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Carry Forward F&O Losses: 7-Year Tax Relief & Bookkeeping Essentials

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  Published in Business and Finance on Sunday, November 16th 2025 at 22:31 GMT by moneycontrol.com

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Futures & Options Trading: How to Carry‑Forward Losses and Why You Must Keep a Book of Account

Futures and options (F&O) trading has become a popular way for investors to hedge or speculate on the Indian market. Yet, the tax treatment and the regulatory obligations around these derivatives can be surprisingly intricate. For the first time, a Moneycontrol feature has laid out the practical steps traders need to follow to carry forward their losses and the requirement to maintain a “book of account.” Below is a comprehensive summary of the article, its key take‑aways, and the links it recommends for deeper understanding.

1. The Tax Landscape for F&O Losses

1.1 Carry‑Forward of F&O Losses – What the Income Tax Act Says

Under the Income Tax Act, losses from trading in futures and options can be carried forward and set‑off against future income. The critical points are:

The article stresses that while the tax benefit is clear, many traders neglect the bookkeeping component, which is the gatekeeper for claiming the loss deduction.

1.2 Why Book‑Keeping is a Prerequisite

According to Section 34(1)(i)(b) of the Income Tax Act, the “loss incurred in trading in securities or derivatives is only deductible if you maintain a book of account that provides “sufficient details” of each trade. Without proper records, the Income Tax Department may disallow the loss deduction.

2. Regulatory Requirement – SEBI’s 2023 Rule

The Securities and Exchange Board of India (SEBI) has introduced the Futures and Options (Trading) Regulations, 2023, which reinforce the necessity of maintaining a book of account. Key points from the regulation:

• Brokers’ Responsibility: Every broker is required to maintain a “Trade Record Book” for each client that trades in futures or options.
• Client’s Responsibility: Clients must keep a personal ledger summarizing every position opened, closed, and the resulting profit or loss.
• Periodic Audit: The books should be audited annually by a qualified chartered accountant or a qualified auditor to ensure compliance with both SEBI and Income Tax requirements.
• Format: The ledger must include the following columns for every trade:
  1. Date of trade
  2. Instrument (e.g., NIFTY 50 Future, Bank Nifty Option)
  3. Type of transaction (buy/sell)
  4. Quantity
  5. Price
  6. Broker fees and other charges
  7. Net amount (after deducting all charges)

The article links to SEBI’s official circular for the full text and highlights the enforcement date: 1 April 2024. This means that from this date onwards, any failure to maintain proper books could attract penalties of up to 10% of the assessed loss.

3. How to Build a Robust Book of Account

3.1 Choosing the Right Tool

While a simple Excel sheet may suffice for a beginner, the article advises that traders with heavy volume should opt for:

• Broker‑provided trade analytics: Many brokers (e.g., Zerodha, Upstox) now offer downloadable “Trade History” in CSV format that can be imported into a ledger.
• Professional bookkeeping software: QuickBooks or Xero allow you to set up multiple accounts for futures and options, facilitating automatic calculations of net P&L.

3.2 Daily Entry Requirements

• Mark‑to‑Market (MTM): Record the daily MTM value of each position.
• Margin Calls: Note the amount of margin added or withdrawn and the date.
• Settlement: For physical delivery positions (e.g., gold futures), record the settlement date and the realized gain/loss.

3.3 Monthly Consolidation

• Reconcile: Verify that the sums in your ledger match the broker’s monthly statement.
• Tax Calculation: Compute the net loss (or gain) for the month and carry it forward to the annual tax return.

3.4 Annual Summary

• Summary Sheet: A single sheet summarizing the cumulative net loss for the financial year.
• Documentation: Attach copies of the year‑end brokerage statement, margin statement, and any tax computation.

The article provides a sample template (linked under “Sample Ledger”) that illustrates exactly how the columns should be populated. Using this template can reduce the risk of errors that the Income Tax Department might flag.

4. Common Pitfalls and How to Avoid Them

5. The Bigger Picture – Why This Matters

For the average retail trader, the idea of “carrying forward losses” may feel abstract. But in practice, it means:

• Tax Efficiency: A net loss of ₹2 lakhs in F&O for FY 2023‑24 can offset ₹2 lakhs of any other income, reducing your tax liability by roughly ₹60,000 (assuming a 30% tax bracket).
• Risk Management: A well‑maintained book provides insights into which strategies are consistently losing money, allowing you to tweak or abandon them.
• Compliance Confidence: With SEBI’s enforcement tightening, a clean book gives you peace of mind and protects against audits and penalties.

6. Further Reading – The Links You Should Click

1. Income Tax Act – Section 34(1)(i)(b) – For the exact statutory language on loss carry‑forward.
2. SEBI (Futures and Options) Regulations, 2023 – Full text of the regulatory requirement on books of account.
3. Sample Ledger Template – The downloadable Excel file provided by Moneycontrol’s article.
4. Tax Loss Carry Forward – How it Works – Moneycontrol’s in‑depth guide on the tax mechanics.

These resources reinforce the article’s practical tips and give you a solid legal foundation for your trading activities.

7. Take‑Home Message

Futures and options trading isn’t just about making a quick profit. It’s also about managing tax liabilities and staying compliant with SEBI. The key take‑aways are:

• Carry‑forward: You can carry forward F&O losses for up to seven years, provided you maintain a proper book.
• Book of account: SEBI mandates that brokers and clients keep a detailed ledger of all trades.
• Document everything: From daily MTM to margin calls, every detail matters for both tax and regulatory compliance.
• Audit annually: A yearly audit by a qualified CA helps you avoid penalties and ensures that your loss deduction is recognized.

By setting up a systematic bookkeeping process today, you’ll not only safeguard your tax benefits but also build a robust framework for long‑term trading success.