Income and loss from futures and options are business income, taxed at your slab rate and reported in ITR-3. It is non-speculative business, so a loss can be set off and carried forward for 8 years.
Below: how the income is classified, how to work out turnover, when a tax audit applies, how a loss works and a filing example.
How F&O Income Is Taxed in India
F&O income is non-speculative business income, taxed at your normal slab rate under the head profits and gains of business or profession.
Section 43(5) of the Income-tax Act treats derivative trades on a recognised exchange as non-speculative. They are not capital gains, so the lower capital gains rates do not apply.
The Income-tax Act, 2025 replaces the 1961 Act for tax years starting 1 April 2026. Returns for FY 2025-26 still follow the 1961 Act, so the old section numbers apply.
The Income Tax Department site carries both Acts.
Which ITR Form to File for F&O Income
File ITR-3, the form for individuals and HUFs with business or professional income.
| Situation | Form |
|---|---|
| F&O profit or loss with books | ITR-3 |
| F&O under presumptive Section 44AD | ITR-4 |
| F&O income in ITR-1 or ITR-2 | Not allowed |
ITR-4 works only through the presumptive scheme in Section 44AD, and tax professionals differ on whether F&O fits it.
A presumptive return cannot show a loss, so most traders file ITR-3 and keep books.
The usual due dates are 31 July without an audit and 31 October with one, unless extended. The ITR filing last date guide tracks them.
How to Calculate F&O Turnover
F&O turnover is the total of the absolute profit or loss on every settled trade, not the net result.
The ICAI Guidance Note on Tax Audit, 8th edition, no longer adds the premium on options sold to turnover.
| Trade | Working | Turnover |
|---|---|---|
| Futures | (210 - 200) x 100 | Rs 1,000 |
| Options | (300 - 290) x 200 | Rs 2,000 |
| Total turnover | Rs 1,000 + Rs 2,000 | Rs 3,000 |
The net result is a profit of Rs 1,000 and a loss of Rs 2,000, which is a loss of Rs 1,000. The turnover is still Rs 3,000.
Turnover decides the audit limit, so count every squared-off trade, including reversing trades in the same contract.
Books of Accounts and Tax Audit for F&O Traders
Keep books if your business income is above Rs 2.5 lakh or your turnover is above Rs 25 lakh in any of the 3 preceding years.
A tax audit under Section 44AB applies above Rs 1 crore of turnover, or Rs 10 crore if cash stays within 5%.
| F&O turnover | Cash receipts and payments | Tax audit |
|---|---|---|
| Up to Rs 1 crore | Any | Not needed |
| Rs 1 crore to Rs 10 crore | Up to 5% | Not needed |
| Rs 1 crore to Rs 10 crore | Above 5% | Needed |
| Above Rs 10 crore | Any | Needed |
F&O trades settle through the exchange and your bank, so most traders count as digital and use the Rs 10 crore limit.
An audit can apply below these limits if you took the presumptive scheme before. Declaring less than the presumptive profit later, with income above the basic exemption, triggers Section 44AB(e) for 5 years.
The audit report is normally due by 30 September, a month before the 31 October return date.
F&O Loss Set Off and Carry Forward
An F&O loss can be set off against any other income except salary, and the unused part carries forward for 8 assessment years.
Speculative business is different. An intraday equity loss sets off only against speculative income and carries forward for 4 years.
Expenses an F&O Trader Can Claim
You can claim expenses that are wholly for the trading business, and they reduce the profit or add to the loss.
| Expense | Condition |
|---|---|
| Brokerage and exchange charges | Fully allowed |
| STT | Allowed as a business expense |
| Internet, phone and electricity | Business share only |
| Laptop and computer | Depreciation, not full cost |
| Research and advisory fees | Fully allowed |
| Interest on a trading loan | Allowed if used for trading |
| Office rent and staff salary | Allowed with proof |
A cash payment above Rs 10,000 in a day to one person is disallowed under Section 40A(3), so pay by bank.
Depreciation on a computer is 40% on the written-down value. Keep every bill for the year.
Worked Example: F&O Loss Against Other Income
Take a salaried trader with Rs 15,00,000 of salary, Rs 80,000 of interest and an F&O loss of Rs 3,00,000 on Rs 30,00,000 of turnover.
| Item | Amount |
|---|---|
| Account enrolment charges | Rs 5,000 |
| Brokerage | Rs 98,000 |
| Phone bill, 50% business use | Rs 18,000 |
| Internet | Rs 14,400 |
| Total expenses | Rs 1,35,400 |
The loss for the year is Rs 3,00,000 plus Rs 1,35,400, which is Rs 4,35,400.
| Step | Without set off | With set off |
|---|---|---|
| Salary after Rs 75,000 deduction | Rs 14,25,000 | Rs 14,25,000 |
| Interest income | Rs 80,000 | Rs 80,000 |
| F&O loss set off | Nil | Rs (80,000) |
| Taxable income | Rs 15,05,000 | Rs 14,25,000 |
| Tax with 4% cess | Rs 1,09,980 | Rs 97,500 |
The loss cannot touch salary, so only the Rs 80,000 of interest is set off. The tax falls by Rs 12,480.
The remaining Rs 3,55,400 carries forward for 8 years against business income.
Work out your tax
Enter your salary and other income to see the tax under both regimes.
How to File an F&O Return Step by Step
Filing takes 5 steps once your broker statements are ready.
Download the profit and loss statement
Get the profit and loss and tax statement for the financial year from your broker.
Work out turnover
Add the absolute result of every settled trade, as the formula above shows.
Deduct the expenses
Subtract brokerage, charges and other business costs from the trading result.
Fill ITR-3
Enter turnover and the profit or loss in the business schedule, and fill Schedule CFL if you carry a loss forward.
File on time and e-verify
File by the due date and e-verify the return, so that the loss can be carried forward.
New Tax Regime or Old Regime for F&O Traders
The new regime is the default, and you can use it with F&O income, but it removes most Chapter VI-A deductions such as 80C and 80D.
A taxpayer with business income who opts out to the old regime can return to the new regime only once. Opting out needs Form 10-IEA by the return due date.
The Old vs New Tax Regime Calculator compares both on your numbers, and the regime guide explains the trade-off.
F&O, Intraday and Delivery Trades Compared
F&O and intraday equity are business income at slab rates, while delivery trades are capital gains.
| Type | Head of income | Tax rate |
|---|---|---|
| F&O trades | Business income, non-speculative | Slab rate |
| Intraday equity | Business income, speculative | Slab rate |
| Delivery under 12 months | Short term capital gains | 20% |
| Delivery over 12 months | Long term capital gains | 12.5% above Rs 1.25 lakh |
Intraday equity is a separate speculative business, so its income and loss are worked out apart from F&O.
The STCG Calculator works out the tax on delivery trades held under 12 months, and the Advance Tax Calculator splits the year's tax into instalments.
Frequently Asked Questions: F&O Taxation
Disclaimer: F&O rules here follow the Income-tax Act, 1961 for FY 2025-26, and some points rest on ICAI guidance. Confirm on incometaxindia.gov.in or with a Chartered Accountant before you file. This page is general information, not tax advice.