Accounting and Taxation of Derivatives
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XIII — Common Derivatives
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Learn these topics
More units in NISM Series XIII
- Basics of Derivatives (Equity, Currency and Interest Rate)6
- Introduction to the Underlying Markets24
- Introduction to Forwards and Futures20
- Strategies Using Futures24
- Introduction to Options – Options on Equities and Currencies22
- Option Trading Strategies – Strategies using Equity Options and Currency options4
- Introduction to Trading, Clearing, Settlement & Risk Management25
- Legal and Regulatory Environment14
- Sales Practices, Code of Conduct and Investor Protection Measures5
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XIII Common Derivatives
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 6 questions on Accounting and Taxation of Derivatives, with answers
Q1What does fair-value measurement of an outstanding derivative aim to reflect?
Option A. Only the original contract entry price forever
Why it is wrong: Original entry price may differ from current fair value.
Option B. The underlying company's authorized share capital
Why it is wrong: Authorized share capital does not determine derivative valuation.
Option C. Only the income-tax rate applying to the trader
Why it is wrong: Tax rates do not define derivative fair value.
Option D. Its estimated value at the measurement date — Correct answer
Answer: D. Fair-value measurement aims to reflect the derivative's value at the relevant reporting date under applicable accounting standards. Remember: Derivative values can change before closeout.
Hint, shown before you answer in practice mode: Common mistake: Do not freeze an open contract at its entry price. Focus on valuation at a reporting date.
XIII-140easyconceptual
Q2What is an unrealized gain on an open derivative position?
Option A. Cash already received from closing out the entire position
Why it is wrong: A fully closed profitable trade generally realizes its gain.
Option B. A guaranteed tax exemption on the position
Why it is wrong: A gain is not automatically tax exempt.
Option C. An increase in value before the position is closed or settled — Correct answer
Option D. A fixed fee paid for account maintenance
Why it is wrong: Maintenance charges are not investment gains.
Answer: C. An unrealized gain is an increase in a position's value before final realization, subject to accounting treatment. Remember: Open positions can show unrealized gains or losses.
Hint, shown before you answer in practice mode: Common mistake: Accounting recognition can occur before cash realization. Think about gains that exist on paper before closing.
XIII-141easyconceptual
Q3A long derivative is initially valued at ₹10 per unit and later at ₹14. What is its unrealized gain per unit?
Option A. ₹24
Why it is wrong: ₹24 adds values instead of finding a change.
Option B. ₹4 — Correct answer
Option C. ₹14
Why it is wrong: ₹14 is the current value rather than the gain.
Option D. −₹4
Why it is wrong: −₹4 reverses the sign of the increase.
Answer: B. Unrealized gain = ₹14 − ₹10 = ₹4 per unit, before accounting adjustments and costs. Remember: Fair-value movement compares two measurement dates.
Hint, shown before you answer in practice mode: Common mistake: Do not mistake current position value for profit. Compare current value with the earlier carrying value.
XIII-142mediumnumerical
Q4Under the Income-tax Act, 2025, how are qualifying exchange-traded securities-derivative transactions generally classified?
Option A. They are excluded from the definition of speculative transactions — Correct answer
Option B. They are always treated as untaxed gifts
Why it is wrong: Derivative trading profits are not automatically gifts.
Option C. They are automatically exempt from all income tax
Why it is wrong: The exception does not exempt all income from tax.
Option D. They are always speculative regardless of how they are traded
Why it is wrong: Qualifying exchange trades receive an express exception.
Answer: A. Section 66(31), read with section 66(33) of the Income-tax Act, 2025, excludes qualifying specified derivative transactions from speculative transactions. Remember: Tax classification depends on statutory eligibility criteria.
Hint, shown before you answer in practice mode: Common mistake: Non-speculative does not mean tax-free. Look for the statutory exception for eligible exchange transactions.
XIII-143mediumregulatory
Q5Which record is specifically relevant to the Income-tax Act's eligible exchange-derivatives transaction conditions?
Option A. An oral promise from an unrelated trader
Why it is wrong: An oral promise does not document the specified exchange transaction.
Option B. A handwritten prediction of next week's market direction
Why it is wrong: A market forecast is not execution evidence.
Option C. An unsigned document with no transaction identity
Why it is wrong: An unsigned note without details lacks required support.
Option D. A time-stamped contract note with required client details — Correct answer
Answer: D. The statutory eligible-transaction conditions refer to time-stamped contract-note evidence with prescribed details. Remember: Proper contract notes matter for transaction evidence.
Hint, shown before you answer in practice mode: Common mistake: Do not substitute a profit screenshot for required records. Think about verifiable evidence of a regulated exchange trade.
XIII-144mediumregulatory
Q6A company holds 200 long futures units at ₹120. The reporting-date settlement is ₹114. Before other adjustments, what mark-to-market result is recognized?
Option A. A gain of ₹1,200
Why it is wrong: A falling price does not give this long a gain.
Option B. A loss of ₹1,200 — Correct answer
Option C. A loss of ₹6
Why it is wrong: A loss of ₹6 ignores quantity.
Option D. A gain of ₹22,800
Why it is wrong: ₹22,800 is the closing notional value, not profit.
Answer: B. Change = ₹114 − ₹120 = −₹6 per unit. For 200 units, MTM = −₹1,200. Remember: Mark-to-market can recognize a reporting-date loss.
Hint, shown before you answer in practice mode: Common mistake: Notional contract value is not the accounting gain or loss. Measure the signed change in a long futures position.
XIII-145hardnumerical
Accounting and Taxation of Derivatives: common questions
How many practice questions are there on Accounting and Taxation of Derivatives?
6 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series XIII, which has 150 questions in total.
Are these real NISM Series XIII questions on Accounting and Taxation of Derivatives?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XIII?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Sales Practices, Code of Conduct and Investor Protection Measures
5 questions on Sales Practices, Code of Conduct and Investor Protection Measures. Its quiz opens on that unit.
Open Sales Practices, Code of Conduct and Investor Protection MeasuresPaper Trading Try it on the practice trading desk