Everything an F&O Traders should know about Return Filing

Future and options : Everything an F&O Traders should know about Return Filing:

1.How to calculate turnover in F&O:

The turnover in case of Futures and Options transactions is calculated as follows

a. The sum of favorable and unfavorable differences shall be taken as turnover. Aggregate of both positive as well as negative differences will be taken together to calculate turnover in case of derivatives, futures & Options transactions. Or in other words both profits and losses will be added to calculate the turnover.

b. Premium received on sale of options is also to be included in turnover.

c. In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

2. Allowed Expenses under F&O:
a. Brokerage,
b. broker’s commission,
c. subscriptions to journals related to trading,
d. telephone bills, internet costs,
e. consultant charges if you engaged a person or took advice from a professional who charged you. Or salary of a person you hired to help with your business. All of these can be claimed.

Note : can’t pay in cash any expenses

3. Tax Audit :

Profit from transactions of F&O trading

a) In the case of profit from derivative transactions, tax audit will be applicable if the turnover from such trading exceeds Rs. 1 crore.
b) Tax audit u/s 44AB r/w section 44AD will also be applicable, if the net profit from such transactions is less than 8% of the turnover from such transactions.

In case of Loss from F&O Trading
In case of Loss from derivative trading, since profit (Loss in this case) is less than 8% of the turnover, therefore Tax Audit will be applicable u/s 44AB read with section 44AD

Trading in futures and options (F&O) will be a business and any gains or loss from the above business should be reported under the head PGBP.

4. Treatment of Adjustment for loss
Loss in respect of non speculative business income:

As per the Section 71 of the Income Tax Act, loss in respect of such business can be set off against any other heads of income including income from speculative business but excluding income under the head “salaries” of that year.
As per Section 72 of the Income Tax Act, if there is any such loss which is not set off against the above said incomes, such losses are eligible to be carried forward and set off against the other incomes excluding income from salary for a period of 8 subsequent assessment years in the manner as specified in the above order of set off.

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