save taxes on futures and options

Sandesh

7 ways to save taxes on Futures and Options trading

f&o, taxes

In the world of finance, trading in futures and options (F&O) is a common practice. While these trades can yield substantial profits, they also incur expenses such as brokerage fees and other charges. It’s important to understand how F&O profits are taxed under the Income Tax Act, as well as which expenses are allowed as deductions.

In this article, we will explore the treatment of F&O profits as business income under the Income Tax Act. We will also delve into the specific expenses that can be claimed as deductions to help you save some of those Taxes.

Here are some expenses related to F&O trading that can be claimed as deductions on Income Tax:

  1. Subscriptions to news agencies: Expenses incurred for subscribing to financial news agencies like Business Standard, ET Now, and others can be claimed as deductions.
  2. Software subscriptions: Expenses for subscriptions to trading software such as Opstra, Sensibull, etc.
  3. Tutorial/training expenses: Expenses incurred for financial courses, conclaves, webinars, and other training programs either online or offline.
  4. Tours and travel expenses: Expenses related to webinars and other meetups, including tours and travel expenses.
  5. Professional advisor fees: Amounts paid to any SEBI registered professional advisor for professional services related to trading.
  6. Internet and telephone bills: Expenses related to internet and telephone bills used for trading.
  7. Depreciation on assets: Depreciation on all depreciable assets used for trading, such as laptops and mobiles, can be claimed as deductions.

Important points to note:-  

  1.  All such Expenses should be for trading purposes or beneficial in earning such Trading Income.
  2. You must maintain all invoices for all such expenses.

How can you claim Futures and options (F&O) tax benefits

Let’s take the example of Jethalal, a profitable options trader who earned a profit of Rs. 10,00,000/- in the last financial year. To improve his expertise in options trading, Jethalal incurred several expenses, including attending webinars and subscribing to premium apps. In total, his expenses amounted to Rs. 2,00,000/-, which included internet bills and depreciation on his laptop. Assuming that Jethalal falls under the 30% tax bracket, we can calculate his tax liability with and without deducting his expenses.

If Jethalal takes a deduction of his expenses, his tax liability would be (10,00,000 – 2,00,000) * 30% = Rs. 2,40,000/-
On the other hand, if he doesn’t take any deduction, his tax liability would be 10,00,000 * 30% = Rs. 3,00,000/-
By deducting his expenses, Jethalal can save almost Rs. 60,000/- (3,00,000 – 2,40,000)

This example shows that claiming deductions for eligible expenses can significantly reduce one’s tax liability. Therefore, it is important for F&O traders to keep track of their expenses and understand which ones are deductible to optimize their financial position.

 
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