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

Under the Income-tax Act as applicable to equity derivatives, how is a transaction in index futures or stock options traded on a recognised stock exchange and settled in cash generally classified for a trader?

Profits and losses from exchange-traded equity derivatives are treated as non-speculative business income, because the law excludes eligible derivative transactions on recognised exchanges from the definition of speculative transactions. They are not capital gains or other-source income.

  1. ASpeculative business income
  2. BNon-speculative business incomeCorrect
  3. CLong-term capital gain
  4. DIncome from other sources

Explanation

Derivative transactions on a recognised exchange are specifically excluded from the definition of speculative transactions. Hence profits or losses are treated as non-speculative business income or loss. Speculative treatment applies to, for example, equity delivery-based transactions squared off without delivery, not to exchange-traded derivatives.

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