Setting off income with other losses

F&O losses (Non-spculative) can be set off against other incomes (except salary) in the financial year in which the loss was incurred. However, if this loss is carried forward to future years, it can only be set-off against business income of that year.

So, In your case you can adjust the FNO loss of Rs.2 lakhs with income from other sources and your taxable income becomes 3 lakhs