F&O trading to attract more tax. Goverment planning to make new rules for F&O trading
F&O trading to attract more tax soon . F&O trading can be taxed as high as 30% in the upcoming period. Some news reports said that Government of India is planning to change the current rules for Income from F&O trading.
Government of India is very concerned about the high number of participation by retail traders to derivative trading. In last 1 year, the Government in past has done major changes in trading the F&O which indicates that they do not support F&O trading and want the participations of such traders to reduce down.
Some changes done by Securities & Exchange Board of India (SEBI) in the recent past were like – reducing the lot size of the index contracts , including multiple expiries of the contract , increasing the charges for executing the contracts , increasing the margins to trade the contracts , etc.
Previous year in July, SEBI also mandated all stock brokers in India to display risk disclosures related to trading in the equity futures and options (F&O) segment on their websites. This measure by the Securities and Exchange Board of India (SEBI) aims to warn individual investors about the risks associated with derivative trading.
Changes that the Goverment can impliment and its impact
As per the sources, the Government is planning to impliment new rules by:
- Introducing a high tax rate of 30% on derivative income.
- Introducing Tax Deduction at Source (TDS).
- Changing the head for Derivative P/L from Business Income to Speculative Income.
These introduction & changes would lead to implication of high tax of 30% on the profits from derivative trading . Previous year in the Union Budget, the Government introduced 30% tax on profits from Cryptocurrencies and the crypto traders/investors were harmed which forced them to move out from the crypto market. Similar tax on Derivative income might decrease the participation in F&O by the retail Indian traders.
Currently, income from derivative trading is treated as a business income & any loss suffered by traders in derivative trading is eligible to be setoff from their other business income. Setoff of loss benefits the taxpayers to reduce their tax liability , however, in the new rules, it its expected that the income from derivative trading will now be shifted from Business Income to Speculative Income. If the change takes place, traders will not be able to setoff their loss from the other Business profits , instead they would be able to setoff from the Speculative Gains (like profit from Cryptocurrencies ,Betting on horse races , Lotteries ,etc).
This change will massively impact their tax liability which can eventually lead to stop trading in derivatives.
“The primary purpose of derivative instruments was to use it for hedging the investments from uncertainties but traders are using it to make their daily living by using the instruments and are entering into big losses “-said one SEBI official in an interview.
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