F&O Trading Taxation for NRIs or those who are not availing Section 44ADA

Taxation
1

Hello Folks,

I am an NRI who wants to use F&O for hedging , some long term options play etc.,

I read about the taxation impacts and it appears its not that complex. Please correct if I am wrong in these :

  1. One needs to file ITR3 and show profits/loss as business income/loss

  2. NRIs cannot avail presumption taxation i.e, Section 44ADA. This means I do not have a compulsion to show minimum 6% or something as profits on turnover.

  3. Since F&O trading is digital , I do not need audits if I fall within below limits- I will fall within this limits as I do not want to do weekly/daily trading :

"ITR-3 audit for F&O trading is mandatory if turnover exceeds ₹10 crore (with >95% digital transactions) or ₹1 crore (if cash transactions are higher). Turnover is calculated as the sum of absolute profits and losses per scrip plus the sell-side premium for options. "

  1. All i need to do is maintain books which to be honest Zerodha Legder, P&L , Bank Statements are good enough !

  2. Now this is where it will get tricky : Since I may use F&O for hedging , i may suffer loss in F&O . Since I am not availing Section 44ADA ,I can actually show this F&O loss without Audit

  3. F&O Losses can be offset against other business income/ capital gains but not Salary - Again this does not require Audit.

  4. F&O Losses can be carry forwarded as well without Audits.

So to be honest ,it looks good ! But I am scared that I am missing somethings before I start participating in F&O . Please advice or confirm If I am right/wrong here. Thanks

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@Quicko

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Hello @dexter007

You are right

  • As an NRI, you are not eligible to opt for the presumptive taxation scheme under Section 44ADA of the Income Tax Act.
  • You are required to file ITR-3, as it applies to individuals having income or loss under the head “Profits and Gains from Business or Profession.”
  • Since F&O trading is conducted digitally, the tax audit threshold can go up to ₹10 crore (where more than 95% of transactions are digital). Additionally, turnover in F&O is calculated based on the absolute value of profits and losses, along with the premium received on the sale of options.
  • If you incur losses from F&O trading, you can report such losses by filing your return before the due date, without requiring a tax audit (provided audit provisions are not otherwise applicable).
  • These losses can be set off against income under any head except salary, and any unabsorbed loss can be carried forward without the need for a tax audit.
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