How to report F&O income in ITR for AY 2026-27: Deadline, turnover, audit rules and key changes in tax forms

If you are confused about how Futures and Options (F&O) trades should be reported in an income tax return (ITR), remember that they are treated differently from mutual funds or shares.

Income from F&O trading is classified as non-speculative business income and must be reported under “Profits and Gains from Business or Profession”.

Here’s what tax experts have to say about filing ITR for F&O trading.

Which ITR form should F&O traders file?

“Individuals carrying on F&O trading generally file ITR-3 if maintaining regular books of account or ITR-4 if eligible for and opting for the presumptive taxation scheme under Section 44AD,” said Nishant Shanker, Tax & Investments Expert, Navraj Global Advisors.

Siddharth Maurya, Managing Director, Vibhavangal Anukulkara Pvt Ltd, added, “Income from F&O trading is classified as non-speculative business income, irrespective of the frequency of trading.”

For AY 2026-27, the due date is 31 August for taxpayers not subject to audit and 31 October for those requiring a tax audit.

Where should F&O transactions be reported in ITR?

“F&O transactions are reported under the head ‘Profits and Gains of Business or Profession’, as derivatives traded on recognised stock exchanges are treated as non-speculative business transactions. For AY 2026–27, the ITR forms have introduced dedicated disclosure fields for F&O,” Shanker explained.

Key changes in the ITR-3 form include:

• Field 12c: Dedicated for reporting F&O turnover.
• Field 12d: For reporting F&O income transferred to the P&L account.

According to Maurya, “taxpayers will now have to separately report F&O turnover and income instead of clubbing them with other business receipts”.

What are the steps to report F&O transactions?

Maurya outlined the steps to report F&O transactions in ITR:

• Collect annual brokerage statements, contract notes, P&L statements and trading ledgers.
• Reconcile records with AIS and other tax documents to identify mismatches.
• Calculate F&O turnover and determine net business profit or loss.
• Include eligible expenses such as brokerage, exchange charges, internet costs, and software subscription fees.
• Report profit/loss under the business income schedule along with F&O-specific disclosures.

Summarising the process, Shanker said taxpayers should calculate net F&O profit or loss, determine turnover, check tax audit applicability, report income under business income and disclose eligible losses for set-off or carry forward.

How is F&O turnover calculated?

Shanker explained that F&O turnover is not the contract value. It is generally calculated by:

• Adding the absolute value of profits and losses from all derivative trades.
• Including premium received on options sold.
• Considering certain differences on reverse trades, wherever applicable, as prescribed under ICAI guidance.

The turnover figure is important as it helps determine tax audit applicability and eligibility for the presumptive taxation scheme.

For example, if a trader earns ₹6 lakh from profitable trades and incurs ₹4 lakh in losses, the turnover considered for tax purposes would be ₹10 lakh. However, the taxable business profit would be ₹2 lakh.

Maurya added that F&O turnover is not based on the gross value of contracts executed. For options, the premium received on the sale of options is also included while calculating turnover.

What is a tax audit and when does it apply to F&O traders?

A tax audit is an examination of books of accounts by a Chartered Accountant to verify compliance with income tax regulations.

“A tax audit becomes relevant in F&O cases where turnover and profit conditions prescribed under the Income Tax Act are met. It is particularly important where taxpayers declare profits below the prescribed threshold or incur losses without satisfying presumptive taxation conditions,” Shanker explained.

Maurya has pointed out that tax audit applicability depends on turnover, declared profits and whether the taxpayer meets presumptive taxation requirements.

How can F&O losses be set off and carried forward?

Since F&O income is treated as non-speculative business income, Shanker pointed out that:

• F&O losses can be set off against any business income in the same year.
• Unabsorbed losses can be carried forward for up to eight assessment years.
• Taxpayers must file their return within the due date to retain the benefit of carrying forward losses.

Maurya added that filing a return after the due date results in taxpayers losing the benefit of carrying forward business losses, although they are still required to report the income earned.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.