Tax Return Filing in case of Futures & Options Trades


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Tax Return Filing in case of Futures & Options Trades
Posted by: Alok Patnia in Income Tax, India, tax payers
July 9, 2012 8 Comments
There is a confusion in the minds of tax payers engaged in
non-delivery based trading on the stock markets,
commonly referred to as Futures and Options (or at F&O).
We thought it to be very important to focus on this topic in
an article addressing all these related to filing of tax
returns in case of non-delivery based transactions,
considering that the due date for tax return filing is fast
Individuals engaged in future and options should keep
in mind following things for Income Tax Return filing:
Taxable as Business Income
As per the provision of the Income Tax Act, 1961, income
from futures & options (F&O) is treated as normal
business income. Thus, profit or loss from such business
(F&O) will be taxable as income under the head profits and
gains of business or profession whether or not the
assesse is carrying on any other business or profession.
Tax will be charged on such income at the normal rates
applicable to an individual.
Compliances in case of Profit & Loss
If there is a loss in F&O, here provisions of section 44AD
will apply and accordingly audit of books of accounts will
also be required. The provision of this section mandates
disclosure of at least 8 % of net profit on the gross
So, in case the assesse does not discloses the same (less
than 8 per cent or loss) , the assesse will be required to
maintain books of accounts and is required to get tax
audit under provisions of section 44AA and 44AB. Thus,
pursuant to this change, income from business cannot be
below 8 per cent of the gross turnover in any
So, if there is a profit in F&O and you are disclosing 8% or
more of total turnover as profit then only the income has
to be declared as business income and accordingly ITR has
to be filed. There will be no need to maintain books of
accounts and of audit.
Turnover Calculation
Now, here comes the point calculation of turnover.
Determination of turnover in case of F&O is one of the
important factors for every individual for the income tax
purpose. Turnover must be firstly calculated, in the
manner explained below:
1. The total of positive and negative or favorable and
unfavorable differences shall be taken as turnover.
2. Premium received on sale of options is to be included
in turnover.
3. In respect of any reverse trades entered, the
difference thereon shall also form part of the
Here, it makes no difference, whether the difference is
positive or negative. All the differences, whether positive
or negative are aggregated and the turnover is calculated.
Tax audit under Section 44AB
As Futures & options (F&O) is treated as normal business
income, so, if the total sales, turnover or gross receipt
from business for the previous year relevant to
assessment year exceeds Rs. 60 lacs in FY 2010-11 &
2011-12 (Rs. 1 crore from the FY 2012-13) then its
mandatory to get books of accounts audited.
Expenses such as postage, conveyance and telephone,
incurred for carrying on the business can be claimed as
business expenses. You can also claim depreciation on
assets used for the business or profession.
Due date for return Filing
In case you are liable for audit under provision of section
44AB or 44AD then the due date of filing ITR would be 30th
September of the assessment year (Like for FY 2011-12 due
date would be 30th September 2012).
And, in other case or say in case you are not liable for
audit then the due date of filing ITR would be 31st July of
the assessment year (Like for FY 2011-12 due date would
be 31st July 2012).
Carry forward & and set off of Loss
If there is a loss in F&O and you are claiming the same in
Income Tax Return then you should file it before due date
to carry forward the loss and set off from the income in

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