F&O Income, Expenditure, Taxation – In Brief

Q1. What is F&O income classified as?

a. Speculative income
b. Capital Gains
c. Business income -– Yes as it is on a recognized stock exchange
d. Any other category

Q2. Assuming it is treated as business income, normal expenses associated with running a business
would be eligible for deduction – YES/NO

(I suppose, one of the criteria/ condition is that ALL transactions MUST be done through banking
channel and registered brokerage houses. But, isn’t it an integral part of the system prevailing in the
country?)

Q3. Normal eligible expenses would include – office rent, salaries to the staff, utilities (telephone,
electricity, internet charges), travel, fuel, insurance etc. Also, books/periodicals, membership,
training courses/fee paid in relation to this is eligible for deduction?

ANS/Comment: Yes all business expenses incurred for the purpose of business to be allowed.
Revenue authorities may question each and every line item on how it is incurred for the purpose of
business and seek to disallow the same. Therefore need to maintain detailed documentation.

Q4. What about capital goods and depreciation on the same – office furniture, mobile
handset/tablet, laptop etc. What about car/vehicle owned by an individual? Fuel, insurance and
depreciation charges with some deduction towards personal use (say 20-25%)

ANS/Comment: Yes permitted. As rightly pointed out pro-rata or estimate of expenses towards
personal purposes shall be removed. Recently Farah Khan was permitted depreciation on home
office furniture but she was able to prove that home office was delineated and separate from home.

Q5. How is turnover computed?

- Futures Contracts – full contract value (Y/N) Yes

- Options Contract – Only the premium paid/collected (Y/N) Yes

Comment: Pl confirm that the loss-making contract cannot be offset against profit making contracts
for the purpose of turnover computation and turnover is the summation of absolute numbers of ALL
contracts ignoring +/- i.e. the absolute amounts of profitable and loss making contracts – In case of
options, you need to add option premium to arrive at the turnover. This turnover is only computed
for the purpose of evaluating whether tax audit is required or not. For accounting and reporting
purposes, normal accounting and journal entries will follow.

Q6. Brokerage, STT, stamp duty and exchange charges are deductible from profit? YES; TDS
provisions if applicable to be complied with/N

Q7. What about the GST paid on brokerage and other charges? If a person is not registered for the
GST, then is it deductible expense while arriving at profit? Yes

AND if a person is registered for GST, can he offset GST against input credit?

PL COMMENT: No. There is no output liability against the input services. Input service can be
availed only if the business results in an output liability.
Q8. What are the turnover thresholds for having a mandatory audit?

a. Rs. 1.0 crore and above?

b. Rs. 10 crore and above? OR
c. Any other number?

Any Other Comments, requirements? 5 crores or above from FY 2021-22 subject to payments in
cash and receipts in cash are less than 5% of total payments and receipts respectively

For Further details, pl refer to the links below:

https://cleartax.in/s/fo-trader-return-filing

https://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/