Income Tax: Major news for income tax payers. If you trade in Futures and Options (F&O), then calculate the profit and loss from it from now on. You will have to tell about this in the Income Tax Return. You will have to calculate the profit-loss made between April 1, 2024 and March 31.
This information will have to be given in the Income Tax Return for the financial year 2024-25. The last date for filing the return is usually 31 July. The income tax rules related to profit in F&O trading are simple. But, the rules for loss are a bit complicated. According to Section 43(5) of the Income Tax Act, income or loss from F&O is considered non-speculative business income. It has to be shown under the profits and gains head of business or profession. Normal tax provisions apply to this profit. It is taxed according to the taxpayer’s slab.
Meaning of intra-head set of rules
Tax rules are different on intra-day trading and short term or long term investments. In this case, it is important to understand the intra-head set-off rules. This means adjusting the loss with the income from another source. This can be understood with an example. Suppose you have a loss from F&T trading. Since it is considered non-speculative business income, this loss can be set off with the profit from another business.
Meaning of Inter-Head Setoff Rules
You also need to understand the inter-head setoff rules. In this, income from one source can be adjusted with income from another source. Some rules and conditions have been set for this. Under Section 71 of the Income Tax Act, losses from non-speculative business can be adjusted with all other income heads except income from salary. This means that if a person suffers a loss from F&O trading, he can adjust it with rental income, capital gains or interest income. But, he cannot adjust this loss with salary income.
It is mandatory to report F&O profit and loss
Since the number of people doing F&O trading has increased rapidly in the last few years, it is important for such people to know the tax rules for F&O profits and losses properly. It is necessary to mention this in the income tax return. If a taxpayer does not mention this in the return, he may get a notice from the Income Tax Department.