Tax-efficient planning of income from this trading does not mean tax evasion; it means taking advantage of the relevant provisions of the Income Tax Act. Mentioned below are some ways F&O traders can plan their taxes more efficiently.
a) Claim All Expenses Related to the Business
As F and O Trading is classified as business income, one can claim related expenses such as:
Internet charges
Trading software expenses
Advisory fees
Depreciation on electronic devices such as a laptop or mobile phone
Rent for office space, if applicable
These expenses will help reduce the income tax on F&O Trading in India by reducing the taxable business income.
b) Carry Forward Losses
In case of a loss incurred in F&O Trading, this loss can be carried forward for a period of eight years, provided that the return is filed on or before the due date. This allows for offsetting gains in subsequent years and reduces income tax on F&O Trading in India.
c) Section 44AD: Presumptive Taxation Scheme
Turnover not exceeding Rs. 2 crore permits small traders to opt for Section 44AD, which presumes a 6% profit margin on turnover deemed as income. However, it comes with certain restrictions:
No business expenses can be deducted separately.
Must adhere for 5 years.
Tax Filing Mistakes by F&O Traders
These are mistakes to avoid for participants of F&O Trading:
If you have filed ITR-2 instead of ITR-3, then it is a big mistake in the F&O environment.
Losses not disclosed in the ITR filing.
Skipped the mandatory audit of your earnings, P&L.
No account book is maintained.
Failing to reimburse your business expenses.
All these will hamper compliance and increase your income tax on F&O Trading in India unnecessarily.
Is GST Applicable to F&O Trading?
New F&O traders often question the applicability of GST. The good news is that F&O Trading income is not subject to GST. These are financial transactions executed on a recognised stock exchange and thus are exempt under GST.
However, if you provide advisory trading or algo services alongside F&O Trading, GST may apply to the revenue from those services.
Seeking Professional Assistance Regarding The Taxation of F&O Trading
Due to the nature of taxation on F&O Trading, especially with the increased turnover, dealing with multiple instruments, or both, seeking professional assistance from a chartered accountant (CA) is advisable.
CAs can assist you in:
Determining audit applicability.
Computing business income.
Accurate F&O ITR filing.
Claiming maximum deductions
Avoiding notices or penalties.
When dealing with income tax on F&O Trading in India, underestimating expert advice, especially regarding the notice or penalty, is a big mistake.
SEBI New Rules for F&O Trading
Below is an overview of the SEBI New Rules for F&O trading from 2025 onwards:
1. Weekly expiry limit - Since November 2024, one expiry per index and per week per exchange.
2. Larger contract size - Minimum notional value expanded to Rs. 15 lakh.
3. Upfront premium - Full premium must be paid by option buyers when placing orders.
4. Intraday position checks - Position limits are checked several times a day.
5. Changes on expiry day - Short positions incur additional margins while calendar spreads are disallowed.
6. F&O limits on indices - Limits on maximum exposure per PAN, e.g., Rs. 1,500 crore net position in options.
7. Trading during ban periods - As of October 2025, traders are limited to only reducing their positions during the ban.
8. F&O pre-open & post-close sessions - To be implemented by December 2025.
9. Eligibility criteria for indices - Non-benchmark indices have to broaden their stock base.
Conclusion
F&O Trading carries immense profit potential. However, with great opportunity comes greater tax responsibilities. Knowing everything about taxation on F&O trading, meeting your audit obligations, selecting the appropriate ITR form, and taking full advantage of all tax-saving provisions should be a priority.
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