F&O vs intraday — two different heads
The distinction drives everything downstream:
- F&O (futures & options) is non-speculative business income.
- Intraday equity (bought and sold the same day without delivery) is speculative business income.
Why it matters: speculative and non-speculative losses have different set-off and carry-forward rules, so the two have to be kept separate in the computation.
Turnover — the number everything hinges on
Audit applicability turns on turnover, and for derivatives that is not your total contract value. Per the ICAI Guidance Note it is computed on a prescribed basis — broadly the absolute sum of the favourable and unfavourable differences (your profits and losses), with specific treatment of the premium on options sold. This computed turnover is what decides whether Section 44AB applies, so it is the first thing established from your broker’s tax P&L, applying the current edition of the Guidance Note.
When a tax audit (Section 44AB) actually applies
Two triggers matter for traders:
- Computed turnover crosses ₹1 crore, extended to ₹10 crore where cash receipts and payments are each 5% or less — which digital trading almost always satisfies.
- The 44AD opt-out trap: if you used the presumptive scheme and then declare income below the presumptive rate (as a loss effectively is) while exceeding the basic exemption limit, an audit can be triggered — and the Section 44AD(4) five-year lock-in can bite once you have opted out.
Audit applicability does not depend on whether you made a profit or a loss — a widely believed myth that leads to missed audits and notices.
Loss set-off & carry-forward
- F&O (non-speculative) losses can be set off against most heads (not salary) in the same year and carried forward 8 years against business income.
- Intraday (speculative) losses can be set off only against speculative income and carried forward 4 years — a much tighter window.
- Carry-forward of any loss requires filing the return by the due date — miss it and the loss is lost.
Which ITR, advance tax and books
Trading income means ITR-3. Advance tax applies to traders as it does to any business, so interest under 234B/234C can build up if instalments are missed. Books-of-account requirements depend on turnover and income level and are confirmed with you rather than assumed.
The salaried-trader combination
A very common Bengaluru profile is salary + foreign RSUs + F&O in one year. That all goes into a single ITR-3: salary, the RSU/foreign-stock income and Schedule FA, and the trading business income together. And because trading now surfaces in your AIS, mismatches are a growing source of income-tax notices — which is why it is worth getting right the first time.