You can’t set off F&O losses against salary. But you can carry them forward up to 8 years and use them against business income, capital gains, house property, and other income—provided you file your return by the due date under Section 139(1).
Unlike speculative or intraday trades, F&O earnings are classified as business income, taxed per your slab rates.
With nearly 96 lakh active F&O traders facing heightened scrutiny, CA and wealth advisor Kanan Bahl breaks down vital compliance rules: don’t fall for presumptive taxation, distinguish turnover from income, and declare losses correctly to save tax and avoid trouble.
1. F&O income is treated as non‑speculative business income
Unlike speculative or intraday trades, F&O earnings are classified as business income, taxed per your slab rates. This opens up wider options for setting off losses, but removes the privilege of capital gains treatment.
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2. Turnover is not the same as profit—it’s for audit thresholds
ICAI defines F&O turnover as: Turnover = |Profit| + |Loss| + Premium on options sold
For example: ₹30,000 from options + ₹1 lakh from futures = ₹1.3 lakh total turnover—even if you’re actually at a net loss. This number matters for audit applicability only, not for your taxable income.
3. Presumptive taxation under 44AD doesn’t apply to F&O
Some traders reporting only 6% of turnover as income under Section 44AD have triggered tax notices. That method isn’t allowed. The correct course? File ITR‑3 and declare actual business income or loss.
4. Lost money? Here’s how you can still benefit
You can’t set off F&O losses against salary. But you can carry them forward up to 8 years and use them against business income, capital gains, house property, and other income—provided you file your return by the due date under Section 139(1).
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5. Real‑life illustration: Riya’s case
Riya, a freelance graphic designer:
Earned ₹6 lakh via mutual fund redemption (capital gains)
Incurred ₹3 lakh in F&O losses (business loss)
→ Net taxable amount: ₹3 lakh.
She must file ITR‑3, not ITR‑1 or ITR‑4, due to trading income classification.
Bahl’s Bottom Line:
- If you made profits—don’t mix up turnover with taxable income.
- If you made losses—declare them properly and carry them forward.
- And definitely avoid misusing presumptive schemes.
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