F&O Trading: Know the Tax Rules Before Filing Your ITR for FY 2024–25

If you’re engaged in Futures and Options (F&O) trading, it’s critical to understand how your profits and losses must be reported in your Income Tax Return (ITR) for the financial year 2024–25. The tax department has made it mandatory to disclose all F&O trading activity, and failure to do so could invite scrutiny or a notice from the Income Tax Department.With the filing deadline of July 31, 2025, approaching fast, traders must prepare their tax documents now — especially since F&O is classified as non-speculative business income under Section 43(5) of the Income Tax Act.

F&O Income: Taxed as Business Income

Income or loss from F&O trading is not treated as speculative but rather as non-speculative business income. This distinction is important because it determines how such income is taxed:

• Tax Slab Based: Profits from F&O are added to your total income and taxed as per your applicable income tax slab.

• Disclosure under ‘Profits and Gains from Business or Profession’: You must show this income in the business income section of your ITR.

Even if the profit is minimal or you’ve made a loss, reporting is mandatory.

Loss Reporting and Set-Off Rules

Filing ITR for F&O losses involves understanding two key concepts: intra-head and inter-head set-off.

Intra-Head Set-Off

• Applicable within the same income head, i.e., business income.

• A loss from F&O trading (non-speculative) can be adjusted against income from other business activities, like consultancy or freelancing.

Inter-Head Set-Off

• Governed by Section 71 of the Income Tax Act.

• Loss from F&O trading can be adjusted against income from capital gains, rental income, or interest income.

• However, it cannot be adjusted against salary income.

If losses remain after set-off, you can carry them forward for up to 8 assessment years, provided the loss was reported in a valid ITR filed before the due date.

Why Reporting F&O Income Is Crucial

In recent years, F&O trading has seen a sharp rise in retail participation, and tax authorities are closely monitoring compliance. Here’s why accurate reporting is essential:

• Non-disclosure may lead to tax notices or penalties.

• Even zero or negative profits must be reported.

• F&O income may also require tax audit, depending on turnover and profit thresholds.

Consulting a chartered accountant or tax advisor is strongly recommended for those with high F&O volume, to ensure proper compliance and audit requirements.