ITR Filing 2025: A report by the Market Regulator SEBI states that about 93% futures and options (F&O) traders lost an average of ₹ 2 lakhs in FY 2022-23 and 2023-24. In such a situation, many traders assume that since they have lost loss, it is not necessary to show F&O transactions in income tax return (ITR). If you also think so, then it is a lot of misunderstanding.
Let us know what is the treatment in the income tax of F&O trading, which ITR form has to be filled, how to calculate the turnover and when the tax audit is necessary.
How is tax on F&O trading?
According to Section 43 (5) of the Income Tax Act 1961, F&O trading is considered ‘Non-Speculative Business Income’. This means that while filling ITR 2025, you need to show this income under ‘profit and loss from business and profession’. The profit from F&O is added to your total income and it is taxed according to the slab.
It is necessary to show loss in f & o
Many people think that it is necessary to only give information about profits, but it is equally important to show loss. The big advantage of this is that you can reduce your tax liability by set-off against the second earnings. Not only this, if you are not able to set-off the loss completely, then you can adjust it against the future profits by extending it forward for the next 8 years.
They also understand this by example. Suppose your fY 2024-25 has a salary of ₹ 8 lakh, interest income of ₹ 2 lakh and fare income of ₹ 3 lakh. This year you suffered losses in F&O trading of ₹ 6 lakh. Now according to the Income Tax Rules, you can set-off this loss against interest and rent income, but not against salary income.
That is, ₹ 2 lakh interest and ₹ 3 lakh fare – You can adjust a total loss of up to ₹ 5 lakh this year. After this, you can take the remaining ₹ 1 lakh loss forward for the next eight years. In this way your taxable income will be ₹ 8 lakh, because there can be no set-off against salary income. If you do not show F&O profit or loss in your ITR, then the Income Tax Department can send you notice.
F&O which ITR form to show income?
Since the earnings from F&O are considered business income, you have to fill the ITR-3 or ITR-4 form:
- ITR-3: For those individuals, who earn more than ₹ 50 lakh from business or profession.
- ITR-4: For those individuals, which choose the presumptive taxation scheme and their income is up to ₹ 50 lakh.
In these forms, information about profit, loss, turnover, expenses etc. has to be filled properly.
Can F&O Traders claim expenses?
Yes. Since F&O income is treated like a business, you can reduce trading expenses from total income, such as:
- Brokerage fees
- Internet and phone bill
- Trading Software/Journal Subscription
- Financial Consultant fees
- Business assistant salary
However, there are some conditions for this. For example, expenses should be directly related to trading. It is necessary to keep all expenditure bills/receipts. If you spend more than ₹ 10,000 cash, tax exemption will not be available. You can claim expenses even if there is damage.
Do F&O traders have to keep an accounting record?
If your income is more than ₹ 2.5 lakh, or your turnover is more than ₹ 25 lakh in any last 3 years, then it is mandatory for you to keep an accounting record. Such as trading statement, bank statement, receipts of expenses etc.
Is it necessary for F&O traders to get tax audit?
The answer to this question depends on certain circumstances. Accordingly, the audit may or may not be necessary.
| Situation | Tax audit necessary |
Turnover exceeds ₹ 10 crore | Yes (Section 44ab (A)) |
Turnover is between ₹ 2 crore to ₹ 10 crore and the profit is less than 6% | Yes, if presusumptive taxation did not take |
| Turnover is less than ₹ 2 crore and profit is 6% or more | No (Section 44AD) |
| Turnover should be ₹ 2-10 crore and more than 95% digital transactions | No, whether it is profit or loss |
The turnover is extracted by adding ‘Absolute Profit and Los’ in F&O, not from the contract value. Suppose you bought 100 Future Lot for ₹ 200 and sold for ₹ 210, which led to a profit of ₹ 1000. At the same time, you bought 200 options lot for ₹ 300 and sold for ₹ 290, causing a loss of ₹ 2000. Now while calculating the turnover, the Absolute Value of both Profit and Los is taken, ie ₹ 1000 + ₹ 2000 = ₹ 3,000. This will be considered your F & O turnover.
Advance Tax Rules for F & O Traders
If your total tax liability is more than ₹ 10,000, then you have to deposit advance tax in four installments:
| Tax percentage | Deadline |
| 15% | 15 June |
| 45% | 15 September |
| 75% | 15 December |
| 100% | 15 March |
If you choose a presumptive taxation, you will have to pay 100% advance tax at once by 15 March. Delay will cost interest under Section 234B and 234C.
Also read: SIP Tax Rules: How much and how tax you feel on profits from mutual funds, understand complete calculation
