F&O Trading ITR Filing: Despite the recent increase in futures and options (F&O) trading, the majority of investors have not yet mastered the challenges associated with taxation and return filing on earnings from this field of trading. One cannot report income from future and options just like normal income from business. All F&O traders have to disclose such income in a number of ways. The last date for F&O Trading ITR Filing is 31st July 2023 for non-audited cases.
First off, income from trading in futures and options is classified as non-speculative income under the principles of income tax. A transaction that does not depend on the delivery of the commodity, whether it be shares or something else, is referred to as speculative income.
For instance, equity intraday income is considered as speculative income as traders buy and sell the stock on the same day and there is no delivery to the demat account. However, income from F&O is treated as non-speculative as it is assumed that investors are using this segment for hedging purposes.
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How to Report the F&O income?
The income or losses from F&O trading should be reported as business income. Hence, traders will pay the taxes under the income tax slabs. However, this rule doesn’t apply if investors have only few trades (2 or 3) during the financial year.
Expenses on a return may be claimed by those who file business returns. The remaining heads’ income is added to this income to determine total income, which is then taxed at the individual’s appropriate slab rates. If the taxpayer wants to be considered to be subject to taxation under Section 44AD, special tax rates will be applied.
As such income is now treated by investors as belonging to the business category, they must utilize the ITR-3 form rather than the ITR 1 or 2, which are typically used for normal tax filing.
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Can we claim expenses under income tax on F&O trading in india?
Investors can deduct costs related to trading options and futures contracts since they must report F&O income as business income. In this situation, traders typically incur costs for professional advice, a brokerage charge, or interest on borrowing. All such costs may be claimed at the time of F&O Trading ITR Filing.
Since it represents commercial income, the investor has the right to claim a deduction for F&O trading expenditures. Additionally, one may deduct the cost of any equipment purchased for trading.
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How to Carry forward losses from F&O?
The income tax regulations require that F&O trading income be reported. What should investors do, though, if they suffer losses throughout the fiscal year? The losses suffered by traders can be compensated by other income earned over the year, such as rental or capital gains income. However, they cannot adjust it to salary income.
If the trader chooses not to fix the losses, he may carry them forward for a maximum of 8 years.The loss is not allowed to be carried forward if it is not mentioned in the income tax return or if it is not filed within the deadline.
The single most important reason to file with F&O trading is to get benefits from losses you have incurred. If your business resulted in a loss, don’t worry, report it in your tax return. However, in the future, they can only be adjusted from non-speculative income.
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How to calculate turnover of F&O in Income Tax?
The tax Audit under Income Tax is applicable if the total turnover of F&O exceeds the limit as prescribed under Income Tax Provisions. It is important to note that tax liability does not depend on Turnover.
Turnover for Futures & Options Trading is the Absolute Profit. Absolute Turnover means the sum of positive and negative differences. Trading Turnover Calculation can be either through scrip wise method or trade wise method.
Read Also: F&O Trading ITR Filing: Income Tax Audit limit for AY 2023-24
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