Can F&O loss be set off against capital gains?
Question:
Whether loss incurred from trading in futures and options (F&O) on a recognized stock exchange, which qualifies as a non-speculative business loss under section 43(5), can be set off against capital gains and other income under section 71(2) of the Income Tax Act, 1961.
Legal position:
1. Derivative transactions carried out on a recognized stock exchange are expressly excluded from the definition of speculative transactions under section 43(5)(d). Hence, the loss is a “non-speculative business loss.”
2. Section 71(2) permits set-off of business losses (other than speculation losses) against income under other heads, including capital gains.
3. So, loss from F&O trading is admissible for set-off against capital gains and other income under section 71(2).
Relevant Judements:
1. Asian Financial Services Ltd. v. CIT (Calcutta High Court, 28 July 2025) – the Calcutta HC held that loss from derivative trading is a business loss (non-speculative) and hence can be set off against business income, not hit by the deeming fiction under section 73.
2. Kerala High Court in CIT v. Transworld Garnet India (P.) Ltd had held that derivative losses are non-speculative and can be set off against other business income.
3. In a very recent case of Kamal Kant v. Income Tax Officer (ITA No. 3594/DEL/2023), the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) allowed the taxpayer to offset business losses against capital gains, a claim that the tax authorities had previously disallowed.
The copy of the order is as under:
