F&O trading in India is taxed as non-speculative business income under Section 43(5) of the Income Tax Act. That single classification cascades into a few practical consequences: you file ITR-3, you can claim expenses against your profits, your losses carry forward for eight years, and you may need a tax audit depending on turnover.
F&O profits are added to your other income and taxed at slab rates - there’s no special flat rate (unlike crypto). If you’re salaried and also trade F&O, salary stays under ITR-3’s salary head, and F&O sits as business income on the same return.
Worked example - salaried + F&O trader
- Annual salary
- ₹12,00,000
- F&O net profit
- +₹2,00,000
- Deductible: brokerage + STT + GST + internet + platform fees
- −₹40,000
- Net F&O business income
- ₹1,60,000
- Total taxable income
- ₹13,60,000
Filed via
ITR-3
The trader claims trading-related expenses against F&O profits. The remaining net business income is added to salary and taxed at applicable slab. No flat 30% - that only applies to crypto.
Turnover and audit threshold
For F&O, turnover is the absolute sum of all profits and losses (not the notional contract value, which would be astronomical). Whether that turnover triggers a Section 44AB audit depends on more than the number alone.
The higher ₹10 crore limit is conditional. Under the proviso to Section 44AB(a), it applies only where both cash receipts and cash payments are 5% or less of the respective totals. Where that twin condition is not met, the limit stays at ₹1 crore. Most F&O traders settle entirely through a bank and a broker, so they meet it, but it is a condition to be checked, not a default. Section 44AD carries its own separate thresholds and its own five-year lock-in once you opt out.
Turnover is also not the only trigger, and the calculation basis itself changed with the ICAI’s 2022 Guidance Note. Work out your own figure with the F&O turnover calculator, then have a chartered accountant confirm the audit position for your return. Nothing on this page is a verdict on whether you need an audit.
Loss treatment
F&O losses are non-speculative business losses. They can be set off against:
- Any other business income in the same year
- Salary income? No. Business losses can’t offset salary.
- Capital gains? Yes, but only short-term capital gains.
Unused losses carry forward for 8 years and can offset any future business income (speculative or non-speculative). Compare to speculative intraday losses, which only carry forward 4 years and only offset speculative gains.
What counts as a deductible expense
Brokerage, STT, exchange charges, SEBI charges, stamp duty, GST, internet, platform subscriptions (TradingView etc.), advisory subscriptions, depreciation on the laptop you trade from - all deductible. Keep receipts for anything above ₹10,000 and a clear log of trade-related expenses. The Find My Edge CSV export bundles your charges per trade so you don’t reconstruct it at year-end.