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How to File Tax Returns For Future & Options Trade

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[Updated Aug 2014]

There is a confusion in the minds of tax payers engaged in non-delivery based trading on the stock markets, commonly referred to as Futures and Options (or at F&O). We thought it to be very important to focus on this topic in an article addressing all these related to filing of tax returns in case of non-delivery based transactions, considering that the due date for tax return filing is fast approaching.ereturns-002

Individuals engaged in future and options should keep in mind following things for Income Tax Return filing:

Taxable as Business Income

As per the provision of the Income Tax Act, 1961, income from futures & options (F&O) is treated as normal business income. Thus, profit or loss from such business (F&O) will be taxable as income under the head profits and gains of business or profession whether or not the assesse is carrying on any other business or profession.

Tax will be charged on such income at the normal rates applicable to an individual.

Compliances in case of Profit & Loss

If there is a loss in F&O, here provisions of section 44AD will apply and accordingly audit of books of accounts will also be required. The provision of this section mandates disclosure of at least 8 % of net profit on the gross turnover.

So, in case the assesse does not discloses the same (less than 8 per cent or loss) , the assesse will be required to maintain books of accounts and is required to get tax audit under provisions of section 44AA and 44AB. Thus, pursuant to this change, income from business cannot be below 8 per cent of the gross turnover in any circumstances.

So, if there is a profit in F&O and you are disclosing 8% or more of total turnover as profit then only the income has to be declared as business income and accordingly ITR has to be filed. There will be no need to maintain books of accounts and of audit.

Turnover Calculation

Now, here comes the point calculation of turnover. Determination of turnover in case of F&O is one of the important factors for every individual for the income tax purpose. Turnover must be firstly calculated, in the manner explained below:

  1. The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
  2. Premium received on sale of options is to be included in turnover.
  3. In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.

Here, it makes no difference, whether the difference is positive or negative. All the differences, whether positive or negative are aggregated and the turnover is calculated.

Tax audit under Section 44AB

As Futures & options (F&O) is treated as normal business income, so, if the total sales, turnover or gross receipt from business for the previous year relevant to assessment year exceeds Rs. 60 lacs in FY 2010-11 & 2011-12 (Rs. 1 crore from the FY 2012-13) then its mandatory to get books of accounts audited.

Expenses

Expenses such as postage, conveyance and telephone, incurred for carrying on the business can be claimed as business expenses. You can also claim depreciation on assets used for the business or profession.

Due date for return Filing

In case you are liable for audit under provision of section 44AB or 44AD then the due date of filing ITR would be 30th September of the assessment year (Like for FY 2011-12 due date would be 30th September 2012).

And, in other case or say in case you are not liable for audit then the due date of filing ITR would be 31st July of the assessment year (Like for FY 2011-12 due date would be 31st July 2012).

Carry forward & and set off of Loss

If there is a loss in F&O and you are claiming the same in Income Tax Return then you should file it before due date to carry forward the loss and set off from the income in future.

  1. Sekhar says

    Very informative about compliance. I searched so much. After this, i came to know that we can show the profit calculating u/s 44AD, if the turnover less than 100 lac. Thanks a lot

  2. Natarajan says

    Hi,

    I live in Gurgaon and would like to take a help in filing the losses incurred in my F&O tarding.. My total accumulated loss is ~4.5Lakhs and the over all turnover could be >9Cr sinc eI do mor eof intraday. I am salaried person and do let me know how do I go about filing the return.. Need some help of CA in Gurgaon.. Can you guide pls

  3. Natasha Oberoi says

    Hi Alok,

    Great site and highly informative.

    Also please guide if Turnover is less than 1Cr and there is Loss but the Loss is not being claimed, do we still have to AUDIT book of accounts under section 44AD.

    Kindly respond.

  4. Kishan says

    Further to my above comment, to add where F&O loss results in negative total income or less than the maximum amount not chargeable to tax, after considering income from other heads, audit is not mandatory in view of Sec 44AD (5).

  5. Kishan says

    You mentioned audit of books of accounts in case of loss in F & O. In view of sub-Sec 5 of Sec 44AD, audit is not mandatory where total income does not exceed the maximum amount not chargeable to tax & accordingly, AUDIT IN CASE OF LOSS IN F & O NOT REQUIRED. Please give your comments & clarify.

    Thanks.

  6. praveen says

    only basic information

    no any thing about calculation of turnover
    calculation of profit

    eg. turnover is not actual sale for the purpose of F&O and Intra day transation

  7. neha says

    Sir I am not being able to calculate the gross turnover frm F & O. I do not understand what amounts to include or to exclude from items like marked to margin moneys, service taxes,brokerages,etc..please help.

  8. gpgp says

    Dear Mr.Patnis,

    Is audit mandatory u/s 44AD in following scenario ?

    Futures Loss = 1 Lac
    Futures Turnover = 5 Lac (adding P+L figures)
    Bank FDR Interest = 9 Lac
    TDS = 90000

    Thanks,

  9. Octavio Riano says

    Interesting information about trading, i work with trading and metatrader programming and this information could be very useful, many thanks

  10. Ajay says

    So if a person is in loss in F&O but the turnover is less than 60L, then surely he/she has to go for auditing. So the final date for carry forwarding the loss would be sep 30 2012, right?

  11. Alok Patnia says

    Thanks Mr. Robin for your kind words.

  12. Robinsh says

    Tax filing process was always a messy job for me and now I’hv to know that all so would like to say thanks that you helped to find the site like TaxMantra for all the tax related queries.

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