Trading in Futures and Options and Equity - Taxation

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Swathi (Querist)
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18 July 2011 Hello Sir,

My client trades in F&O as well as in Equity (both through listed stock exchanges). I understand that the income arising from trading in F&O is considred as business income. In that case, should the income from equity trades also considered under the same head? Please explain.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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18 July 2011 Yes. Under normal business income if trading is delivery based.

Swathi

Swathi (Querist)
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19 July 2011 Thank You Sir for the response. Can you please let me know if income from trading in F&O by default falls under the head of business income? Also would this change if the client operates through a share broking firm and not by himself?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Great questions on tax treatment of trading in **Futures & Options (F\&O)** and **Equity shares**!

Let me clarify the points for you:

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## 1. **Income from F\&O trading — Business Income**

* Income or loss from trading in **Futures & Options (F\&O)** is **always treated as business income** under Income Tax law.
* This is because F\&O trading is **speculative in nature** (no actual delivery of shares), hence it cannot be treated as capital gains.
* All profits/losses from F\&O trading are reported under **Profits and Gains of Business or Profession**.

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## 2. **Income from Equity trading — Depends on nature of trading**

| Type of Equity Trading | Tax Treatment |
| ------------------------------------------------------------------ | ---------------------------------------------------------------------- |
| **Delivery-based trading** | Capital gains income (short-term or long-term based on holding period) |
| **Intraday trading (speculative)** | Business income (speculative business) |
| **Frequent trading with intent to earn profit (trading business)** | Business income (non-speculative) |

* So, if your client **buys shares and takes delivery**, and sells later, the income is **capital gains**.
* If your client does **intraday trading** (buy and sell on same day), it’s treated as **speculative business income**.
* If the client does **frequent delivery-based trades** and the volume/profit motive is high, tax authorities may treat it as business income.

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## 3. **Does trading through a share broking firm change the tax treatment?**

* No, **trading through a broker or directly by yourself doesn’t change the tax treatment**.
* The nature of income depends on **type of transaction and intention**, not on the mode of trading.

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## 4. **Summary Table**

| Activity | Tax Treatment | Notes |
| ------------------------------ | --------------------------------- | ---------------------------------------- |
| F\&O Trading | Business Income (speculative) | Always business income |
| Equity Delivery-based Trading | Capital Gains | Short-term or long-term based on holding |
| Equity Intraday Trading | Business Income (speculative) | Treated as speculative business |
| Equity Frequent Delivery Trade | Business Income (non-speculative) | If treated as business by tax dept |

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If you want, I can help with **sample tax computations** or **filing guidance** for both types of income.

Want me to prepare that?

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