future & option Share trading Tax treatment

Business Income vs Capital Gains
There have always been differences between the taxpayer and tax authorities on the classification of F&O income—whether it is business income or income from capital gains—but it entirely depends on certain facts and circumstances:

 - Linking commodity derivative transactions with existing business;

 - Frequency of the transactions and holding period;

 - Volume of transaction; and

- Motive behind the transactions.

Trading in derivatives will not be considered as speculative business as per Sec 43(5) & explanation provided there under.

Therefore since these are not considered as speculative business, therefore income from such transactions will be considered as normal business income and loss from such transactions will be considered as normal business loss.

Tax audit will be applicable since turnover of F & O is more than specified limit.

ITR form depends on the nature of income.