How to Report Income from Trading in F&O in Your IT Return

ITR 3 The ITR form applicable for reporting income from ‘Profits and gains from business or profession (PGBP)’ is. The tax payable on such income is at the applicable slab rate for each individual.

Reporting business income allows for deduction of related expenses. Thus, costs such as broker’s commission, demat charges, cost of research reports, depreciation of equipment used for trading and internet cost can be claimed as expenses from such income.

set-off and carry on

Income from business is further divided into speculative and non-speculative business income. Intra-day trading transactions are considered speculative (since there is no delivery of shares) and other F&O transactions are considered non-speculative.

While the tax payable on both incomes is the same, the difference arises in terms of disclosure and specifically when there is a loss—the latter allows you to set-off or carry-off the loss to adjust the loss against income and reduce tax. Allows the use of forward provisions. going outside

If you incur a loss on non-speculative F&O trading, that amount can be used to set off the loss against any head of income except salary. For example, a loss on F&O trading can be adjusted against income from your house property or capital gains or income from other sources as well as any non-speculative income. Unused loss, if any, can be carried forward for the next eight years and can be adjusted against non-speculative business income only.

An intra-day trading loss (speculative), on the other hand, can only be set against speculative earnings. The unutilized balance, if any, can be carried forward to be adjusted against speculative income for the next four years.

According to Neetu Brahma, director, Nangia Andersen India, the only condition to carry forward business losses is to file ITR before the due date.

Books of Accounts and Audit

When reporting business income, the need to maintain books of accounts arises “when turnover exceeds” 25 lakhs or if the net profit exceeds 2.5 lakh per annum in case of an individual,” said Sandeep Sehgal, partner-tax, AKM Global, a tax and consulting firm.

Stock brokers generally provide a detailed statement of profit and loss of all the transactions done during a financial year. “These statements are of great use to traders but cannot in themselves be treated as books of accounts,” Sehgal said.

Also, as per the Income Tax Act, a tax audit is mandatory if the turnover from the business exceeds 10 crores (limit is 1 crore if the cash receipts and cash payments do not exceed 5% of the total receipts or payments during the year). If you chose Estimated Income Tax, the tax audit applies only if your reported profit is less than 6% or 8% of the turnover.

The calculation of turnover in stock trading is slightly different. For intra-day transactions, the transaction settlement amount – whether positive or negative – is the turnover. Suppose you have bought a stock ‘X’ here 1,000 and sold it 1,500, so the difference 500 turnover. The same is true for futures. Suppose, you have entered into a future contract price 1 lakh and later it. sold on 95,000, negative difference of 5,000 turnover.

In the case of options, the premium collected on the sale of the option should also be taken into account. Suppose, you have bought an option on the index of 100 units 50 and this. sold on 60, turnover is (100 units*( 60-50)) plus the option premium received (100 units * 60) which is equal to 7,000 (1,000+6,000).

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