I also trade in equity derivatives (futures and options), How would the resultant profit and loss be treated for taxation purposes?
The taxation of derivative transactions is not specifically dealt with under the Indian Income-tax Act (Act). There could be two possible interpretations viz. derivatives transactions are pure business transactions and hence, the income/loss thereon should be assessed as normal business income / loss.The other view is that derivatives are covered under the definition of speculative transaction under section 43(5) of the Act in absence of delivery of the underlying security or commodity. Under the Act, speculative profits/losses are allowed to be setoff only against speculative losses/profits respectively. The unabsorbed speculative losses are allowed to be carried forward for 8 immediately succeeding assessment years.However, setoff of such carried forward speculative losses is allowed to be setoff only against speculation profits. In view of the aforesaid, there is a risk of such derivative transactions being treated as speculative transactions under the Act.Therefore, the client is a
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