Many first-time traders expect F&O profits to be taxed like shares, as short-term or long-term capital gains. They are not. Profits and losses from futures and options traded on a recognised exchange are treated as income from business. That single fact decides the tax rate, the return form, the expenses you can claim and what happens to a loss.
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.
Business income, and not speculative
Indian tax law separates speculative business, such as intraday trading in shares where no delivery is taken, from ordinary business. Exchange-traded derivatives were specifically carved out of the speculative category under the Income-tax Act, 1961, so F&O is non-speculative business income. The Income-tax Act, 2025, which applies from tax year 2026-27 (1 April 2026 to 31 March 2027), keeps the same treatment.
Being non-speculative matters mainly for losses. An F&O loss can be set off against most other income in the same year and carried forward for eight years, while a speculative loss can only ever be set off against speculative income. The loss article covers this in detail.
Taxed at your slab rate
There is no special flat rate for F&O. Your net F&O profit, after expenses, is added to your other income (salary, interest, rent) and the total is taxed at your slab rates. The Union Budget 2026 left the slabs unchanged. Under the new tax regime, which is the default, the slabs for tax year 2026-27 are:
| Total income | Rate (new regime) |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Because F&O profit is taxed at normal slab rates, it is generally counted for the new-regime rebate in the same way as salary. Income taxed at special rates, such as some capital gains, is treated differently. Your CA can tell you which regime gives the lower tax in your case.
Expenses you can deduct
As business income, F&O profit is computed after deducting expenses incurred wholly for the trading activity. Commonly accepted items include:
- Brokerage, exchange transaction charges, SEBI fees, stamp duty and GST on these charges.
- Securities transaction tax (STT). It is deductible when the trading income is offered as business income, which F&O income is. The Budget 2026 rise in STT on F&O (to 0.05% on futures and 0.15% on options premium from 1 April 2026) therefore raises your costs but also your deductions.
- Internet and phone bills, in the share actually used for trading.
- Subscriptions to charting, data and research services used for trading.
- Depreciation on a computer or other equipment used for trading, rather than its full cost in one year.
- Interest on money borrowed for trading, and fees paid to a chartered accountant for your trading accounts and audit.
Keep invoices and bank records. An expense that is personal, or that you cannot link to the trading business, is likely to be disallowed. Cash payments above the legal limit to one person in a day are also not allowed as a deduction.
Presumptive taxation: usually not a good fit
Small businesses can opt for presumptive taxation (formerly section 44AD, now section 58 of the 2025 Act). Instead of keeping full accounts, you declare at least 6% of turnover received through banking channels as profit, as long as turnover is within ₹2 crore, or ₹3 crore when cash receipts are no more than 5%. Some traders do use it, filing ITR-4.
For most F&O traders it is a poor match. F&O turnover is the sum of absolute profits and losses, so 6% of it can be more than you actually earned. Under the scheme you cannot claim actual expenses or record a loss, and once you leave it you may be locked out for five years and face audit requirements. Commentators also disagree on how the new Act treats people who declare less than 6% (see the audit article).
The rest of the compliance picture
- Turnover is not the value of contracts traded. It is calculated by an ICAI method and decides whether you need an audit.
- A tax audit is needed above ₹10 crore turnover for traders whose dealings are at least 95% non-cash, and in some low-profit cases.
- The return form for F&O is normally ITR-3, which needs a profit and loss account and balance sheet.
- If your total tax for the year is ₹10,000 or more after TDS, you are expected to pay advance tax in four instalments.
- A loss is only carried forward if you file your return by the due date.
Examples use illustrative values, not current market data. This is general education, not investment advice.