NISM Certifications · NISM-Series-VIII: Equity Derivatives · Accounting and Taxation
Under the Income-tax Act, how is a loss from trading in equity index futures and options on a recognised stock exchange generally classified for a trader who is not a dealer holding them as stock-in-trade?
A loss from equity index futures and options traded on a recognised exchange is treated as a non-speculative business loss, because such derivative transactions are expressly excluded from the definition of speculative transactions. It can be set off against other heads, except salary, and carried forward.
- ASpeculative business loss
- BNon-speculative business lossCorrect
- CShort-term capital loss
- DLoss from other sources
Explanation
Transactions in derivatives on a recognised exchange are specifically excluded from being treated as speculative transactions. Hence the loss is a non-speculative business loss. It can be set off against other income except salary and can be carried forward for 8 years. Speculative classification applies to delivery-less trades in shares, not eligible derivatives.
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