Taxation of F&O income can be really confusing. Many people don't even declare their F&O income while filing their income tax returns and that can turn out to be a really big mistake as you can even receive a notice from the tax department for non-compliance. Also, the declaration of such income comes with other tax benefits as well. We will try to understand this further below.
First of all, for an individual with F&O income, ITR-3 & ITR-4 are applicable.
(One can file ITR - 4 only if he/she doesn't have any other capital gain. If you have other capital gains ITR - 3 will be applicable, everything else remains the same).
Income from F&O transactions are not speculative in nature hence they are treated as any normal business income and all the rules that apply to a normal business are applicable for F&O income as well.
Speculative transaction is a transaction of purchase / sale of a commodity including stocks and shares settled otherwise than by actual delivery or transfer of the commodity or scrip.
Example: An intra-day trading income is a speculative income. In Intra-day trading of shares, there is no actual delivery happening. The shares enter and exit from the trading account on the same date.
If your total turnover exceeds 1 crore then Tax audit will be applicable. If this is true for you, you’ll have to get your accounts audited and you will have to submit the audit report along with your tax return. If you fail to maintain books of accounts or do not get the audit done, penalties shall be applicable as per the income tax act. The due date of filing ITR for most taxpayers is 31st July whereas if Tax audit is applicable to you then the due date for filing your ITR will be 30th September.
Use this Tool to calculate whether Audit applies or not- https://itr.taxbuddy.com/#/tax-audit
A. HOW IS MY TURNOVER CALCULATED? Turnover for F&O is Absolute value of profit and loss. No matter if you have a loss or a profit both the amounts are added up while calculating your turnover. We can further understand this with the following example. Let's say the following is the list of your profits/losses from various F&O transactions:
|Profit / loss from F&O transaction|
|TOTAL TURNOVER = 85,000
(Addition of all the above figures)
B. WILL I HAVE TO MAINTAIN BOOKS OF ACCOUNTS?
F&O LOSSES BENEFITS -
FILING ITR - 3 FOR F&O INCOME As mentioned above, you will have to file ITR 3 for F&O income only if you have other capital gains such as long-term capital gains (LTCG), Short term capital gains (STCG), Speculative income (Income from Intraday trading), or Loss from F&O, Audit cases, etc. All the other conditions remain the same for the F&O income and taxation.