Any profit or loss incurred from trading in future & options is considered as BUSINESS INCOME and is shown under the head “Income from business or profession” in the ITR. It is not necessary to open a separate company for dealing in F&O trades. Any individual can deal in F&O trades. Many salaried individuals, retired senior citizens often deal in F&O trades.
Also reporting income under business head comes with multiple benefits. You can claim expenses related to trading.
How to claim expenses: Like any other business, while calculating the income from F&O trades, you are allowed to deduct expenses which are directly related to earning this income, for e.g. rent of the premises used for the trading, mobile or telephone expenses, internet charges, broker’s commission, demat account charges, depreciation on laptop, consultancy charges in case you took advice from a professional etc. But you must maintain the receipts/bills of such expenses. Also, any expense exceeding Rs 10,000 in a single day should not be paid in cash to be deemed valid.
ITR Applicable: ITR 3 is applicable for Business Income. Even if you have a salary income, income from house property or income from any other sources, you will be able to disclose the income along with the F&O income in the ITR 3. In case you are following a presumptive income scheme and declare profits at 6% of your turnover (8% in case of non-digital transactions and 6% in case of a digital transaction. Security traders can declare 6% of the turnover), then you will be required to file ITR 4. However, you will be required to file ITR-3 if you declare your F&O income as presumptive business with capital gains. When we declare F&O income as presumptive business and we have capital gains ITR-3 is applicable.
How to report Loss from F&O Trades?
Reporting Loss is mandatory: It is quite common to not to report a loss on your income tax return since no tax is payable on it. However, it has been made mandatory to report any losses in your ITR. Failure to do so will result in the Income Tax Department issuing a notice.
Declaring your losses while filing your returns come with multiple benefits which many are unaware of. Any loss incurred by trading in F & O can be set off against any other income except salary income. For instance, if you have a rental income of Rs 8 lakh and loss from F&O of Rs 2 lakh, then your total taxable income would be Rs 6 lakh.
Such loss if cannot be fully set off against the income in the current year, can be carried forward for the next eight years. But the point to be noted here is that carry forward loss can set off only against business income in subsequent years and not any other income.
