Derivatives Taxation

Derivatives Taxation


As per Income Tax Act, Income from F&O trading is treated as business income. Business income is normally divided into speculative and non-speculative income. F&Os are used for hedging and for taking/giving delivery of underlying contracts. Hence, F&O income will be considered a non-speculative business.

Deductions & Set Offs

Deductions can be taken for carrying out F&O transactions, such as Demat charges, electricity expenses, telephone expenses, etc.

F&O trading loss is considered a non-speculative business loss so it can be adjusted against other income heads. Any unadjusted business loss can be carried forward for eight subsequent years and set against the business income.

Audit Requirements

If you are carrying on F&O trading, you should get your accounts audited if the turnover exceeds Rs 10 crore (the digital transactions are 95% or more).


The turnover of all futures transactions is calculated in absolute terms. We multiply the purchase value by the lot size and then multiply the sales value by the lot size. The difference between this gives us the profit or loss, which is the turnover.

Turnover of all options transactions is calculated as

Sale value + absolute profit/loss.

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