Setoff

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 September 2011 If F&O transactions are treated as speculative, then speculative business loss can only be set off against speculative business income

Can capital loss from futures and options (F&O) (i.e., business activity) be set off against interest from banks, interest from post office, rental income, or income from day trading in shares?

CA Ayush Agarwal

CA Ayush Agarwal (Expert)
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27 September 2011 F&O transactions are treated as non-speculative business transactions as per the Income Tax (IT) Act, 1961, subject to fulfillment of certain conditions specified. Non-speculative business loss can be set off against any other income other than salary income. So F&O loss can be set off against interest from banks or post office and rental income. Non-speculative business loss can be set off against speculative business income but vice versa is not permissible. So F&O loss can also be set off against income from day trading in shares (speculative income).

If F&O transactions are treated as speculative, as conditions prescribed in the IT Act are not fulfilled, then speculative business loss can only be set off against speculative business income. So, in this case, F&O loss can be set off only against income from day trading (speculative income). It cannot be set off against interest or rental income.

As per Section 43(5)of the IT Act, trading in derivatives will not be treated as speculative business transaction if the transaction is carried out on a recognised stock exchange (BSE or NSE), and on screen-based systems, and supported by a time stamped contract note.