Complete Guidance Note on Taxation of Futures & Options, Intraday & Other Trading – AY 2025–26

Statutory Foundation

(a) Law Framework

• Section 28(i): Profits from trading in securities, derivatives, and intraday shares = Business Income.

• Section 43(5): Defines speculative transaction = contracts settled otherwise than by actual delivery.

  • Intraday equity trading → Speculative Business Income.

  • Futures & Options (F&O) → Excluded under Sec. 43(5)(d), treated as Non-Speculative Business Income.

  • Commodity & currency derivatives on recognized exchanges → Non-Speculative.

  • Delivery-based equity/units of equity mutual funds/ETFs → Capital Gains (unless trading business is established).

(b) Judicial & CBDT Clarifications

• CBDT Circular No. 23/2005 → F&O = non-speculative.

• CBDT Circular No. 6/2016 → Classification of shares as investment or stock-in-trade depends on intention, frequency, holding period.

• Shree Capital Services Ltd. (Delhi HC) → F&O not speculative.

• DLF Commercial Developers (Delhi HC) → MTM losses allowable.

Nature of Income by Transaction

Transaction Type	Head of Income	Speculative?	Remarks
Intraday Equity	Business Income	✅ Yes	Speculative business, loss restricted.
F&O (Equity/Commodity/Currency)	Business Income	❌ No	Non-speculative, full set-off allowed.
Delivery Equity / Equity MFs / ETFs	Capital Gains (STCG/LTCG)	❌ No	Unless treated as trading stock.
Debt Mutual Funds	Capital Gains (always STCG post Apr 2023)	❌ No	Indexation withdrawn.
Crypto / Unregulated Derivatives	VDA Regime / Possible Speculative	⚠️ Disputed	Not covered under Sec. 43(5)(d).

Finance Act 2024 Amendments (Effective 23 July 2024)

Major overhaul in capital gains taxation:

1. STCG on Equity (Sec. 111A):

   • Till 23 July 2024: 15%.

   • On/after 23 July 2024: 20% flat (no slab benefit).

2. LTCG on Equity (Sec. 112A):

   • Till 23 July 2024: 10% exceeding ₹1 lakh (threshold).

   • On/after 23 July 2024: 12.5% flat (threshold removed).

3. Grandfathering Rule:

   • Gains up to 23 July 2024 → taxed under old regime.

   • Gains thereafter → taxed under new rates.

   • FMV as on 23 July 2024 to bifurcate holding.

4. Debt-oriented MFs:

   • Taxed as STCG regardless of holding period.

   • No indexation benefit.

Tax Rates – AY 2025–26

(a) Business Income (F&O & Intraday)

• Taxed as per chosen regime (old or new).

• New Regime (default):

Slab (₹)	Tax Rate
0 – 3,00,000	Nil
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

• Surcharge (10%–25%, capped for business income)

• 4% Health & Education Cess.

(b) Capital Gains (Delivery-based Equity / MFs)

Holding Type	Till 23 July 2024	From 23 July 2024
STCG – Sec. 111A	15%	20%
LTCG – Sec. 112A	10% over ₹1L	12.5% (full)
Other assets (property, gold, debt funds, etc.)	20% with indexation (if applicable)	20% with indexation (unchanged)

Turnover Calculation (for Audit & Reporting)

As per ICAI Guidance Note:

1. Intraday Equity (Speculative):

   • Turnover = Absolute sum of profit & loss differences.

2. F&O (Non-Speculative):

   • Turnover =

     • Absolute profit/loss differences, plus

     • Premium on options received, plus

     • Any settlement differences (including MTM).

3. Illustration:

   • Profit ₹2,00,000, Loss ₹1,20,000 → Turnover = ₹3,20,000 (absolute).

   • Option premium received ₹80,000 → Add to turnover.

   • Total turnover = ₹4,00,000.

Tax Audit – Sec. 44AB

• Turnover < ₹1 crore: No audit (unless opted for presumptive but declared below 6%/8%).

• Turnover ₹1–10 crore: Audit only if cash receipts/payments > 5%.

• Turnover > ₹10 crore: Audit mandatory.

• Note: Intraday + F&O turnover must be aggregated for audit limit.

• Presumptive u/s 44AD: Not available for F&O / intraday (excluded).

Set-off & Carry Forward

Income Type	Set-off Allowed Against	Carry Forward	Period
Intraday (Speculative)	Only speculative gains	Yes	4 years
F&O (Non-Speculative)	Any business/professional (not salary)	Yes	8 years
STCG (Equity)	Any income (not salary)	Yes	8 years
LTCG (Equity)	Only LTCG	Yes	8 years

Loss carry forward allowed only if return filed within Sec. 139(1) due date.

ITR Filing & Disclosure

• Intraday + F&O (business income): ITR-3.

• Delivery-based shares (capital gains only): ITR-2.

• Firms/LLPs: ITR-5.

• Companies: ITR-6.

ITR-3 disclosures:

• Schedule BP – Business income.

• Schedule P&L – Gross turnover, expenses.

• Schedule BS – Balance sheet.

• Schedule CG – Capital gains (if any).

• Part A-OI – Other Information (books maintained, etc.).

Advance Tax & Interest

• Applicable if liability ≥ ₹10,000.

• Due dates:

  • 15 June – 15%

  • 15 Sept – 45%

  • 15 Dec – 75%

  • 15 Mar – 100%

• Failure → Interest u/s 234B & 234C.

GST, TDS & TCS

• GST: Not applicable on securities trading.

  • Brokerage, SEBI fee, exchange fee → GST @18% (business expense, not ITC).

• TDS: No TDS on trading gains.

• TCS: May apply if securities purchase/sale crosses threshold u/s 206C(1H).

Compliance Calendar – AY 2025–26

• Advance Tax: As above.

• Audit Report (Form 3CA/3CB–3CD): 30 Sept 2025.

• ITR (with audit): 31 Oct 2025.

• ITR (no audit): 15 Sep, 2025.

Common Pitfalls & Ifs & Buts

• ❌ Reporting intraday as capital gains.

• ❌ Using ITR-2 instead of ITR-3.

• ❌ Ignoring AIS/TIS mismatch with broker reports.

• ❌ Not aggregating intraday + F&O turnover for audit test.

• ❌ Belated filing → loss carry-forward lapses.

• ✅ Maintain detailed books (Sec. 44AA).

• ✅ Record MTM entries as per ICDS.

• ✅ Segregate business vs investment portfolio clearly.

 Key Points

• Intraday = Speculative Business (loss carry forward: 4 yrs).

• F&O = Non-Speculative Business (loss carry forward: 8 yrs).

• Delivery equity = Capital Gains (STCG 20% / LTCG 12.5% post 23.07.2024).

• Audit applicability based on turnover & digital transaction conditions.

• Correct ITR Form (ITR-3 for trading, ITR-2 for investors).

• Timely compliance critical to preserve loss benefits.