Mr Ganeshan is an individual who is employed with a private company and he also deals in F & O’s (Future and options). What is the taxability of his F & O’S income?

As per section 43(5) the transaction of future & options are not considered as speculative transaction. However exemption is available only for equity. Thus if F&O for commodities are done the same will be termed as Speculative in Nature.
Other than commodity trading profit or loss arising out of transaction is treated as Business Loss or profit in nature. Any expense done in connection to this business will be allowed as expense and can be claimed while preparing Tax computation.

Since Futures & Options transactions are treated as business income or loss, the provisions related to profit and gains of business and profession will apply to these transactions.

An audit is required if –

  • Section 44AB – If the turnover exceeds Rs 1 crore, audit will be applicable, if an assessee opts for Presumptive basis u/s 44AD, then the applicability of tax audit is mentioned below.
  • Section 44AD – If the turnover is less than Rs 2 crore, and if profit less than 6% of turnover and total income exceeds basic exemption limit, then tax audit will be applicable. (An audit is not required if turnover is less than Rs 2 crores and also your total  income is within the taxable limit of Rs 2.5 Lakhs)

*In case of F&O transactions, the total of all contracts sold is not considered as the total turnover. The turnover is computed by taking into account the total of all favourable and unfavourable trades.
Your tax liability does not get affected by your turnover.

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