Futures & Options Trading: How to carry forward losses and the requirement to maintain books of account

Taxation Rules: Futures and Options

Expert's Advice: Trading regularly in Options is treated as a business. You are required to maintain proper books of account if your income from such business exceeds Rs 1.20 lakh in a year or if your business turnover Rs 10 lakh in a year.

Please note that bank statements and broker contract notes alone do not constitute books of account. You must also maintain a cash and bank book, along with a journal, in addition to these documents. Failure to maintain the prescribed books may attract a penalty of Rs 25,000.

You must get your accounts audited if your turnover exceeds Rs 1 crore during the year for all the businesses togather or Rs 10 crore if the cash receipts and payments do not exceed 5 percent of the total receipts or payments. An audit is also required if you had opted for the presumptive taxation scheme under Section 44AD in any of the previous five years, and you now claim profits of less than 6 percent from Options trading while your total income exceeds the basic exemption limit.

If you are required to get your accounts audited but fail to do so and do not furnish the audit report at least one month before your ITR due date, a penalty of 0.5 percent of your turnover (up to Rs. 1.5 lakh) may be levied.

If you incur losses in Options trading and cannot set them off against other income in the same year, the losses can be carried forward for eight subsequent years for set-off against business income. To be eligible to carry forward such losses, you must file your ITR within the applicable due date generally July 31 if audit is not required, and October 31 if audit is required.