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

Under the Income-tax Act, how is income from trading in equity index futures and equity options on a recognised stock exchange generally classified for a taxpayer who is not a trader holding them as investment?

Income from equity futures and options traded on a recognised stock exchange is treated as non-speculative business income, not capital gains. It is excluded from speculative transactions by the Income-tax Act proviso, so losses can be set off against other business income.

  1. ACapital gains from a long-term capital asset
  2. BIncome from other sources
  3. CNon-speculative business incomeCorrect
  4. DSpeculative business income

Explanation

Profits or losses from F&O transactions on a recognised exchange are not speculative transactions because they are eligible transactions under the speculation proviso. They are treated as non-speculative business income. Speculative treatment applies to intraday cash-market trades settled without delivery.

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