at a presumptive rate in the past five years and now declares income losses less than that rate.

Final Words 

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