If you trade futures and options (F&O) or buy and sell shares within the same day, your profit is not capital gains. It is business income, taxed at your slab rate, with its own rules on turnover, audits and losses. This guide covers tax year 2026-27 (trades from 1 April 2026 to 31 March 2027), the first year under the Income-tax Act, 2025.
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered the sections. Most trading rules carry over unchanged. Three things did change for 2026-27: STT on F&O went up, the return due date for non-audited business income moved to 31 August, and the section numbers are new.
How Each Type of Trading Is Classified
| Activity | Type of income | Rate |
|---|---|---|
| Equity and index futures and options on a recognised exchange | Non-speculative business income | Your slab rate |
| Intraday equity (bought and sold the same day, no delivery) | Speculative business income | Your slab rate |
| Delivery-based shares and equity funds | Capital gains (unless trading is your business) | 20% short-term; 12.5% long-term above ₹1.25 lakh |
A "speculative transaction" is one settled without actual delivery of the shares. That is section 66(31) of the Income-tax Act, 2025 (formerly section 43(5)). Derivatives traded through a SEBI-registered broker on a recognised exchange, with a time-stamped contract note, are carved out as "specified derivative transactions" (section 66(33)). So F&O is non-speculative and intraday equity is speculative. Exchange-traded commodity derivatives that pay commodities transaction tax are also non-speculative.
For delivery-based investing and mutual funds, see our guide to mutual fund and capital gains tax.
How F&O Profit Is Taxed
Business income is added to your salary and other income and taxed at your slab rate. There is no special rate for F&O. In the new regime, which is the default, the slabs run from nil up to ₹4 lakh to 30% above ₹24 lakh, plus 4% cess.
Illustrative example (resident, new regime, tax year 2026-27): salary ₹15 lakh plus F&O profit ₹3 lakh.
- Without F&O: taxable income ₹14.25 lakh after the ₹75,000 standard deduction. Tax = ₹20,000 + ₹40,000 + (₹2.25 lakh × 15% = ₹33,750) = ₹93,750, plus cess = ₹97,500.
- With F&O: taxable income ₹17.25 lakh. Tax = ₹20,000 + ₹40,000 + ₹60,000 + (₹1.25 lakh × 20% = ₹25,000) = ₹1,45,000, plus cess = ₹1,50,800.
- The ₹3 lakh of F&O profit costs ₹53,300 in tax, about 17.8%.
Because F&O profit is taxed at normal rates, it is covered by the section 156 rebate. A resident in the new regime whose total income, including trading profit, is ₹12 lakh or less pays no tax. Compare the two regimes with the old vs new regime income tax calculator.
STT on F&O from 1 April 2026
The Finance Act, 2026 raised securities transaction tax (STT) on derivatives for trades from 1 April 2026:
| Transaction | Paid by | Until 31 March 2026 | From 1 April 2026 |
|---|---|---|---|
| Sale of a futures contract | Seller | 0.02% | 0.05% |
| Sale of an option (on the premium) | Seller | 0.10% | 0.15% |
| Option exercised | Purchaser | 0.125% | 0.15% |
| Intraday equity sale (no delivery) | Seller | 0.025% | 0.025% (no change) |
| Delivery equity purchase and sale | Each side | 0.1% | 0.1% (no change) |
Illustrative: closing a futures position worth ₹10 lakh now costs ₹500 in STT, up from ₹200. Selling options for ₹10,000 of premium costs ₹15, up from ₹10.
When your trading income is taxed as business income, the STT you pay is deductible as a business expense (section 32(k)).
What Counts as "Turnover"
Turnover matters for audit limits and presumptive taxation. It is not the value of the contracts you traded. Under the ICAI Guidance Note on Tax Audit (8th edition, August 2022):
- Futures: the absolute sum of profits and losses on each trade.
- Options: also the absolute sum of profits and losses on each trade. Premium received on options you sold is no longer added on top. This changed in 2022; older guides still say otherwise.
- Intraday equity: the absolute sum of the positive and negative differences on each trade.
Illustrative example: in a year you close futures trades with ₹40,000 of profits and ₹25,000 of losses, and option trades with ₹60,000 of profits and ₹90,000 of losses. Turnover is ₹40,000 + ₹25,000 + ₹60,000 + ₹90,000 = ₹2,15,000. Your net result is a loss of ₹15,000.
Do You Need a Tax Audit?
Tax audit rules are in section 63 (formerly 44AB).
| Situation | Audit required? |
|---|---|
| Turnover above ₹10 crore | Yes |
| Turnover above ₹1 crore, and cash receipts or payments above 5% | Yes. F&O money moves through bank and broker accounts, so this rarely applies to traders. |
| Turnover up to ₹10 crore, regular books, profit or loss | No audit just because of a loss or low profit |
| You declared presumptive income under section 58(2) in an earlier year and now show lower profit | Audit may be needed if total income is above the basic exemption limit (₹4 lakh in the new regime, ₹2.5 lakh in the old) |
A common myth says any F&O loss with income above the exemption limit needs an audit. That is wrong for traders who keep regular books and have never used presumptive taxation. The exception is narrow but real. If you used presumptive taxation in any of the last five years, ask a chartered accountant before filing.
If an audit applies, the audit report is due one month before the return due date: 30 September 2027 for tax year 2026-27.
Presumptive taxation (section 58, formerly 44AD)
Resident individuals, HUFs and firms (not LLPs) with turnover up to ₹2 crore can declare 6% of turnover (8% for cash receipts) as profit and skip detailed books. The limit is ₹3 crore if cash receipts are 5% or less. People who earn commission or brokerage, or run an agency business, cannot use it. Whether F&O traders should use it is debated, because turnover here is only the absolute profit and loss. It also has a catch. If you use it and then declare less than the deemed profit in any of the next five years, you lose access for five years, and an audit can apply (section 58(7) and (8)). Most loss-making traders are better off keeping regular books.
Loss Set-Off and Carry-Forward
| Rule | F&O loss (non-speculative) | Intraday loss (speculative) |
|---|---|---|
| Same-year set-off | Against any other income except salary: other business income including intraday profit, capital gains, rent, interest | Only against speculative profit |
| Carry-forward period | 8 tax years (section 112) | 4 tax years (section 113) |
| Carried-forward loss used against | Any business income, including F&O | Only speculative profit |
Condition for both: the return must be filed by the due date, or the loss cannot be carried forward (section 121).
So a ₹2 lakh F&O loss cannot reduce tax on your salary this year. It can reduce tax on a ₹2 lakh capital gain or rental income this year. Any amount left over carries forward and can be set off against business income in the next eight years. But it only carries forward if you file on time, even in a year with no tax to pay.
Expenses You Can Deduct
Because this is business income, genuine trading expenses reduce your taxable profit:
- brokerage, exchange charges, stamp duty and STT
- the trading share of your internet and phone bills
- subscriptions to data feeds, charting tools and research
- fees paid to an accountant for your trading accounts and return
- depreciation on a computer used for trading
Keep invoices. You must be able to show each expense was for the trading business.
Old or New Regime for Traders?
Trading losses and expenses are treated the same in both regimes. The new regime only blocks loss carry-forward linked to specific disallowed deductions. Ordinary F&O losses still carry forward for eight years, and normal trading expenses stay deductible. What you give up in the new regime is the Chapter VIII deductions, such as section 123 (80C) and section 126 (80D).
So decide on the same basis as anyone else: do your old-regime deductions beat the break-even for your income? See New vs Old Tax Regime, Tax Year 2026-27 and run the numbers in the tax calculator.
Because you have business income, the switching rules are strict. You can opt out of the new regime once, by the return due date, and withdraw that choice only once. After that you cannot opt out again unless you stop having business income (section 202(4)).
Advance Tax for Traders
If your tax for the year after TDS is ₹10,000 or more, you must pay advance tax. Trading income is business income, so the senior-citizen exemption does not apply. Due dates for tax year 2026-27 (section 408):
- 15 June 2026: 15%
- 15 September 2026: 45%
- 15 December 2026: 75%
- 15 March 2027: 100%
Trading profit is lumpy, so recompute before each date using your profit so far. Interest at 1% a month applies to shortfalls (sections 424 and 425, formerly 234B and 234C). Our December advance tax guide shows the calculation.
Filing Your Return
- Download your broker's tax P&L for the full year, split into F&O, intraday and delivery.
- Work out turnover separately for F&O and intraday, using the rules above.
- Check whether an audit applies. For most traders with regular books and turnover under ₹10 crore, it does not.
- File the return for business income. For FY 2025-26 this was ITR-3; check the form notified for tax year 2026-27 when filing opens in 2027. ITR-2 has no place for business income.
- File by the due date. For tax year 2026-27 this is 31 August 2027 if no audit applies and 31 October 2027 if it does. The Finance Act, 2026 moved non-audited business returns to 31 August.
What About FY 2025-26?
Trades made from April 2025 to March 2026 are taxed under the Income-tax Act, 1961, with the old section numbers (43(5), 44AB, 44AD, 72, 73) and the old STT rates. The substance is the same: F&O is non-speculative business income, losses carry forward 8 years, and speculative losses 4 years. Those returns were due 31 August 2026 for non-audited business income. A return filed after the due date cannot carry forward business or speculative losses.
This guide explains the rules for tax year 2026-27. It is general information, not personal tax advice or a view on whether to trade derivatives. Your position depends on your full income and records; consult a chartered accountant for audit questions.
