Now Reading: Income Tax Act 2025: New rules for F&O loss set-off, carry-forward
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Income Tax Act 2025: New rules for F&O loss set-off, carry-forward
The Income-tax Act, 2025, effective from April 1, 2026, retains largely unchanged tax treatment for futures and options (F&O) traders. F&O transactions continue to be treated as non-speculative business income, not capital…
The Income-tax Act, 2025, effective from April 1, 2026, retains largely unchanged tax treatment for futures and options (F&O) traders. F&O transactions continue to be treated as non-speculative business income, not capital gains, according to tax expert Nishant Shanker of Navraj Global Advisors.
Under sections 66(31) and 66(33) of the new Act, eligible derivative transactions are excluded from speculative transaction definition. Non-speculative business losses can be set off against business or professional income and carried forward for up to eight years. Speculation losses, governed by Section 113, can only be set off against speculation profits and carried forward for four years.
Traders must file loss returns within the prescribed due date to retain carry-forward benefits. For tax audit purposes, F&O turnover is calculated using a prescribed methodology considering favourable and unfavourable differences and option premiums. Open derivatives positions at year-end are recognised when settled or squared off.
Indian Opinion Analysis
The transition from the 1961 Act to the 2025 Act renumbers provisions but does not change the core distinction between speculative and non-speculative business income, a distinction that has governed derivative taxation for decades. For the estimated 1 crore active F&O traders in India, the practical challenge remains accurate classification of each transaction as a 'specified derivative' under SEBI regulations, since misclassification can trigger the stricter four-year carry-forward limit for speculation losses. The eight-year carry-forward window for non-speculative business losses is generous by global standards, but the mandatory loss-return filing deadline under Section 121 of the new Act is a frequent compliance trap. The next critical date for traders is the July 31, 2026, deadline for filing income tax returns for FY 2025-26, when the carry-forward benefit must be claimed.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
