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Tax Audit, Income Head & STCG/LTCG Rules

Profits and losses from futures and options are taxed as business income in India, not as capital gains. This guide to F&O taxation in India covers the Income-tax Act, 2025, in force from 1 April 2026: the income head, slab rates, turnover, tax audit, losses, the expenses you can claim and filing.

QuantPower Research · Updated 6 Nov 2026 · 9 min read

Key point
F&O income is non-speculative business income. It is added to your other income and taxed at your slab rate. You report it in ITR-3, and an F&O loss can be carried forward for eight years if you file your return by the due date.

What changed in 2026

  • New law: the Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. It uses a single tax year in place of the previous year and assessment year, so income earned from 1 April 2026 to 31 March 2027 belongs to tax year 2026-27.
  • Same treatment: section numbers changed, but F&O income is still non-speculative business income, losses still carry forward for eight years and the tax audit thresholds are unchanged.
  • Higher STT: from 1 April 2026, STT rose to 0.05% on futures and 0.15% on options premium. See our STT tax calculator.
  • Income from 2025-26: returns for income earned up to 31 March 2026 are filed under the 1961 Act, with the old STT rates.

How trading income is classified

ActivityTax treatmentRateLosses carried forward
Futures and options on a recognised exchangeNon-speculative business incomeYour slab rate8 years, against business income
Intraday equity tradesSpeculative business incomeYour slab rate4 years, against speculative income only
Shares held up to 12 monthsShort-term capital gain20%8 years, against capital gains
Shares held over 12 monthsLong-term capital gain12.5% on gains above ₹1.25 lakh a year8 years, against long-term gains

Futures and options on commodities and currencies traded on recognised exchanges are treated the same way as equity F&O.

Tax rates

F&O profit is added to your salary, interest and other income, and the total is taxed at your slab rate. The new tax regime is the default, and its slabs for tax year 2026-27 are the same as for 2025-26.

Total incomeRate
Up to ₹4 lakhNil
₹4 lakh to ₹8 lakh5%
₹8 lakh to ₹12 lakh10%
₹12 lakh to ₹16 lakh15%
₹16 lakh to ₹20 lakh20%
₹20 lakh to ₹24 lakh25%
Above ₹24 lakh30%
  • A 4% health and education cess is added to the tax, and a surcharge applies above ₹50 lakh of income.
  • Under the new regime, a rebate removes the tax if your total income is up to ₹12 lakh. F&O income counts towards that limit. The rebate does not cover capital gains taxed at special rates.
  • You can choose the old regime instead. With business income, you can switch back to the new regime only once.
Example
A trader earns a salary of ₹10 lakh and makes an F&O profit of ₹4 lakh after expenses. After the ₹75,000 standard deduction, total income is ₹13.25 lakh, above the ₹12 lakh rebate limit. The tax is ₹78,750 plus ₹3,150 cess, or ₹81,900. Without the F&O profit, the income of ₹9.25 lakh would have been tax-free because of the rebate.
Income bars showing how a ₹4 lakh F&O profit takes total income above the ₹12 lakh rebate limit, making tax of ₹81,900 payable (illustration)

How to calculate F&O turnover

Turnover decides whether you need a tax audit. For F&O it is not the value of the contracts you traded. Under the ICAI Guidance Note on Tax Audit, F&O turnover is the total of the profits and losses on each trade, all counted as positive numbers.

TradeResultCounts towards turnover
Nifty option sold and bought back₹12,000 profit₹12,000
Bank Nifty option bought and sold₹8,000 loss₹8,000
Nifty futures₹5,000 profit₹5,000
Stock option₹15,000 loss₹15,000
Total₹6,000 loss₹40,000

Your broker's tax P&L statement usually shows a turnover figure. Check how it was worked out before you use it.

Do you need a tax audit?

The audit rules are the same in both laws: section 44AB of the 1961 Act became section 63 of the 2025 Act.

  • Turnover above ₹10 crore: an audit is required. The ₹10 crore limit applies when cash receipts and payments are each no more than 5% of the total, which is true for almost every F&O trader because trades settle through the bank.
  • Turnover up to ₹10 crore: no audit is needed in most cases, including when you have a loss.
  • The presumptive scheme: a resident individual whose business turnover is up to ₹3 crore, with cash receipts within 5%, can declare 6% of turnover as profit instead of keeping full accounts. This is section 44AD of the 1961 Act, carried into the 2025 Act. Whether it suits F&O income is a question for your chartered accountant.
  • The exception: if you declared income under the presumptive scheme in any of the previous five years, then declare a profit below the presumptive rate, an audit is required when your total income is above the basic exemption limit.

Under the 2025 Act, the audit report is filed in Form 26, which replaces Forms 3CA, 3CB and 3CD. A chartered accountant can tell you whether any of these apply to you.

Setting off and carrying forward losses

  • In the same year: an F&O loss can be set off against any other income except salary, such as interest, rent, capital gains or other business income.
  • In later years: what is left can be carried forward for eight years and set off against business income only.
  • The condition: you must file your return by the due date. A loss reported in a belated return cannot be carried forward.
  • Intraday equity losses are speculative and can be set off only against speculative income, for four years.
Example
A trader with a salary of ₹12 lakh, interest income of ₹50,000 and an F&O loss of ₹2 lakh sets off ₹50,000 of the loss against the interest. The remaining ₹1.5 lakh cannot reduce the salary, so it is carried forward to set against future business income.

Expenses you can claim

Because F&O income is business income, you can deduct the costs of earning it:

  • brokerage, exchange transaction charges, SEBI fees, stamp duty and the GST on them,
  • STT, which is deductible when your trading income is business income,
  • subscriptions to trading software, data and charting tools, including platforms such as QuantPower,
  • internet and phone bills, in proportion to trading use,
  • depreciation on a computer used for trading,
  • interest on money borrowed for trading, and
  • fees paid to your chartered accountant for your trading accounts.

Keep invoices and contract notes. If your business income exceeds ₹2.5 lakh, or your turnover exceeds ₹25 lakh, in any of the previous three years, you must also keep books of account.

STT and your costs

STT is charged on every F&O sale and cannot be avoided, so it comes off your profit before tax.

TransactionSTT from 1 April 2026Charged onPaid by
Futures0.05%Traded valueSeller
Options0.15%PremiumSeller
Options exercised at expiry0.15%Intrinsic valueBuyer

Selling one lot of Nifty futures at 25,000, with a lot of 65, costs ₹812.50 in STT, up from ₹325 at the old rate. Our STT tax calculator works out STT and the other charges for a trade.

Advance tax

If your tax for the year, after TDS, is ₹10,000 or more, pay it in instalments during the year:

Due byShare of the year's tax
15 June15%
15 September45%
15 December75%
15 March100%

Interest is charged on any shortfall. F&O profits are hard to predict, so review your profit each quarter and pay on what you have earned so far.

Filing your return

  • Form: F&O income is reported as business income in ITR-3, with your F&O turnover and profit or loss.
  • Records: use your broker's tax P&L statement and contract notes, and check them against your Annual Information Statement on the income tax portal.

Due dates for income earned in 2025-26:

ReturnDue date
Without tax audit31 August 2026
With tax audit31 October 2026, extended by the CBDT to 21 November 2026
Belated return31 December 2026
Revised return31 March 2027, with a fee of up to ₹5,000 after 31 December 2026

The 31 August date for business returns without an audit is new; until 2025 the date in the law was 31 July. The Finance Act, 2026 also moved the last date for a revised return from 31 December to 31 March. For this year the CBDT has extended the tax audit report date from 30 September to 21 October 2026, and the return date for audit cases from 31 October to 21 November 2026. Dates can move again, so check the e-filing portal before you rely on them.

Losses in a belated return cannot be carried forward. Returns for tax year 2026-27 will be filed in 2027 under the 2025 Act.

Common mistakes

  1. Reporting F&O as capital gains. F&O income goes in ITR-3 as business income.
  2. Not filing because of a loss. Without a return filed on time, you lose the right to carry the loss forward.
  3. Using contract value as turnover. Turnover is the total of profits and losses counted as positive numbers.
  4. Missing advance tax. A large profit in one quarter brings interest if you wait until March to pay.
  5. Forgetting the rebate limit. A small F&O profit can lift your income above ₹12 lakh and make your other income taxable too.

Keeping records with QuantPower

QuantPower's Verified P&L, order management and strategy performance reports help you track every trade through the year. For filing, use your broker's tax P&L statement and contract notes as the main record.

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Frequently asked questions

Is F&O income taxed as capital gains?

No. Futures and options traded on a recognised exchange are treated as non-speculative business income, added to your other income and taxed at your slab rate, plus 4% cess.

Can I set off an F&O loss against my salary?

No. An F&O loss can be set off against other income such as interest, rent or capital gains in the same year, but not salary. The rest is carried forward for eight years.

Do I need a tax audit if I made a loss in F&O?

Not usually. An audit is required if your turnover is above ₹10 crore, or if you used the presumptive scheme in the previous five years and now declare a lower profit with income above the exemption limit.

Which ITR form should F&O traders file?

ITR-3, because F&O income is business income.

Is STT deductible for F&O traders?

Yes. When your trading income is business income, STT paid on those trades is a deductible expense.

What changed under the Income-tax Act, 2025?

The law and its section numbers changed from 1 April 2026, and the tax year replaced the previous year and assessment year. The treatment of F&O income, the audit thresholds and the loss rules stayed the same.

Sources

  • Income-tax Act, 2025, in force from 1 April 2026, and the Income-tax Act, 1961 for income up to 31 March 2026
  • Income-tax Rules, 2026: Form 26 for the tax audit report, and the Income Tax Department's Form 26 FAQs (incometaxindia.gov.in), checked 20 October 2026
  • Income Tax Department, return of income under the Income-tax Act, 1961 as amended by the Finance Act, 2026 (incometaxindia.gov.in), and the e-filing portal's income tax return FAQs for AY 2026-27 (incometax.gov.in), for the due dates and the belated and revised return dates, checked 20 October 2026
  • NSE circular NSE/FATAX/73524 of 31 March 2026 and NSE's STT rates page, for STT from 1 April 2026 under the Finance Act, 2026 (nseindia.com), checked 20 October 2026
  • ICAI Guidance Note on Tax Audit, for the calculation of F&O turnover
  • CBDT extension of the tax audit report and return due dates for audit cases, AY 2026-27, as reported by All India Radio News (newsonair.gov.in), 29 September 2026
  • Income Tax Department e-filing portal (incometax.gov.in)
This guide is general information, not tax advice. Tax depends on your circumstances, so consult a chartered accountant before you file. Trading involves substantial risk.