Recently as per news reports, the Hon. Finance Minister, Nirmala Sitharaman, in an event at the Bombay Stock Exchange (BSE) in May ’24 stated that “any unchecked explosion of retail trading in futures and options (F&O) can create future challenges not just for the markets, but for investor sentiments and also for household finances”. She also added, “Household finances have made a generational shift. We want to safeguard that and ensure that it is not going to be shattered”.
In this backdrop, on the data relating to F&O individual traders and the statement of the Hon. FM, there is a widespread conjecture that the Government may categorize F&O trading as ‘speculative’ income in Budget 2024.
Under the current Income-tax Act, 1961, F&O trading has been specifically excluded from the definition of “speculative transaction”. Hence, if F&O trading by individuals is categorized as ‘speculative business income’, the same may have the below resultant impact:
- Individual traders may be able to set off the F&O loss only against gains/ income from other speculative business. Currently, loss from F&O trading (for taxpayers classifying it as business income) can be set off against any head of income (except salary income).
- Loss carried forward from F&O trading may be eligible for set off only against speculative business income of subsequent years.
- Individual traders may be able to carry forward F&O loss for only 4 immediately subsequent tax years. Currently, the non-speculative business loss being classified as business income/ loss can be carried forward for 8 immediately succeeding tax years.
Additionally, the following proposals are also being widely reported as anticipated in Budget 2024.
- F&O trading may be taxed at 30%:
Similar to taxation of virtual digital assets (e.g. crypto etc.), F&O activity may be subjected to a flat tax rate (e.g. 30 per cent tax plus surcharge and cess on F&O gains).
The government may also propose TDS on the F&O trading. However, considering the volume and complex nature of the F&O transactions it would be interesting to see if such TDS is introduced whether it will be applicable to income generated from F&O trading or on the F&O transaction amount.
In case all or any of the above amendments are proposed vide Budget 2024, the individual traders will have to re-visit and assess their income tax implications and compliance in India to be compliant with the taxation laws as well.
(The author is Partner & Head, Global Mobility Services-Tax, KPMG in India)