In our country, trading is perceived as highly uncertain, and is often seen as something only risk-takers should engage in. It is still considered a niche and is often misunderstood. There is great potential and interest in the Indian stock market!
There is a big difference between the number of Demat accounts and the number of individuals actually trading. The reason behind this could be a lack of understanding or uncertainty about various aspects of trading, such as the need to file income tax returns for futures and options. (F&O) trading.
Simplify the ITR submission process for F&O trades.
Futures and options financial instruments involve the purchase or sale of an underlying asset at a specified price. If a trader has a buy position and the price of the asset goes up, they can make a profit, but if they have a sell position, they can make a profit if the price of the asset goes down. There is currently a great deal of confusion regarding income tax regulations for F&O transactions in India and it needs to be explained in simpler terms.
This blog simplifies the process. F&O ITR Filing By highlighting its key aspects and outlining the necessary compliance measures.
Trading income is classified as speculative or non-speculative business income. Non-speculative F&O transactions include stock deliveries, while intraday trading transactions are considered speculative. Losses in non-speculative F&O transactions can be offset against non-salary income. Unused losses can be carried forward for up to eight years and can be offset against non-speculative business income. Losses from intraday trading can only be offset against speculative income and unused balances can be carried forward for up to 4 years. Non-speculative business income from F&O transactions is taxed at the normal Slavic tax rate and advance tax is required if the gross income for the financial year exceeds INR 10,000.
Form ITR-3 is used to declare income from ‘Profits and Profit from Business or Professions (PGBP)’ and the tax liability is calculated based on the Slavic tax rate applicable to each individual.
Reporting your business income has value!
The costs that can be justified are varied and numerous.
Submitting the F&O ITR on time allows you to deduct the costs associated with the transaction. These may include brokerage commissions, demat fees, research report costs, trading device depreciation and internet costs from earned income.
To claim expenses for business purposes, it is important to verify that they were incurred directly and exclusively for that purpose. Such costs may include brokerage fees, brokerage fees, subscriptions to trade-related journals, telephone and Internet bills, consultant fees, and salaries paid to employees employed for business purposes.
It is important to maintain proper records of receipts and invoices for such expenses, and it is also important to ensure that payments are made by check or bank transfer rather than cash. Additionally, we may be entitled to charge costs in excess of Rs. 10,000 in cash.
If an expense has both personal and business-related aspects, it is wise to claim a reasonable portion as a business expense.
Key points to remember when submitting an F&O ITR
- Profits or losses from F&O transactions must be included in your tax return to avoid notice from tax authorities.
- You can also report your loss preferential tax treatmentFutures and options trading is generally treated as business income for both individuals and corporations.
- Business expenses can be claimed by reporting F&O trading activity as a business.
Volume-Based Tax Audit Requirements for F&O Traders
- A tax audit is required if the transaction turnover is less than Rs. However, if the profit is 6% or more, no tax audit is required.
- Please note that a tax audit is mandatory for traders with trading volumes over INR 10 crores, regardless of profit or loss.
- Tax audit requirements for traders with a trading turnover above INR 2 crore and up to INR 10 crore depend on their profits and whether they have opted for the estimated taxation scheme under Sec 44AD. Another scenario that might warrant a tax audit is if your profit is less than 6% of your turnover or you have suffered a loss.
- If you have not chosen an estimated tax method and your profit is 6% or more, a tax audit is required. However, if you choose the presumptive tax method and your profit is 6% or more, no tax audit is required.
We hope you feel more and more about the certainly trustworthy trading aspect and the corresponding tax compliance. To make the process of F&O trade ITR filing even easier, turn to TaxBuddy, your trusted tax guide! One of the most trusted platforms in India, absolutely reliable and hassle-free method. File your tax return and maximize your tax savings.