ITR Filing 2025: Here’s Why You Must Declare F&O Losses

Many Futures and Options (F&O) traders in India, especially those who've faced losses, wrongly assume they don't need to report these transactions in their Income Tax Returns (ITR). A recent SEBI report highlighted that a significant majority of F&O traders incurred losses in FY23 and FY24. If you're among them, it's crucial to understand that even losses must be reported. 

How Does the Income Tax Act, 1961 Classify Losses From F&O Trading? 

The Income Tax Act of 1961 is clear: F&O trading is categorised as 'non-speculative business income' under Section 43(5). This means whether you make a profit or a loss, it's considered part of your 'business income' and needs to be declared under the head 'Profits and Gains from Business and Profession (PGBP)' when you file your ITR. 

Profits from F&O trading are straightforward: they're added to your total income and taxed according to your applicable income tax slab rates. For Non-Resident Indians (NRIs), this applies to their total taxable income in India. Confused? Let’s understand this with an example.  

Tax Treatment of Losses from F&O Trading 

Let's say you are an Indian resident, and in FY 2024-25, you had a salary income of ₹8 lakh, interest income of ₹2 lakh, and rental income of ₹3 lakh. In the same year, you incur an F&O loss of ₹6 lakh. In this case, you can set off ₹5 lakh of this loss against your interest and rental income. The remaining ₹1 lakh loss can be carried forward to the next year and for up to 8 assessment years.  

This brings your taxable income for the year down to ₹8 lakh. Note that you cannot set off F&O losses against your salary income. You can only adjust F&O losses against other income sources like business income, capital gains, rental income, and interest income.  

The Hidden Benefits of Reporting F&O Losses 

While paying taxes on profits is obvious, reporting losses might seem counterintuitive. However, it offers significant advantages: 

• Reduce Your Tax Liability: Declaring F&O losses can help lower your overall tax burden. You can 'set off' these losses against other business income. 

• Carry Forward Losses: If you can't fully adjust your F&O losses in the current financial year, you can carry them forward for up to eight years. This allows you to set them off against future F&O profits, reducing your tax liability in subsequent years. 

Failing to declare your F&O profits or losses in your ITR can lead to a notice from the Income Tax department. It's always best to be compliant to avoid penalties. 

Read more: ITR Filing 2025: Check Who is Exempt from Filing Tax Returns for FY 2024-25 

Conclusion 

Reporting your F&O trading activities, whether profitable or not, is not just a legal obligation but also a smart financial move. It allows you to leverage tax benefits and ensure you stay on the right side of the tax authorities. Don't make the mistake of ignoring your F&O losses – embrace them as a tool to manage your tax liability effectively. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.