I have a salary income of ₹18 lakh per year. Apart from this, I have interest income of ₹1.7 lakh and long-term capital gains (LTCG) of ₹2 lakh. In addition to this, I have short-term capital gains (STCG) from sale of equity for ₹1.8 lakh and gain from Futures and Options (F&O) trading of ₹5 lakh. My query is whether this gain from F&O be treated as STCG and taxed at 20 per cent or whether it should be taxed as per the tax slabs applicable. All the transactions have been done through the exchanges with the necessary STT etc paid. Please let me know of the total tax outgo.
Jayanthi
Derivatives usually mean F&O contracts, which derive their value from an underlying asset like stocks, indices or commodities. A transaction is deemed as speculative, if it is periodically settled otherwise than through actual delivery or transfer. In case of derivatives, the transaction is ultimately settled without delivery of underlying asset. However, Section 43(5) of the Income Tax Act, 1961(the Act) has specifically excluded the derivative transaction from the meaning of speculative transaction as these instruments are used for hedging of underlying assets. Thus, income or loss from dealing in F&O shall be deemed as normal business income (non-speculative business) even though delivery is not affected in such transactions. Since derivatives are typically classified as business income, the profits and losses are treated as part of the trader’s total income and taxed accordingly under the Act; all gains and losses from derivative trading (trading in F&O) are considered business income and are taxable under the head ‘Profits and Gains From business and Profession’.
Expenses for derivative trading can be deducted as business expenses. This could include brokerage fees, internet costs, subscription charges for research tools and any other trading-related costs.
This income will be added to your total income and taxed at the progressive tax rates as applicable under the Income Tax slab. For FY26, these rates range from 0 per cent to 30 per cent depending on the income level of the assessee.
Hence, based on the above, it can be said that F&O Gain will not be treated as STCG, rather, the gains or losses arising from trading in F&O are taxable under the head ‘Profits and Gains from Business or Profession’ and will be taxed as per applicable slab rates.
The author is a practising chartered accountant
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Published on October 4, 2025
