Most traders still don’t file ITR correctly, and that’s exactly why IT notices are going up every year.
Here’s everything you need to know for FY 2025-26:
Why you must report F&O, even if you made a loss
Unreported F&O activity triggers notices from the Income Tax Department.
But more importantly, reporting losses correctly lets you set them off against other income and carry forward what’s left for up to 8 years. That’s real money on the table , and it disappears if you don’t file on time.
Which income head applies
Under Section 43(5) of the Income Tax Act, F&O is classified as non-speculative business income. All gains and losses go under Profits & Gains from Business or Profession (PGBP), taxed at your applicable slab rate.
Not 15% STCG. Not 12.5% LTCG. Your slab rate.
Which ITR form to file
→ ITR-3: For most F&O traders reporting actual profits or losses with books of account
→ ITR-4: Only if you opt for presumptive taxation under Section 44AD (turnover ≤ ₹3 Cr, declaring 6% or 8% as income)
If you have a loss, ITR-4 is not an option. ITR-3 is mandatory.
How turnover is calculated, and where most traders go wrong
F&O turnover ≠ contract value. It’s the absolute sum of all profits AND losses.
Example:
→ Futures trade: Profit ₹1,000
→ Turnover ₹1,000
→ Options trade: Loss ₹2,000
→ Turnover ₹2,000
→ Total turnover = ₹3,000 (not ₹1,000, losses count too)
This number matters. Your audit applicability is directly tied to it.
When a tax audit is required
→ Turnover > ₹10 Cr (with 95%+ digital transactions): audit required
→ Turnover > ₹1 Cr (cash transactions above 5%): audit required
→ Previously filed ITR-4 under Section 44AD in any of the last 5 years, and not opting for it now: audit required if income exceeds the exemption limit
No cash. Turnover between ₹1–10 Cr. Never filed ITR-4. → No audit required. Just maintain books and file ITR-3 with a Balance Sheet and P&L.
Books of accounts: When you must maintain them
Mandatory if:
→ Income > ₹2.5 lakh, OR
→ Turnover > ₹25 lakh in any of the last 3 years
In practice, most active traders cross one of these thresholds. Broker P&L statements, bank statements, and expense receipts form the foundation of books of accounts.
A proper Balance Sheet must be attached to ITR-3, missing it is the single biggest reason F&O traders get a defective return notice under Section 139(9).
Expenses you can deduct
→ Brokerage, exchange transaction charges, SEBI fees, stamp duty
→ GST on brokerage
→ Internet and telephone (used for trading)
→ Advisory or research subscription fees
→ Depreciation on computer and trading equipment
All deductions need documentary evidence. Keep invoices and statements for at least 6 years.
How F&O losses (non-speculative business loss) can be used
| Set-off against | Allowed? |
|---|---|
| Salary income |  Not allowed |
| House property income |  Allowed |
| Capital gains (STCG/LTCG) | Allowed in current year |
| Other business income | Allowed |
| Carry-forward period | 8 assessment years |
New vs Old regime for F&O traders
Under the new regime (Section 115BAC): lower slab rates apply, but no Chapter VI-A deductions (80C, 80D, etc.).
The catch: once you opt out of the new regime as a business income filer, switching back has permanent restrictions. This isn’t a casual annual decision, model both options before you choose.
One thing most traders miss
Intraday equity ≠ F&O.
Intraday is speculative business income, different head, different carry-forward rules (only 4 years, only against speculative income).
F&O is non-speculative. The distinction affects how you set off losses and for how long.
Due dates for AY 2026-27
→ ITR-3 (no audit): 31st August 2026
→ ITR-3 (audit required): 31st October 2026
→ Tax audit report: 30th September 2026
Miss these and your F&O losses cannot be carried forward.