Budget may hike tax on F&O trading. Here's what it could mean

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Also Read: Sebi tweaks stocks’ F&O norms, curbs use of finfluencers Any losses from these instruments can be used to set off against other business income of the assessment year or carried forward and set off against business income for the subsequent eight years. This provision has provided a cushion for traders against the volatile nature of the F&O market. F&O traders rely on trend analysis and probability computations that require years of experience and knowledge about markets and trends.

The proposal of the finance ministry stems from its concern for retail investors, whose participation in the derivatives market has seen a significant increase. The strategy being to take the appeal of lower tax rates and higher deductions away from these instruments and increase the applicable taxes. The ministry is reportedly considering: The proposed reclassification of F&O income as speculative income will significantly impact traders.

Firstly, the ability to offset losses from F&O transactions against other business income would be curtailed. This change would result in higher tax liabilities for traders, particularly those who use losses in one segment to offset gains in another, balancing their overall tax obligations. With the new classification, only profits and losses within the speculative category can be offset against each other, which can lead to higher taxable income and consequently, higher taxes.