How to Show F&O Loss in Income Tax Return?

Filing income tax returns can be confusing, especially when it involves losses from Futures and Options (F&O) trading. If you’ve faced losses in F&O during a financial year, it’s important to report them correctly in your Income Tax Return (ITR). Doing so allows you to carry forward the loss and offset it against future profits — ultimately reducing your tax liability.

This guide explains everything you need to know about how to show F&O loss in your ITR, step by step.

Is F&O Trading Considered a Business?

Yes. In the eyes of the Income Tax Department, F&O trading (both intraday and positional) is treated as a non-speculative business activity. That means:

• Profits or losses from F&O are considered business income or business loss.
• They must be reported under the ‘Income from Business or Profession’ head in your ITR.

Which ITR Form Should You Use for F&O Loss?

If you have income or loss from F&O trading, you should file using ITR-3 (for individuals and HUFs with business income).

Avoid ITR-1 and ITR-2 — these forms are not applicable for reporting business income.

How to Calculate F&O Turnover and Loss?

Before filing, you need to calculate your F&O turnover, which is not the same as regular business turnover. It includes:

Total of positive and negative differences from trades (absolute profit/loss)

Premium received from selling options

Reversal or squared-off transactions

Once you’ve calculated the total turnover and the overall loss (if any), you can proceed to the next step.

Advantages of Reporting Your F&O Losses

When you accurately report losses from Futures & Options (F&O) trading in your Income Tax Return (ITR), you unlock several key benefits:

Reduced Taxable Income

Losses from F&O trades can be set off against income from any head other than salary (e.g., business or professional income, rental income, or “Income from Other Sources”). By offsetting these losses, you lower your overall taxable income and, consequently, your tax liability.

Compliance with Tax Laws

Disclosing your F&O losses ensures you’re fully compliant with the Income Tax Act. Proper reporting of all gains and losses protects you from potential notices, penalties, or legal issues arising from under‑reporting your financial transactions.

Carry Forward and Set‑off of Losses

If your F&O losses exceed your total income in a financial year, you can carry the unabsorbed loss forward for up to eight subsequent years. In those years, you may set off the carried‑forward losses against future F&O gains or business income, reducing your tax outgo until the losses are fully utilized.

How to Report F&O Loss in ITR?

In ITR-3, you’ll need to:

• Go to the “Profit & Gains from Business or Profession” section.
• Report the F&O loss as a negative income.
• Fill in basic details in the Balance Sheet and Profit and Loss Account. If you’re not maintaining books of accounts, you can fill in estimated figures (as allowed by the Income Tax portal).
• Upload the return and complete the filing.

Is Tax Audit Required for F&O Loss?

A tax audit may be required under Section 44AB if:

Your F&O turnover exceeds ₹10 crores, or

You’re not opting for presumptive taxation, and your net profit is less than 6% (digital transactions) or 8% (cash transactions) of your turnover.

In such cases, you must get your accounts audited by a Chartered Accountant before filing your return.

Can You Carry Forward F&O Loss?

Yes. F&O loss is considered a non-speculative business loss and can be:

Carried forward for up to 8 assessment years

Set off only against business income in future years

Important: To carry forward the loss, your ITR must be filed on or before the due date.