Unit study guide · NISM Series VIII
Accounting and Taxation
9 questions in this unit
What this unit covers
- For an equity option that is sold on a recognised stock exchange and is not exercised, the STT on the sale side is calculated with reference to:
- For the sale of an equity futures contract on a recognised stock exchange, STT is levied with reference to:
- For a person carrying on exchange-traded equity F&O activity as a business, an eligible derivative transaction executed on a recognised stock exchange is generally treated for income-tax purposes as:
- A taxpayer has a valid non-speculative business loss from F&O trading and files the return on time, so the loss can be carried forward. For how many years after the year of the loss can it generally be set off?
- A trader closes two futures transactions during the year: one produces a favourable difference of ₹1,200 and the other an unfavourable difference of ₹800. Using the commonly applied ICAI method of aggregating absolute favourable and unfavourable differences, what turnover do these two futures trades contribute?
- For the compulsory tax audit of a business, what turnover threshold applies when cash receipts and cash payments are each no more than 5% of their totals?
- Assume an individual is carrying on F&O trading as a business. Which expense is the clearest example of a cost that may be claimed against business income, subject to normal deductibility conditions and supporting records?
- With effect from 1 April 2026, what is the STT rate on the sale of an option in securities, applied to the option premium?
- With effect from 1 April 2026, what is the STT rate on the sale of a futures contract in securities, applied to the traded price/value?
Key ideas
From the practice bank · 1
For an equity option that is sold on a recognised stock exchange and is not exercised, the STT on the sale side is calculated with reference to:
For the sale of an option in securities, the base is the . A separately specified rule applies when an option is exercised, where the taxable base is tied to under the current law. Remember: Distinguish the STT tax base from profit, and contract notional.
Hint Common mistake: Applying the STT rate to the notional for every option sale.
VIII-089From the practice bank · 2
For the sale of an equity futures contract on a recognised stock exchange, STT is levied with reference to:
The futures STT is a transaction tax applied on the sale-side traded value at the prescribed rate. It is not calculated from the trader's eventual profit, margin amount or brokerage bill. Remember: STT is transaction-based. Do not confuse its base with P&L or margin.
Hint Common mistake: Calculating futures STT on the trader's net profit.
VIII-090From the practice bank · 3
For a person carrying on exchange-traded equity F&O activity as a business, an eligible derivative transaction executed on a recognised stock exchange is generally treated for income-tax purposes as:
Income-tax law contains a specific exception under which an eligible derivative transaction carried out on a recognised stock exchange is not deemed to be a speculative transaction. For a trader carrying on such activity as business, the resulting F&O profit/loss is therefore generally treated as non-speculative business income/loss, subject to the facts and statutory conditions. Remember: Tax terminology differs from trading terminology: a directional F&O trade can be economically speculative while still being 'non-speculative' business for income-tax classification.
Hint Common mistake: Assuming the everyday word 'speculation' automatically determines the Income-tax Act classification.
VIII-091From the practice bank · 4
A taxpayer has a valid non-speculative business loss from F&O trading and files the return on time, so the loss can be carried forward. For how many years after the year of the loss can it generally be set off?
A qualifying non-speculative business loss can generally be carried forward for eight assessment years immediately succeeding the assessment year for which the loss was first computed, subject to the statutory conditions including the return-filing requirements for carry-forward. Remember: For ordinary non-speculative business loss, remember eight assessment years, subject to the conditions for valid carry-forward.
Hint Common mistake: Confusing the period for speculative loss with the period for non-speculative business loss.
VIII-092From the practice bank · 5
A trader closes two futures transactions during the year: one produces a favourable difference of ₹1,200 and the other an unfavourable difference of ₹800. Using the commonly applied ICAI method of aggregating absolute favourable and unfavourable differences, what turnover do these two futures trades contribute?
Under the commonly applied ICAI approach for derivative turnover, favourable and unfavourable differences are aggregated in absolute terms. Therefore, turnover contribution = ₹1,200 + ₹800 = ₹2,000. This question contains only futures differences, so no separate option-premium issue is introduced. Remember: Derivative turnover for this method uses absolute differences, not the net profit or loss.
Hint Common mistake: Netting profit and loss before computing turnover.
VIII-093From the practice bank · 6
For the compulsory tax audit of a business, what turnover threshold applies when cash receipts and cash payments are each no more than 5% of their totals?
The business tax-audit threshold is enhanced to ₹10 crore where the prescribed cash-receipt and cash-payment conditions are both satisfied. Whether a particular taxpayer requires audit can also depend on other provisions and facts, so this question tests only the stated turnover threshold. Remember: For the low-cash Section 44AB condition, both the receipt and payment tests matter.
Hint Common mistake: Checking only cash receipts and forgetting the cash-payment condition.
VIII-094From the practice bank · 7
Assume an individual is carrying on F&O trading as a business. Which expense is the clearest example of a cost that may be claimed against business income, subject to normal deductibility conditions and supporting records?
Ordinary expenses incurred wholly and exclusively for the F&O business—such as brokerage and exchange transaction charges—can generally be considered under normal business-expense rules, subject to the specific tax provisions and documentation. Purely personal expenditure is not converted into a business deduction merely because the taxpayer also trades. Remember: Deductibility depends on business nexus and the specific tax rule, not simply on who paid the expense.
Hint Common mistake: Treating personal spending as deductible merely because the taxpayer has business income.
VIII-095From the practice bank · 8
With effect from 1 April 2026, what is the STT rate on the sale of an option in securities, applied to the option premium?
The 2026 tax amendment increased STT on the sale of an option in securities to 0.15% of the option premium with effect from 1 April 2026. A separate 0.15% rule applies to the intrinsic-value base when an option is exercised. Remember: From 1 April 2026: option sale STT = 0.15% of premium.
Hint Common mistake: Using the futures rate (0.05%) for options.
VIII-101From the practice bank · 9
With effect from 1 April 2026, what is the STT rate on the sale of a futures contract in securities, applied to the traded price/value?
The 2026 tax amendment increased STT on sale of futures in securities to 0.05% of the traded price with effect from 1 April 2026. Remember: From 1 April 2026: futures sale STT = 0.05% of traded value.
Hint Common mistake: Swapping the option rate and futures rate.
VIII-102Securities Transaction Tax (STT) is a statutory tax the Government of India levies on purchases and sales of securities.
Read moreIntrinsic value is the part of an option's premium that would survive if the contract expired at this instant.
Read moreMargin is the money a participant must keep in place to carry a leveraged position.
Read moreThe strike price is the level at which an option can be exercised.
Read more