Know the Tax on Futures and Options

If you have even the slightest experience with the stock market, you must have heard of Futures and Options trading. While Futures obligate you to buy or sell an underlying stock on a specific date as per a pre-decided price, Options give you the right but not the obligation to purchase or sell assets at a specific price on a particular date. Today, Futures and Options are popular trading Options for many; however, tax implications are attached. Continue reading to learn more about the tax on Futures and Options trading.

Every Futures and Options trade involves issuing contract notes that specify the value of derivatives you purchase or sell. However, only the difference between the two is considered when it comes to accounting.

When the income from Futures and Options is classified as business income, the maintenance of the books of account and tax audit becomes applicable. You can claim deductions for expenses incurred while carrying out Futures and Options trades such as  Demat charges, electricity costs, etc.

• If you are trading in Futures and Options, you should get your accounts audited if your turnover is more than ₹10 Crore. You can also apply a presumptive taxation scheme if your turnover does not exceed ₹2 Crore and declare that your taxable income is at 6% of the total Futures and Options turnover.

• A tax audit is mandatory if you opt for a presumptive taxation scheme and declare an income lower than the presumptive income and total taxable income (after including income from other heads) Is more than the maximum amount not subject to tax, i.e. ₹2.5 Lakh.
   

Note: If you suffer a net loss while trading in Futures and Options, the loss will be considered a non-speculative business loss. You can adjust it against income from other businesses or rental earnings. You can carry the unadjusted business loss forward by eight subsequent years and set it off against business income.

Regarding the taxation of Futures and Options, you must file ITR-3. However, if you have followed a presumptive tax scheme and declared profits at 6% of the total turnover, then you must file ITR-4. However, which ITR form you will have to file will also depend on the other sources of income.

Now that you know the rules related to income tax on Futures trading and Options trading, you can begin investing without any worry. You can rely on the Demat Account offered at HDFC Bank to make your investment journey smoother. You can open one in less than 10 minutes without submitting any paperwork and enjoy free Demat AMC for the first year. Choose the HDFC Bank Demat Account and HDFC Securities Trading Account & trade in futures and options at just ₹20 per order.

Click here to get started today.

Read more about currency derivates here. 

*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in the securities market are subject to market risks; read all the related documents carefully before investing. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.