Is it legally permissible not to report F&O loss?

If someone has loss in f&o and if professional income is already below the taxable limit and by deducting the f&o loss there is no clear benefit but only the professional income will be shown as reduced as the loss will be automatically set off by the syste against the professional income, then is it mandatory to show the f&o loss in the ITR3? Can one choose not to report the loss?

Replies (2)
Quick Summary
It is not legally permissible to omit F&O losses from your tax return. While not strictly illegal to hide, failing to report F&O transactions, which are captured by brokers and reported to the Income Tax Department, can lead to mismatch notices. You must declare these losses in your ITR-3 to allow for automatic set-off against professional income and to preserve the valuable benefit of carrying forward any remaining loss to future tax years.

It is not legally permissible to hide or omit an F&O loss. Because F&O transactions are captured by brokerages and reported to the Income Tax Department's AIS, failing to report this data will trigger a mismatch notice. The taxpayer must declare the loss in ITR-3, allow the system to automatically set it off against their professional income, and carry forward any remaining unabsorbed loss for future years.

 

Not reporting F&O losses is technically not illegal in itself, but it creates significant practical risk.

Here is why:

1. F&O income is classified as non-speculative business income under Section 43(5). If you have any profits, they are taxable. If you skip reporting, the AIS and Form 26AS will still show your broker-reported turnover, and the department may raise a notice asking why income was not declared.

2. You lose the carryforward benefit. F&O losses can be carried forward for 8 assessment years and set off against future business income. But this only works if the return was filed on time with the loss disclosed. If today is your deadline (August 31 for non-audit filers), this is the last chance to claim carryforward for FY 2025-26 losses.

3. Tax audit threshold: F&O turnover (absolute sum of profits and losses on each trade, not just net) counts toward the Section 44AB threshold. If total F&O turnover exceeds Rs 1 crore (or Rs 10 crore for 95%+ digital transactions), a tax audit is mandatory regardless of whether you made a profit or loss. Not filing the audit when required is a separate penalty.

Bottom line: disclose the F&O transactions. If only losses, the disclosure protects carryforward. If profits, disclosure is mandatory.

For the full breakdown on F&O tax treatment, turnover computation, and which ITR form to use, this [F&O tax guide for India](https://taxgarden.in/blog/fno-intraday-trading-tax-itr-audit-india) covers the key rules.

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