--- title: "How is F&O income taxed, which ITR applies, and what changed" description: "Exchange traded F&O income is non speculative business income, so a profit or loss goes into the business head." source_url: "https://www.rupeecase.com/learn/questions/how-is-fo-income-taxed" --- F&O results are business income, so their losses follow the business loss rules How an F&O result reaches the return, with the old Act section first and the 2025 Act section after it. Rules only, not a computation for any one person. Source: Income-tax Act, 1961; Income-tax Act, 2025; CBDT transition FAQs. As of 16 Oct 2026. Your F&O profit or loss on exchange traded contracts is business income, not speculation. Section 43(5) of the 1961 Act says such trades are not speculative, and section 66 of the 2025 Act carries the same rule. It applies to trades on a recognised exchange through a SEBI registered broker, with a time stamped contract note that shows your client ID and PAN. Business income is added to your other income and taxed at slab rates under the regime you choose. Set off comes first. A business loss can be set off against your other income, such as capital gains or income from other sources, but not against salary. What is left over carries forward for up to eight years, and in those years it can be set off only against business income. Intraday trading in shares for cash is speculation, which has its own rules and a four year carry forward. Which form? For AY 2026-27 the return form is ITR-3, which has separate Trading Account lines for F&O turnover and F&O income. Whether an audit is needed is a separate question, covered on the [turnover and audit page](/learn/questions/fo-turnover-and-tax-audit). From 1 Apr 2026 the Income-tax Act, 2025 applies, with tax years in place of assessment years. Section 43(5) becomes section 66(31) and section 66(33), and section 72 becomes section 112. This explains how the rules work. It does not compute anyone's tax. A chartered accountant can work out the return, and the forms and rules change with each Finance Act, so check the current form before you file. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) How is F&O income taxed, which ITR applies, and what changed under the new Act?Exchange traded F&O income is non speculative business income, so a profit or loss goes into the business head and is reported on ITR-3 for the assessment year that follows the trading year. From 1 Apr 2026 the same treatment carries over into the Income-tax Act, 2025, with new section numbers and tax years. LGo deeper ## Where Learn teaches this. [Module 11.2Tax Treatment: MFs, ETFs, SGBs, Bonds & F&O11 min, Path 11](/learn/path-11/module-11-2-tax-treatment-mfs-etfs-sgbs-bonds-and-fno) SSources ## Go to the source. 1. [Income-tax Act, 1961, section 43, definitions for business income](https://www.incometaxindia.gov.in/w/section-43-59) Income Tax 2. [CBDT, FAQs on Interplay and Transition (transition from the Income-tax Act, 1961 to the Income-tax Act, 2025)](https://www.incometaxindia.gov.in/documents/81799/11848482/FAQs-on-Interplay-and-Transition.pdf) Income Tax 3. [Income-tax Act, 2025, section 66, interpretation (speculative transaction and specified derivative transaction)](https://www.incometaxindia.gov.in/w/section-66-126) Income Tax ?Questions people ask ## Related questions. 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Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.