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Most retail F&O traders lose money in a given year, and many don't realise the loss has tax value. Recorded and filed correctly, an F&O loss reduces tax on your other income this year and on trading profits for up to eight years. Skip the return, or file it late, and that value is lost. Section numbers below are from the Income-tax Act, 2025, with the 1961 Act numbers in brackets.
Short answer
An F&O loss is a non-speculative business loss. In the same year you can set it off against any income except salary: interest, rent, capital gains or intraday profit. What's left can be carried forward for eight years and set off against business income, including future F&O profit, but only if you file your return by the due date.
What an F&O loss can be set off against
| Income in the same year | Can F&O loss reduce it? | Rule |
|---|---|---|
| Salary | No | Section 109 (earlier 71) |
| Interest, dividends, other income | Yes | Section 109 (earlier 71) |
| Rent (house property income) | Yes | Section 109 (earlier 71) |
| Capital gains | Yes | Section 109 (earlier 71) |
| Intraday (speculative) profit | Yes | Non-speculative loss can absorb speculative income |
| Other business income | Yes | Section 108 (earlier 70) |
The reverse doesn't work: an intraday (speculative) loss can only be set off against speculative income, and a capital loss can't be set off against any other head.
Carrying the loss forward
| Loss | Carry forward | Set off against in later years |
|---|---|---|
| F&O (non-speculative business) | 8 years (Section 112, earlier 72) | Any business income, including F&O and intraday profit |
| Intraday (speculative) | 4 years (Section 113, earlier 73) | Speculative income only |
| Capital loss | 8 years (Section 111, earlier 74) | Capital gains (long-term loss only against long-term gains) |
All of these need a return filed by the due date for the year of the loss.
Worked example
A salaried trader in the new regime has, in FY 2026-27:
- Salary: ₹15 lakh
- Interest income: ₹50,000
- Intraday profit: ₹40,000
- F&O loss: ₹3 lakh
Year 1: set off
The F&O loss absorbs the ₹50,000 of interest and the ₹40,000 of intraday profit. It can't touch the salary. Tax is charged on the salary alone: ₹97,500. Without the set-off, the ₹90,000 of interest and intraday profit would be added to salary and tax would be ₹1,11,540, so the set-off saves ₹14,040.
The remaining ₹2,10,000 of F&O loss is carried forward.
Year 2: carry forward
Next year the same person makes ₹2,50,000 of F&O profit on the same salary. The ₹2,10,000 carried forward is set off first, so only ₹40,000 of profit is taxed. Tax is ₹1,03,740 instead of ₹1,40,400: the carried-forward loss saves ₹36,660.
Over two years, recording the loss properly saves ₹50,700.
Reporting F&O in your return
- Download the tax P&L from your broker. It separates F&O, intraday and delivery (capital gains) trades.
- Report F&O as business income, not capital gains. Returns with business income are currently filed in ITR-3.
- Deduct trading expenses such as brokerage, exchange and transaction charges, and other costs incurred for trading.
- Work out your turnover. For F&O it isn't the contract value: it is generally taken as the total of the absolute profit or loss on each trade, following the ICAI guidance on tax audit.
- Check whether a tax audit applies. Under Section 63 (earlier 44AB), an audit is needed once business turnover crosses ₹1 crore, or ₹10 crore if cash receipts and payments are each 5% or less. Declaring profit below the presumptive rates of Section 58 (earlier 44AD) can also trigger one. Check with a chartered accountant.
- File by the due date, so the loss can be carried forward. Business returns needing an audit have a later due date than other returns.
Common mistakes
- Not filing because "there's no tax to pay". Without a return, the loss is lost.
- Filing late. A late return keeps your other income legal but forfeits the carry-forward.
- Reporting F&O as capital gains. It's business income; reporting it wrongly mismatches your broker's and the department's records.
- Mixing up intraday and F&O. They are different kinds of business income with different set-off rules.
For rates on delivery trades and how capital losses work, see capital gains tax on shares and F&O.
Sources
Frequently asked questions
Can I set off F&O loss against salary?
No. Section 109 of the Income-tax Act, 2025 (earlier Section 71) says a loss under business income can't be set off against salary. An F&O loss can be set off against other income, such as interest, rent or intraday profit, in the same year.
How many years can I carry forward an F&O loss?
Eight years, under Section 112 (earlier Section 72), because F&O trading on a recognised exchange is non-speculative business. In later years it can only be set off against business income, including F&O profit.
Is F&O loss a speculative loss?
No. Futures and options traded on a recognised stock exchange are excluded from speculative transactions, so an F&O loss is a non-speculative business loss. Intraday equity trading is speculative, and its loss can only be set off against speculative income and carried forward for four years.
Do I need to file a return to carry forward an F&O loss?
Yes. To carry a business loss forward you must file your income tax return by the due date. A loss in a late return can't be carried forward.
Can F&O loss be set off against capital gains?
Yes, in the same year. A business loss can be set off against income under other heads except salary, which includes capital gains. Once carried forward, though, it can only be set off against business income.
The CountYourTax team
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General information, not tax advice. Please consult a qualified tax professional before filing or making financial decisions. Report an error in this article