ITR
F&O trading income is business income
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Facts
Income from futures and options on a recognised stock exchange is non-speculative business income, not capital gains. It is shown in ITR-3 under profits and gains of business or profession.
Provisions and law
- Sec 43(5), Income-tax Act 1961Defines speculative transactions; derivatives on recognised exchanges are not speculative (2025 Act number to be confirmed)
- Sec 28, Income-tax Act 1961 (now Sec 26, Income-tax Act 2025)Profits and gains of business or profession are taxable
Analysis
Sec 43(5) of the 1961 Act excludes eligible derivatives traded on recognised exchanges from speculative transactions, so they are normal business. Example: F&O profit of ₹2.8 lakh with ₹40,000 of expenses gives business income of ₹2.4 lakh, taxed at slab rates along with your other income. Showing it as capital gains is a common error that can lead to a defective notice.
Conclusion
- Download the F&O P&L and tax statement from your broker
- Compute net profit after expenses
- Report it in ITR-3 as business income
- Keep contract notes for the year
A Savvy can do this for you
Business or professional income return, ITR-3 (including F&O and intraday)
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