Income tax on F&O trading in India
F&O is non-speculative business income
The Income Tax Act treats gains and losses from futures and options trading as non-speculative business income. It does not matter whether you trade full time or alongside a salaried job. Once you have F&O activity, you have a business head, you file ITR-3, and the business rules on turnover, audit, expenses and carry-forward all apply. Intraday equity is also business income, but speculative, and is tracked separately.
The four things that flow from that
Turnover, the ICAI way
Your turnover is the absolute sum of realised profit and loss, not contract value and not the inflated number many brokers report. It decides audit applicability.
Turnover calculator โAudit, including the loss-year trap
Audit can apply above โน10 cr turnover, or via the 44AB(e) trap if you report a loss or under-6% profit and your other income exceeds the basic exemption.
Audit checker โExpenses reduce taxable profit
Brokerage, STT, exchange and SEBI charges, GST, internet, software, advisory and depreciation are all deductible against business income.
Deductible expenses โLosses carry forward 8 years
Non-speculative F&O losses set off against any non-salary head this year, and carry forward 8 years, only if you file ITR-3 on time.
Loss carry-forward โHow tax is actually computed
Your net F&O profit (after expenses) is added to your other income, salary, interest, capital gains, and taxed at slab rates. There is no special flat rate for F&O. Under the new regime for FY 2025-26 there is no tax up to โน4 lakh, then 5% to 30% in bands, with the 87A rebate making tax nil up to โน12 lakh of total income. Compare both regimes and lay out your advance-tax dates with the advance tax calculator.
Let Aktai Tax do the computation
Upload your broker Tax P&L and Aktai computes turnover the ICAI way, segregates F&O, intraday, STCG and LTCG, totals your deductible charges, runs the audit check, compares regimes and gives you a tax-ready report. Read the deeper guide on income tax on F&O trading or start from the Aktai Tax hub.
Frequently asked questions
Is F&O income business income or capital gains?
F&O income is non-speculative business income under the Income Tax Act, not capital gains. That is why it is reported in ITR-3 and not ITR-2. Intraday equity, by contrast, is speculative business income. Both are business heads, but they are kept separate because speculative losses can only be set off against speculative gains.
Which ITR form do F&O traders use?
ITR-3, because F&O is business income. A salaried person who also trades F&O still files ITR-3, combining salary income with the F&O business head. ITR-1 and ITR-2 do not allow a business head, so they cannot be used once you have F&O activity.
Can I deduct expenses against F&O income?
Yes. Because F&O is business income, you can deduct directly related expenses: brokerage, STT, exchange and SEBI charges, GST on brokerage, internet and data, advisory and software subscriptions, and depreciation on a computer used for trading. These reduce your taxable business profit.
How are F&O losses treated?
F&O losses are non-speculative business losses. They can be set off against any head except salary in the same year, and any unabsorbed loss carries forward for 8 assessment years to set off against future business income, but only if you file your ITR-3 before the due date.
Aktai Tax produces estimates and computations for your reference, not tax advice. It does not file returns and has no access to your bank or the income-tax portal. Verify every figure with a qualified Chartered Accountant.