Convert F&O Trading loss into Tax Savings by carry forward for 8 years

F&O Losses may be irreversible, but what if they could offer you some tax savings in the current year and the years to come?

-Tanuja Gupta

Many Salaried employees are unaware of the benefits of claiming the F&O business loss while filing their income tax returns against all other incomes except Salary Income. This lapses in F&O business loss carry forward and set off forever.

F&O Loss Carry Forward

F&O loss being Business loss is the result of F&O Derivatives trading daily balance square-offs for the entire year. It is the Mark to Market at the end of each day.

What is a loss carry forward

The F&O Business Loss not set off against incomes in the same year can be carried forward to next years for set off till it is completely exhausted.

Loss carry forward rules- Can I carry forward F&O loss

• Decide whether you have to mandatorily maintain Books of Accounts
• Where to show Carry forward F&O loss in ITR
• Tax audit is mandatory for carry forward F&O loss under certain circumstances.
• Set off F&O loss within the same year against all heads of income except Salary Income.
• Carry forward of F&O Business loss for the next 8 years.
• File Income Tax Returns within the Due Date.

So, how to decide whether I have to Maintain Books of Accounts for F&O loss

Find out your Total Income as follows,

You first need to calculate your F&O Business Turnover as follows,

1. Check if your Total Income including all incomes exceeds Rs. 50 lakhs.

Or

If your Business Turnover from F&O transactions by adding up each day’s positive and negative balances that exceed Rs. 25 Lakhs (10 Lakhs for Firm).

Then, Maintain Books of Accounts.

2. If your Total Income doesn’t exceed Rs. 50 Lakhs or your F&O turnover is less than Rs. 25 Lakhs (10 Lakhs for Firm), then No need to maintain Books Of Accounts for F&O Loss.

Where to show F&O Loss in ITR

F&O loss will first be set off against all other incomes of the same year except Salary Income. So, F&O loss needs to be shown under the head “Profits and Gains of Business or Profession (PGBP)”

1. If you have to maintain Books of Accounts, then show F&O loss under Purchases within PGB
2. If you don’t have to maintain Books of Accounts, then show such loss under the head PGBP under “Net Profit Before Tax as per P & L a/c”

Where to show F&O loss Carry Forward in ITR

If the F&O business loss is not fully set off against all other incomes in the same year then you can carry forward the F&O business loss under “Unabsorbed losses carry forward” as Ordinary Business Loss. This will carry forward your F&O business loss for next 8 years or till it gets set off whichever is earlier.

Can I claim Presumptive Benefit for F&O loss

A Presumptive Tax Scheme (PTS) can be claimed only to show fixed income but not for loss.

PTS u/s 44AD can be claimed only when you want to claim a fixed percentage of 6% of the Turnover of your F&O trading business up to a Turnover limit of Rs. 3 crores.

But if you have incurred an F&O business loss, then the PTS can’t be claimed.

Is Audit Compulsory for F&O Loss

If you satisfy any 1 of the following conditions, then tax audit will be compulsory to carry forward F&O loss;

1. If your F&O Business Turnover crosses Rs. 10 crores.

or

• If you have Withdrawn from the previously opted PTS u/s 44AD in any of the 5 years following the 1^st year of opting in and your Business Income Exceeds Basic exemption limit.

Can I Carry Forward F&O Loss Without Audit

You can carry forward F&O loss without audit if your F&O Business turnover is below Rs. 10 crores

or

If you have opted for a PTS earlier and due to F&O business loss in the current year, you are unable to opt for PTS, such F&O loss is out of your control, this will not amount to withdrawal from the PTS and you can carry forward F&O loss without audit and show F&O loss accordingly.

How does Loss Carry Forward work

Carry Forward of F&O business loss is allowed to be set off only against Business Income of the following 8 assessment years even if this particular F&O business is not carried on. The F&O Business loss can be set off against any other Business Income for the next 8 years or till such loss is completely set off, whichever is earlier.

Filing of ITR within the Due Date

It’s extremely important to file your Income Tax Return and claim F&O business loss in the return for carry forward, or else the F&O business loss will lapse forever.

Conclusion

Claim the F&O Business Loss in the ITR, set off against incomes except Salary Income, carrry forward the amount of F&O Loss not so set off to the following 8 years and Save Tax till your F&O loss is completely absorbed by your Income.

If you want to file your ITR for carry forward, send your details to [email protected] and your Income Tax Return will be filed in less than half an hour.

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