F&O income is non-speculative business income. Must be filed in ITR-3.
Futures and options income is classified as non-speculative business income under Section 43(5). It must be reported in ITR-3 (Schedule BP). F&O losses can be carried forward for 8 years. Tax audit may apply based on turnover. Get complete F&O ITR filing guidance here.
Business income
Income classification
Slab rate
Tax rate
ITR-3
ITR form
0.02%
STT on futures (FY25-26)
0.1%
STT on options (premium)
8 years
Carry-forward period
Section 43(5) of the Income Tax Act excludes eligible derivatives on recognised stock exchanges from the definition of 'speculative transactions'. This means F&O gains and losses are treated as regular (non-speculative) business income, taxed at your applicable slab rate. They are not capital gains and cannot be reported in ITR-2.
F&O turnover for tax purposes uses the absolute profit method: the sum of absolute values of all profits and losses from each individual trade, not the gross value of positions. For example, a profit of ₹30,000 on one trade and a loss of ₹20,000 on another gives turnover of ₹50,000. This is very different from regular business turnover and matters for audit threshold calculations.
A tax audit under Section 44AB is required if your F&O turnover exceeds ₹10 crore (when 95%+ transactions are through banking/digital mode) or ₹1 crore (any mix). Additionally, even below these limits, if your declared profit is below 6% of F&O turnover AND your total income exceeds the basic exemption limit, an audit is mandatory. If an audit is required, the ITR-3 filing deadline extends to October 31, 2026.
F&O losses can be set off against other business income in the same year. They can be carried forward for 8 assessment years and set off only against non-speculative business income in future years (not salary or capital gains). Critical rule: you must file ITR-3 on or before July 31, 2026 to preserve the carry-forward — a belated return forfeits this right permanently for that year's losses.
Securities Transaction Tax (STT) rates applicable for FY 2025-26 (post Budget 2024, effective October 1, 2024): Futures — 0.02% of trade value; Options (on premium) — 0.1% of option premium. STT paid is a deductible business expense when computing your F&O taxable profit.
This income type requires ITR-3
Filing the wrong form results in a defective return
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