How trading income is classified
| Activity | Head of income | Key point |
|---|---|---|
| Futures & options (equity, commodity, currency) | Non-speculative business income | Losses can be set off against other income except salary, and carried forward 8 years |
| Intraday equity trading | Speculative business income | Losses set off only against speculative income; carried forward 4 years |
| Delivery-based shares and mutual funds | Capital gains (usually) | Frequent, large-volume trading may be treated as business |
Business income from trading is reported in ITR-3 with a profit and loss account and balance sheet.
Turnover and the tax audit test
- F&O turnover is the total of favourable and unfavourable differences on each trade (absolute values), not the contract value. For options, the premium received on sale is also included, per the ICAI Guidance Note on Tax Audit.
- Tax audit applies if turnover exceeds ₹10 crore, provided cash transactions are within 5% (which is normal for trading).
- Below that, audit can still apply if you declare profit below 6% of turnover, having opted out of presumptive taxation in the preceding five years, and your total income exceeds the basic exemption limit.
- Check your numbers with the F&O tax calculator.
Due dates that decide whether losses survive
For FY 2025-26, a trader not liable to audit had to file by 31 August 2026; audit cases file by 31 October 2026. A loss can be carried forward only if the return is filed by the due date. A belated return (till 31 December 2026) keeps the income on record but loses the carry-forward.
Expenses you can claim
- Brokerage, exchange and clearing charges, stamp duty and GST on brokerage.
- Internet, data subscriptions, advisory and software used for trading.
- Depreciation on computers used for trading; a proportion of rent and electricity where genuinely used.
- Interest on borrowings used for trading.
- Securities transaction tax is not deductible.
Advance tax and AIS
Profitable traders must pay advance tax in instalments by 15 June, 15 September, 15 December and 15 March, or pay interest under sections 234B and 234C. The AIS shows the broker’s reported turnover; reconcile it with your contract notes and P&L before filing. Estimate interest with the 234A/B/C calculator.
Documents usually needed
- Broker tax P&L and trade-wise ledger for the year, for each broker.
- Contract notes summary, bank statements and margin interest details.
- Expense bills: subscriptions, internet, devices.
- Previous year return, if losses are being carried forward.
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