Often the people who trade in derivatives find it difficult to file their ITR. The reason is that either they are unaware or are confused when it comes to the process of reporting the Future and Options trading in their income tax return. For the salaried people who are not into business, filing F&O in ITR becomes even more difficult. A brief here on How to report F&O trading in your income tax return may help the taxpayers who deal in derivatives with the tax filing process.

F&O is the most common or popular form of the derivatives. Options and futures are almost same other than the fact that when you do an options contract, you can choose not to make the transaction. Also, in F&O, nifty options chain and Futures are most liquid.

F&O – Business income

Looking at the tax laws, they are majorly divided under five heads of salary, house property, capital gains, business, and other sources like any residual income. The income coming from F&O is almost always considered as a business income irrespective of the occurrence or the magnitude of the deals. Since this head comes under the business income, the taxpayers have to file under ITR-4.

Now, reporting F&O as a business would imply the following:

• One can claim expenses from your business income
• Since losses have tax benefits, they must be reported
• The total income earned by you combined from all the five categories will to be taxed at slab rates.

The tax laws vary for the speculative business and for the non-speculative business. As per the income tax Act, F&O trade is a non-speculative business while the intra-day stock trades comes under the speculative business. Also, because F&O are treated as a business income, here the tax rules of capital gains will not apply according to the legal news. The capital gains exemptions only apply on the sale of the capital assets like equity shares, MF’s, land, house, and so on.

Calculate your account

In order to report F&O in your ITR, you must maintain your business’s profit and loss details.

• The gross income from F&O is calculated by taking the entire annual transaction statement. You will have to sum up the positives and negatives for the whole year.
• Then you must deduct the expenses made like rent, maintenance of infrastructure, mobile bill, internet bill, d-mat account fees, commission to the broker, depreciation on things like a laptop which is used in business, and all other expenses which are related to your work, from this gross income.
• Prepare a balance sheet to be reported in ITR-4 which is a statement of your assets and liabilities.
• If there is a loss in F&O and you are claiming the same in Income Tax Return then you should file it before due date to carry forward the loss and set off from the income in future.

In case of more than one dealings

In case you several dealings in the stock market like intra-day stock transactions through F&O trades or mutual funds, you should calculate your business income from all of these separately.

Turnover to be determined as follows

• The total of favorable and unfavorable differences shall be taken as turnover
• Premium received on sale of options is also to be included in turnover
• In respect of any reverse trades entered, the difference thereon should also form part of the turnover.

Ex: if you buy 25 units or 1 lot of Nifty futures at 8000 and sell at 7900, Rs.2500 (25 x 100) the negative difference or loss on the trade is turnover.

Ex: In options, if you buy 100 or 4 lots of Nifty 8200 calls at Rs.20 and sell at Rs.30.

Firstly, the favorable difference or profit of Rs 1000 (10 x 100) is the turnover.

But premium received on sale also has to be considered turnover, which is Rs 30 x 100 = Rs 3000. So total turnover on this option trade = 1000 +3000 = Rs 4000.

The above calculations are fairly straight forward; the next important thing to decide though is if you want to calculate turnover scrip wise or trade wise.

Auditing

Tax Audit is required if you have turnover exceeding Rs. 1 crore (Rs. 2 crore from F. Y. 2016-17), or profit declared is less then 8% of total turnover or there is a loss.  Those who have to get the audit done have to do ITR filing by 30th September.

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