Part 1: 5 Ideas to Save Tax on Your F&O Income!

Recently, the government announced a hike in STT for trading in the derivatives market which has disappointed the entire trading fraternity. While there are also tons of charges such as GST, brokerage, exchange transaction charges, SEBI charges, stamp duty, etc. and after the deduction of these, if you are left with net profits (somehow), then you pay income tax on it.

While you can not lower the cost of trading (except the brokerage), you can definitely be a bit smarter by limiting your income tax outgo. As FY23 is coming to an end, here are some ways to do it.

Most of you might be knowing all trading-related expenses can be deducted. But the motive here is to list down specific expenses which you might not have thought of before and to widen your scope of thinking.

Set Off Profits Against Previous Losses

Unfortunately, if you suffer a net loss from your F&O trading by the year end, you can carry forward your losses for up to 8 years, which can be adjusted against your future profits, which reduces your tax liability in the year of adjustment. For eg. If your previous year’s loss was INR 1 lakh, but the current year’s profit is INR 1.5 lakh, then you are liable to pay tax on the adjusted INR 50,000 for the current year. This is the first thing a trader must do.

Do note that income from F&O trading comes under the business income head, which can only be set off against business income (other than speculative income). Simply, F&O loss cannot be set off against profit from equity trading (which comes under capital gains) or equity intraday trading (which comes under speculative business income).

Traveling Expenses

These days, trading seminars are on a parabolic rise. If you are on Twitter, you would probably keep coming across a new seminar taking place every other day. All traveling expenses such as fuel, air/railway tickets, cab fares, etc. you incur to travel including your accommodation such as stay, food expenses, etc. can all be deducted from your F&O profit.

Going for a seminar in a 5-star hotel? You can claim those expenses but make sure it's strictly for the trading-related event :)

Fixed Assets

Trading requires some fixed assets to be purchased, while for some, these assets could be way more. For eg., you need a laptop or a computer for trading, and probably a TV as well to watch the news. Maybe you bought a new router or repeaters (used to amplify WiFi signals) for faster internet or even a hard disk/pen drive to back up your trading data, the cost of everything can be deducted from your F&O income.

One thing you need to make sure, every fixed asset is specifically bought to carry out your trading.

As I don’t want to make it too long, please read the second part for more such ideas. The link is at the bottom.

Read More: Part 2: 5 Ideas to Save Tax on Your F&O Income!