F&O Tax Glossary

Favourable and unfavourable F&O trade differences plus option-sale premium under ICAI GN 2025, with anti-double-counting where premium is already included in the transaction result. Used to test Section 44AB / Section 63 audit applicability.

F&O turnover for income-tax purposes is not full contract value. For AY 2026-27 onward, the ICAI GN 2025 method includes favourable and unfavourable differences and option-sale premium, but the premium should not be counted twice where the broker P&L already includes it in the trade result.

Source: ICAI Guidance Note on Tax Audit (Revised 2025), with 2022 guidance relevant for prior assessment years.

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The 1961 Act definition of "speculative transaction". The proviso (d) carves F&O on a recognised stock exchange out of speculative treatment, making it non-speculative business income. Successor: Sections 2(31) and 2(33) of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 43(5)(d); Income-tax Act 2025, Sections 2(31) and 2(33).

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Statutory tax audit requirement for businesses. Default turnover threshold ₹1 crore; raised to ₹10 crore where aggregate cash receipts and payments are each ≤ 5%. Successor: Section 63 of the Income-tax Act 2025 from AY 2026-27, with identical thresholds.

Source: Income-tax Act 1961, Section 44AB; Income-tax Act 2025, Section 63.

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Presumptive taxation scheme for eligible resident individuals, HUFs and firms (excluding LLPs) with turnover up to ₹2 crore (₹3 crore where cash receipts ≤ 5%). Declared profit must be at least 6% of digital turnover or 8% of cash turnover. Successor: Section 58 of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 44AD; Income-tax Act 2025, Section 58.

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If a taxpayer opts into Section 44AD and later opts out (declares profit below the deemed rate), Section 44AD cannot be re-elected for the next five AYs. If total income in the opt-out year exceeds the basic exemption, books must be maintained under Section 44AA and audited under Section 44AB(e).

Source: Income-tax Act 1961, Section 44AD(4) and 44AD(5).

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Penalty for failure to get accounts audited under Section 44AB: 0.5% of turnover or ₹1,50,000, whichever is lower. Section 273B reasonable-cause defence available. Replaced from AY 2026-27 by Section 428(c) of the 2025 Act, which is structured as a fee, not a penalty.

Source: Income-tax Act 1961, Section 271B; Section 273B.

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Fee (not penalty) for failure to get accounts audited under Section 63 of the Income-tax Act 2025: ₹75,000 if delay does not exceed one month, ₹1,50,000 thereafter. No Section 273B-equivalent reasonable-cause defence. Applies from AY 2026-27.

Source: Income-tax Act 2025, Section 428(c), as substituted by the Finance Act 2026 w.e.f. 1 April 2026.

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Income-tax return form for individuals and HUFs having income from business or profession. The correct form for F&O traders because F&O income is treated as non-speculative business income. ITR-4 (Sugam) is not suitable for most F&O traders because it cannot carry forward business losses.

Source: Rule 12 of the Income-tax Rules 1962; e-Filing portal AY 2025-26 / AY 2026-27 utilities.

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A business in which a contract for the purchase or sale of any commodity is periodically or ultimately settled otherwise than by actual delivery. Intraday equity trading is speculative business. F&O on a recognised stock exchange is carved out and is non-speculative under Section 43(5)(d) of the 1961 Act / Section 2(33) of the 2025 Act.

Source: Income-tax Act 1961, Section 43(5); Income-tax Act 2025, Section 2(31) and Section 2(33).

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Speculative business losses (e.g. intraday equity loss) can be set off only against speculative business income and carried forward for only 4 assessment years. Successor: Section 113 of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 73; Income-tax Act 2025, Section 113.

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Non-speculative business losses (including F&O loss) can be carried forward for 8 assessment years and set off against any business income in those years. Successor: Section 112 of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 72; Income-tax Act 2025, Section 112.

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Business losses (including F&O loss) cannot be set off against salary income. Applies to both speculative and non-speculative business losses. Successor: Section 110 of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 71(2A); Income-tax Act 2025, Section 110.

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Carry-forward of business loss (Section 72) and speculative loss (Section 73) requires filing the original return within the Section 139(1) due date. A belated return loses the carry-forward right. Successor: Section 117 of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 80; Income-tax Act 2025, Section 117.

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Statutory due dates for filing an income-tax return. For F&O traders subject to audit, due date is 30 September following the financial year (extended by CBDT circulars for AY 2025-26). For non-audit cases, 31 July (extended to 15 September 2025 for AY 2025-26 by Circular 6/2025). Successor: Section 263(1) of the Income-tax Act 2025.

Source: Income-tax Act 1961, Section 139(1); CBDT Circulars 6/2025 and 15/2025; Income-tax Act 2025, Section 263(1).

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Comprehensive statement of taxpayer financial transactions reported under SFT (Statement of Financial Transactions) and other heads, published on the e-Filing portal. F&O turnover is generally not reported in AIS the way brokers report it — it must be computed independently from broker P&L using the ICAI method.

Source: CBDT Notification 30/2020; e-Filing portal AIS module.

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Conditional penalty immunity mechanism for genuine voluntary disclosure following an AIS-based notice. Inserted into the 1961 Act and preserved in the 2025 Act. Provides a structured way for traders to respond to AIS-vs-return mismatch notices without escalating to full reassessment proceedings.

Source: Income-tax Act 1961, Section 148AB; Income-tax Act 2025, corresponding successor section.

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Statement of particulars required to be furnished under Section 44AB. Filed by the auditor along with Form 3CA or 3CB (the audit report). Contains 44 clauses covering business details, payments to specified persons, depreciation, deductions, presumptive taxation interaction and TDS compliance. Replaced by Form 26 under the Income-tax (No. 2) Rules 2026.

Source: Income-tax Rules 1962, Rule 6G; Income-tax (No. 2) Rules 2026.

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Tax audit report under Section 63 of the Income-tax Act 2025, prescribed by the Income-tax (No. 2) Rules 2026. Replaces Form 3CA / 3CB / 3CD of the 1961 framework from AY 2026-27. Due date for TY 2026-27: 30 September 2027.

Source: Income-tax Act 2025, Section 63; Income-tax (No. 2) Rules 2026, CBDT Notification 22/2026.

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