HOW DO I SHOW F&O LOSSES IN ITR?

“Report F&O losses under ‘Income from Business/Profession’ in ITR, detailing trading losses and related expenses.” In India, derivative trading is on the rise and has significantly increased. In this article, we learn about future and option losses in ITR filling. First, we need to understand that a future is a contract to buy or sell an undertaking stock or other assets at a predetermined price on a specific date; on the other hand, an option contract gives an opportunity to the investor, and an option is a right, not an obligation, to buy or sell at a specific rate.

Nowadays, individuals are earning through this job on a full-time or part-time basis, and F&O allows investors to gain high returns. As we already know, if the return is high, then the risk is also high. There is a direct relationship between risk and profit. If you are earning on this platform, then you must know how this is taxed and be aware of it.

What do you understand by F&O?

Futures and options are known as F&O; all financial derivative investors trade on stock exchanges. These are contracts signed by the two parties for trading a stock at a predetermined price at a future date. As per agreements between parties, investors are allowed to speculate or hedge their positions based on future price movements and recover the loss of underlying assets such as stocks, commodities, currencies, and indices.

Differences between the future and options

Both futures and options traders must file their ITR on the income generated from futures and options.

Benefits of Declaring the Future and Option Loss

There are some benefits to declaring your f&o losses in itr:

• Tax Deductions
• Carry Forward
• Tax Compliances
• Tax Audit (keep you below the limit)
• Adjustments against Futures and Gains
• Chances increase for loan applications.

How do I do tax treatment for F&O profits and losses?

F&O is considered a non-speculative transaction that is part of regular business transactions. Any income that comes from F&O trading is taxed as a similar way of doing business transactions, so the loss of F&O is considered a business loss.

At the time of reporting it in the ITR, we can claim certain expenses as a deduction.

• Rent of the premises where F&O trade is conducted.
• Administration expenses for the trade. For example, telephone bills and the Internet.
• Salaries of the employees or individuals you have hired for the F&O trade.
• Brokerage, commission, or charges of experts.
• Depreciation on the assets used for F&O transactions

It is very necessary to provide proof for all these transactions in the form of bills or receipts, and if cash expenses are more than $10,000, they cannot be claimed.

For example, transactions can be set off against all other income sources except salary. If Sonali is receiving a rent of 35,000 every month, which means annually receiving 420,000, then you incurred any loss on F&O that is 90,000, and Sonali can set off the loss from income that is received from rent, so his taxable income reduces to 3,30,000.

If somehow you cannot set off this loss in the current year, it can be carried forward over the next 8 years.

Which form has to be filed while reporting F & O Trading?

This loss is considered a business loss, so we need to file an ITR3 form for those who are earning from business loss or profit. Similarly, if a loss is not treated as a business loss or they run a business or profession and file taxes as per the presumptive income scheme, then we need to file an ITR4 to report this income.

How is F&O turnover calculated, and what factors are taken into account?

Trading turnover is necessary to calculate to check whether the tax audit is applicable or not.

Turnover for Futures and Options Trading = Absolute Profit (sum of profit and loss made on various transactions throughout the year)

Here, the absolute profit is the sum of positive and negative differences.

Example: Mrs. Rushi buys 500 contracts of Nifty futures at Rs. 50 on September 7, 2023. She sells these contracts at Rs. 30 on October 8, 2022. Also, she buys 250 contacts of Heromotoco Futures at Rs. 100 on May 5, 2023. She sells these contracts for Rs. 150 on September 12, 2023.

Loss from Table 1: (30-50) * 500 = (10,000)

Profit from Table 2: (150-100)*250 = 12,500

Absolute Profit: 12500 + 10000 = 22,500

Eligibility of the F&O Trading Tax Audit

If income exceeds Rs. 2,50,000 or turnover exceeds Rs. 25,00,000 in any of the three previous years, then proper books of accounts have to be maintained. This applies to individuals who are trading in F&O. The trader has to prepare normal books of accounts. If the turnover of a person exceeds Rs. 10 crore, they are required to have their accounts audited.

(The threshold of Rs. 1 crore will not apply in the case of F&O trading as 95% or more of the transactions are digital.). . This means you’ll have to get your accounts audited via a CA and submit the audit report along with your tax return within the due date as specified by the act. There is a penalty if you do not maintain accounting records under Section 271A. This penalty is Rs 25,000/-. Further, a penalty equal to a lower of Rs 1.5 lakhs, or 0.5% of gross receipts or turnover, can be levied under Section 271B for not getting books audited under Section 44AB.

The due date of filling ITR is 31st July 2024.

Case 1: Trading turnover is less than 2 crore.

If profit is more than or equal to 6% of trading turnover, then the option for presumptive taxation is not applicable, so a tax audit is not applicable.

If a taxpayer who is in a loss or has a profit is less than 6% of trading turnover, then tax is applicable and income is also beyond the exemption limit.

Case 2: Trading turnover is more than 2 crore and less than 10 crore.

If the taxpayer has incurred a loss or has a profit that is less than 6% of trading turnover, a tax audit is applicable.

If the profit is more than or equal to 6% of trading turnover and has not opted for presumptive tax, the tax audit is applicable.

If the profit is more than or equal to 6% of trading turnover and has opted for presumptive tax, the tax audit is not applicable.

Case 3: Trading Turnover is More Than 10 Crores

Tax is applicable in all cases.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.