The tax rule that shocks every new F&O trader: your derivatives profit is not a capital gain. It is business income, with everything that label carries, and pretending otherwise is a fast route to a notice, because your broker reports every contract.
What business income treatment means
F&O profits are added to your other income and taxed at slab rates. In exchange, you may deduct real trading expenses: brokerage, subscriptions, internet, even reasonable depreciation on the laptop you trade from. You file ITR-3, the detailed form.
Losses are actually valuable
An F&O loss is a non speculative business loss: it can be set off against most other income except salary, and carried forward eight years against business income, but only if you file on time. Traders who skip filing in a loss year throw away a genuine tax asset.
The audit question
F&O turnover for tax is computed strangely: the sum of absolute profits and losses on trades, plus premiums on options sold. Audit under Section 44AB generally applies past Rs 10 crore of such turnover for digital trades, and in certain cases where presumptive rules interact badly with declared losses. Most retail traders stay below the line, but compute the number before assuming.
Mention F&O in your Saathi.Tax interview and we route you to the expert assisted plan, where a CA prepares the ITR-3 with your broker statement. This is the one filing category where doing it fully alone is rarely worth the risk.
