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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Accounting and Taxation

A trader holds a long position in a call option bought at a premium of ₹30 per share on 1,000 shares, strike ₹500. The option expires with the settlement price of the underlying at ₹545. Ignoring brokerage and taxes, what is the net profit and how is it classified for tax?

Net profit is ₹15,000: the option's intrinsic value of ₹45 less the ₹30 premium gives ₹15 per share on 1,000 shares. Being an exchange-traded derivative, it is taxed as non-speculative business income, not speculative income or capital gains.

  1. A₹15,000 profit, non-speculative business incomeCorrect
  2. B₹45,000 profit, non-speculative business income
  3. C₹15,000 profit, speculative business income
  4. D₹15,000 profit, capital gain

Explanation

Intrinsic value at expiry = 545-500 = ₹45. Net = 45-30 = ₹15 per share x 1,000 = ₹15,000. Exchange-traded options are non-speculative business income. ₹45,000 ignores premium paid, and speculative or capital gain labels are wrong.

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