FAQ 1. I am a trader in Futures and Options (F&O). This year, I incurred a loss in F&O trading. Do I still need to file my Income Tax Return (ITR) even though my income is below the exemption limit?
Filing an Income Tax Return is mandatory for individuals and Hindu Undivided Families (HUF) if their income before allowing capital gain exemption and deductions under Chapter VI-A exceeds the maximum exemption limit.
Since you have incurred a loss during the year, you are not required to submit an ITR under normal circumstances. However, it is still necessary to file the ITR in order to carry forward the F&O losses. Therefore, you should file your return of income on or before the due date to carry forward the losses.
FAQ 2. I am a salaried employee. I am also engaged in trading derivatives such as futures and options. I would like to know the deadline for filing my Income Tax Return (ITR), whether it is 31stJuly or 31st October.
The gains or losses arising from trading in F&O are always taxable under the head of ‘Profits and Gains from Business or Profession’. Income or loss from F&O shall be deemed as normal business income (non-speculative business) even though delivery is not affected in such transactions.
As your income from F&O falls under the business head, it is important to calculate your turnover to determine whether you are required to have your accounts audited. The turnover computation is crucial because the requirement for a tax audit is based on turnover. If your turnover exceeds the specified limit, you must have your accounts audited, and in that case, the due date for filing your ITR will be 31st October. However, if your turnover is below the specified limit, the due date to file the ITR will be 31st July.
FAQ 3. How to calculate the turnover in the case of F&O?
The Income-tax Act does not contain any provision or guidance for the computation of turnover in F&O trading. However, the ‘Guidance Note on Tax Audit’ issued by the ICAI prescribes the method of determining turnover, which shall be as under:
- The total of favourable and unfavourable differences is taken as turnover.
- Premium received on the sale of options is also included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be included separately.
- In respect of any reverse trades, the difference thereon should also form part of the turnover.
All the favourable or unfavourable differences are aggregated to calculate the turnover..please click to continue read
