How to Show F&O Loss in Income Tax Return?
Futures and Options (F&O) trading has become increasingly popular among Indian investors. However, not everyone is aware of how to report profits or losses from such trades while filing their Income Tax Return (ITR). If you have incurred a loss in F&O trading, it’s crucial to report it correctly, not only to remain tax compliant but also to carry forward and adjust the loss against future gains.
This guide explains how to show F&O loss in your income tax return, which ITR form to use, audit requirements, and the benefits of proper reporting.
Is F&O Trading Considered a Business?
Yes. In the eyes of the Income Tax Department, F&O trading (both intraday and positional) is treated as a non-speculative business activity. That means:
- Profits or losses from F&O are considered business income or business loss.
- They must be reported under the ‘Income from Business or Profession’ head in your ITR.
Which ITR Form Should You Use for F&O Loss?
If you have income or loss from F&O trading, you should file using ITR-3 (for individuals and HUFs with business income).
Avoid ITR-1 and ITR-2 — these forms are not applicable for reporting business income.
How to Calculate F&O Turnover and Loss?
Before filing, you need to calculate your F&O turnover, which is not the same as regular business turnover. It includes:
Total of positive and negative differences from trades (absolute profit/loss)
Premium received from selling options
Reversal or squared-off transactions
Once you’ve calculated the total turnover and the overall loss (if any), you can proceed to the next step.
Advantages of Reporting Your F&O Losses
When you accurately report losses from Futures & Options (F&O) trading in your Income Tax Return (ITR), you unlock several key benefits:
Reduced Taxable Income
Losses from F&O trades can be set off against income from any head other than salary (e.g., business or professional income, rental income, or “Income from Other Sources”). By offsetting these losses, you lower your overall taxable income and, consequently, your tax liability.
Compliance with Tax Laws
Disclosing your F&O losses ensures you’re fully compliant with the Income Tax Act. Proper reporting of all gains and losses protects you from potential notices, penalties, or legal issues arising from under‑reporting your financial transactions.
Carry Forward and Set‑off of Losses
If your F&O losses exceed your total income in a financial year, you can carry the unabsorbed loss forward for up to eight subsequent years. In those years, you may set off the carried‑forward losses against future F&O gains or business income, reducing your tax outgo until the losses are fully utilized.
How to Report F&O Loss in ITR?
In ITR-3, you’ll need to:
- Go to the “Profit & Gains from Business or Profession” section.
- Report the F&O loss as a negative income.
- Fill in basic details in the Balance Sheet and Profit and Loss Account. If you’re not maintaining books of accounts, you can fill in estimated figures (as allowed by the Income Tax portal).
- Upload the return and complete the filing.
Is Tax Audit Required for F&O Loss?
A tax audit may be required under Section 44AB if:
Your F&O turnover exceeds ₹10 crores, or
You’re not opting for presumptive taxation, and your net profit is less than 6% (digital transactions) or 8% (cash transactions) of your turnover.
In such cases, you must get your accounts audited by a Chartered Accountant before filing your return.
Can You Carry Forward F&O Loss?
Yes. F&O loss is considered a non-speculative business loss and can be:
Carried forward for up to 8 assessment years
Set off only against business income in future years
Important: To carry forward the loss, your ITR must be filed on or before the due date.
Conclusion
Filing F&O loss correctly in your ITR ensures legal compliance and helps you benefit from future set-offs. Use ITR-3, maintain books, and consult a tax expert if turnover or complexity demands it. Timely and accurate reporting not only protects you from penalties but also provides long-term tax advantages.
FAQ's About F&O Loss in Income Tax Return
1. Is F&O trading considered a business under income tax rules?
Yes, F&O trading is treated as a non-speculative business under the Income Tax Act. Therefore, its profits or losses should be reported under the head "Profits and Gains from Business or Profession."
2. Can I set off F&O loss against salary income?
No, F&O loss cannot be set off against salary income. It can only be set off against other business income or income from capital gains (with restrictions).
3. What ITR form should I use to report F&O loss?
You should file ITR-3 if you have F&O loss, even if you are a salaried individual or have income from other sources.
4. Is it mandatory to file the return before the due date to carry forward F&O losses?
Yes, to carry forward F&O losses, the ITR must be filed on or before the due date (usually July 31 or as extended by the government).
5. Can F&O losses be carried forward to future years?
Yes, F&O losses can be carried forward for up to 8 assessment years and adjusted only against non-speculative business income in future years.
