How each kind of trading is taxed
| Trading | Taxed as | Rate |
|---|---|---|
| Futures and options on a stock exchange | Non-speculative business income | Your slab rate |
| Intraday equity (bought and sold the same day) | Speculative business income | Your slab rate |
| Delivery shares | Capital gains | 20% short term; 12.5% long term above ₹1.25 lakh |
Which ITR
Business income from trading means ITR-3, even if the rest of your income is salary. Report F&O under non-speculative business income, and intraday separately as speculative income.
Losses
- F&O loss: in the same year, it can be set off against other income except salary, such as capital gains, rent or interest. What's left is carried forward for 8 years, against business income only.
- Intraday loss: only against speculative income, carried forward for 4 years.
- Losses carry forward only if you file your return by the due date.
A trading loss never reduces the tax on your salary, so expect no refund from it. Still report it: it may reduce tax on future trading profits.
Expenses you can deduct
Against F&O and intraday income: brokerage, exchange charges, advisory or data subscriptions and similar costs of trading. Keep the bills.
Tax audit
Whether you need an audit depends on your trading turnover and profit. F&O turnover is worked out from the profit or loss on each trade (counted without the minus sign), not from contract value. If you need an audit, the return is due on 31 October instead of 31 July.
Advance tax
Profitable trading means tax your employer's TDS doesn't cover. Pay advance tax if the extra tax for the year is ₹10,000 or more.
Before you trade
SEBI's studies have found that most individual traders in equity F&O lose money. Margin trading (MTF) adds interest on the funded amount, charged daily, and the broker can sell your shares if you don't add margin when prices fall.
Common questions
Is F&O income capital gains or business income?
Business income. Futures and options on a recognised stock exchange are non-speculative business income, taxed at your slab rate.
Can I set off an F&O loss against my salary?
No. An F&O loss can be set off against other income except salary in the same year, and the rest carried forward for 8 years against business income.
Which ITR do I file for F&O trading?
ITR-3, even if the rest of your income is salary.
How long can an intraday loss be carried forward?
4 years, and only against speculative income. Losses carry forward only if you file by the due date.
Two ways to sort this
Do it yourself
- Download the tax P&L from your broker for the year.
- Separate F&O, intraday and delivery trades, and total your trading expenses.
- Work out turnover to see if you need a tax audit.
- File ITR-3 by the due date so losses carry forward.
Let an expert do it
We file ITR-3 with your trading income, check audit needs and carry losses forward.
The first chat is freeWork it out for yourself
- Black-Scholes: Theoretical option price and Greeks.
- Margin trading (MTF): Interest cost of buying shares on margin.
- Capital gains: Tax on shares, mutual funds, gold and property you sold.
- Advance tax: Instalments due, and interest if you pay late.
Value an option and see its Greeks.
Open the option pricing calculatorSources
- Individuals with business or professional income, Income Tax Department
- Investor education: how investments grow, and their risks, Securities and Exchange Board of India
- Equity derivatives: contract specifications, National Stock Exchange of India
This guide explains the rules in general. For your own situation, .