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

Under the Income-tax Act as taught in NISM Equity Derivatives, how is a transaction in equity index futures, carried out on a recognised stock exchange, treated for tax purposes?

Futures transactions on a recognised stock exchange are treated as non-speculative business income, because eligible derivative trades are carved out of the definition of speculative transactions. Gains and losses are therefore taxed under business income, not capital gains or other sources.

  1. ASpeculative business income
  2. BNon-speculative business incomeCorrect
  3. CCapital gains from a long-term capital asset
  4. DIncome from other sources

Explanation

Derivative transactions in recognised exchanges are specifically excluded from being treated as speculative transactions. Profits or losses on futures and options are therefore treated as non-speculative business income or loss. Speculative treatment applies to settled-without-delivery trades in shares, not to eligible derivatives.

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