Tax On Futures And Options

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Income from Futures & Options (F&O) is treated as an income from business and profession under income tax act, 1961. Thus, any profit or loss arising from Futures & Options will be assessed under the head of Income from Business and Profession irrespective of assessee being eng


Tax On Futures And Options: Trading in futures and options is a business. Therefore, trading profits have to be treated as business income and as such have to be shown in the income tax return. Tax is also due on these profits. The trader has to file the ITR-4 form to declare them.

Trading of Futures and Options is one of the most challenging avenues for young and trading enthusiastic Indians. Not only is it very complicated to understand the tax implication given the exotic terminology associated with Assets and Liabilities but also the taxation which applies on Futures and Options transactions is different from any other transactions done in regular businesses. If you are confused at any point while reading this blog post or even after, please remember that we are here to provide you with any kind of assistance at our disposal. We would be more than happy to try and answer your queries by answering them to the best of our knowledge.

ITR Form To Be Filed For Profit or Loss Arising From Futures and Options

Any profits and losses that are acquired from trading Futures/Option contracts on the Commodity market are to be treated as business income or business loss. As such, the ITR-4 tax form will be required by the taxpayer to file returns. Any net income acquired from Futures transactions after allowing any deductions will be taxed according to the prescribed income tax slab rates.

Benefits Under Section 43(5)

Many people are unclear if Futures and Options trading can be regarded as a short or long term investment. As per section 43(5) of the Income Tax Act, India any transactions that take place during the trading are to be deemed non speculative transactions. This means that all profits made through Futures and Options trade will be taxed in the same manner as income or profits acquired from the carrying on of any other kind of business. Therefore, you can claim deductions on tax for any expenses incurred while trading in Futures and Options such as telephone bills, electricity bills, internet bills etc. 

Tax Audit in case of Income from trading in Futures Options

 Since trading in the Forward and Option market are considered as business income and not a capital gains, standard provisions of the Income Tax Act will apply. Therefore, trading profits from FO trade would be considered as normal business income and taxed under normal tax slabs as applicable to you.

Options trading involves substantial risk at it is not suitable for all investors. To help retail investors trade in derivatives and equity options, NSDL launched a new version of Options trading platform with advanced features. The advanced features include unlimited free trading, single window transaction, and clearer position tracking etc. 

The tax audit limit of assessees has been increased to 5 Crores rupees from 1 crore rupees provided more than 95% of the business transactions are done through banking channels.

To learn more about Tax On Futures And Options follow the link given.