Most individual F&O traders lose money, according to SEBI's own studies. The tax rules do not turn a loss into a gain, but they do let a genuine F&O loss reduce tax on some other income, now or later, if you follow the steps.
General information, not tax advice
This article explains the rules in general terms for education. It is not tax advice and may not fit your situation. Tax law and due dates change, and the Income-tax Act, 2025 is new, so some points are still being interpreted. Consult a chartered accountant before you file or make a decision.
Same year: set off against other income, except salary
Because F&O is non-speculative business income, a loss is first set off against other business income in the same year, and then against income under other heads, such as interest, rental income or capital gains. The one big exception is salary: a business loss cannot be set off against income from salary. The Income-tax Act, 2025 keeps these rules in the sections that replace the old sections 70 and 71.
Later years: carry forward for eight years
Whatever loss is left after set-off in the same year can be carried forward for up to eight years following the year of the loss. In those years it can be set off only against business income, not against salary, interest or capital gains. Under the 2025 Act this is in section 112, formerly section 72.
File on time or lose it
A loss is carried forward only if it was declared in a return filed by the due date. A belated return still counts as filed, but the business loss of that year cannot be carried forward. For non-audit cases the due date is now 31 August.
Worked example (illustrative numbers)
Asha earns a salary of ₹12 lakh, ₹40,000 of savings and fixed deposit interest, and loses ₹3 lakh in F&O in tax year 2026-27. She files ITR-3 by the due date.
| Step | Amount |
|---|---|
| F&O loss for the year | -₹3,00,000 |
| Set off against interest income | ₹40,000 absorbed |
| Set off against salary | Not allowed |
| Loss carried forward | ₹2,60,000 |
| Tax year 2027-28: F&O profit | ₹1,00,000, fully absorbed by the carried-forward loss |
| Loss still carried forward | ₹1,60,000, usable until tax year 2034-35 |
Speculative losses are separate
Intraday trading in shares, where positions are squared off the same day without delivery, is speculative business. A speculative loss can be set off only against speculative income, and carried forward for four years. Keep the two kinds of trading apart in your accounts so that F&O losses keep their wider use.
Points traders miss
- Report the loss even if you have no tax to pay. A loss that is not in a timely return cannot be carried forward later.
- Report losses carried from earlier years in the return of each following year, so the chain is not broken.
- If you used presumptive taxation, you declare a deemed profit and cannot show a business loss for that year.
- If an audit applies to you, the return is due later, but the audit must be completed and the report filed first.
- Losses from years under the 1961 Act continue to be carried forward under the transition rules of the 2025 Act.
How it shows up in the return
ITR-3 has separate schedules for losses set off in the current year, losses brought forward from earlier years, and losses carried forward to later years. The figures flow from the business profit and loss you report, so the loss has to be computed properly in the trading accounts first. Each year's return should show the loss by the year it arose, because the eight-year clock runs separately for each year's loss and the oldest losses are used first.
Charges and STT are part of the loss. If your broker's P&L shows a loss before charges, add the brokerage, exchange charges, STT and other costs to arrive at the business loss, together with any other trading expenses you can document.
Examples use illustrative values, not current market data. This is general education, not investment advice.