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

Under the Income-tax Act, how are profits or losses from trading in equity index futures on a recognised stock exchange, undertaken by an investor who is not a dealer in securities, generally classified?

Profits or losses from equity futures traded on a recognised stock exchange are treated as non-speculative business income, because eligible exchange-traded derivative transactions are specifically excluded from the definition of speculative transactions. They are not taxed as capital gains.

  1. AShort-term capital gains taxed at 15%
  2. BLong-term capital gains exempt from tax
  3. CNon-speculative business incomeCorrect
  4. DSpeculative business income

Explanation

Derivative transactions on a recognised stock exchange that are eligible are excluded from being treated as speculative transactions. Hence profits and losses from futures and options are treated as non-speculative business income, not capital gains and not speculative income.

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